Tax Avoidance - Debate Easily Resolved - Assignment Example

Tax avoidance; a debate easily resolved? It has often than not been said that there are only two things we can never escape in life; that is tax and death. It is also contradictory that every man would be happy if they were not subjected to the obligation of paying tax. It is not an enjoyable thing but it is a must thing. This view has always resulted into several views and tax related crimes like tax evasion and even avoidance. Such acts have the tends to reduce the amount of tax that any given individual pays. Therefore, with these entire issues, how would we approach the subject of tax avoidance as an ending debate? According to, European Commission: Consultation on Double Non-Taxation Cases. (2012, May 1), tax avoidance is an approach where individuals use the legally provided tax policies to reduce the burden of taxation on them. In as much as such act is legal we will find that morally it is repugnant. In addition, the UK law tries as much as possible to minimize the loopholes that individuals are likely to use in tax avoidance schemes. The challenge though has been the sheer fact that the UK tax law is targeted as opposed to being purposive. There has been a consistent crop up of schemes that go around the law and these have further fueled legislative action. It is in record that so many commentators have advocated for the formulation of legislations to counter tax avoidance in general. This has been fueled by the fact that the establishment of the GAARs would ensure that efforts by the public to avoid taxation are thwarted (Freedman 2004). This further ensures that the taxpayer and the lawmakers divert their energies and efforts to other more productive activities. The tax authority is as well given the chance of being in the position of simplifying the law without being undermined. Among many other things, tax avoidance has been viewed to as well be an ethical issue in business. Companies have been found to seek for the minimization of their tax liabilities as a part of good governance through tax planning. They do so by making use and exploiting all the tools made available to them by the governments of the day (Sikka 2013). Such tools include allowances given, deductions advanced, and rebates. While tax planning is an open, convenient and compliant behavior, tax avoidance is a complex issue for most companies in the UK. Tax avoidance is a legitimate and it is the use of tools such as financial instruments to achieve tax desires that are favorable to the taxpayer while unanticipated by the government. Companies can employ the use of overseas tax heaven as a way to avoid paying tax. Discussions have always revolved around how such activities and behaviors by companies affect corporation taxes with the effects even silt to other taxes like VAT (Freedman, Loomer & Vella 2009). As opposed to tax evasion which is illegal, tax avoidance has never been viewed as illegal in the eyes of the law despite the fact that the avoidance of taxation by way of bending the rules of tax being viewed as working under the letter of the law as opposed to the spirit of the law. Ethics comes in when we look at the approach employed by businesses in interpreting the laws concerning how they should be taxed while at the same time remain legally relevant in their operations. Based on this approach, many have viewed tax avoidance as an immoral and unethical practice that goes against the integrity of a given taxation system. This is because it has the effects of reducing the actual amounts that should be paid by an entity hence denying the population of he so much needed services from the government. It has to be noted that it is from the taxes that we pay to the government that we are able to receive quality provision of services (Sikka 2013). Therefore for the sake of the social good of everyone in the society, individuals and corporates as well as other small business have the obligation to pay taxes. Tis ensures that funds are available for the provision of services such as healthcare, education as well as the public investment in infrastructure irrespective of whether the economy is developed or not. This has been seen at such times when the cut in government spending have a soaring impact on the lives of the citizens and in such times blame has always been directed towards the multinationals that do not pay a fair share of their UK taxes (Sikka 2010). The public perception of tax avoidance is seen as an avoidance of social obligation and it has vast and serious impacts on most companies. Some companies have been left vulnerable when they have faced brandings such as those for being selfish and greedy and this has always gone a long way in damaging the reputations of such corporations hence reducing the [public trust in them (Freedman 2004). Reduced public trust directly results into reduced capacity to operate due to reduced demand for the company’s products. In such instances the companies have normally undergone through periods of heavy losses. This though does not impact much on the operations of such companies. In the recent past it has been leaked that the most successful corporations in the UK do not pay corporation taxes locally or if they do they pay the minimum (Freedman, Loomer & Vella 2009). According to the records of Her Majesty Revenue and Customs, there is a wide margin of tax between the amount that should be paid and what is actually paid to a tune of 4.1 billion pounds. This is because most of the corporations have refused t comply with the spirit of the law when it comes to paying taxes. According to the Action aid report of the year 2011 FTSE100 companies are the notorious when it comes to tax avoidance through the use of tax havens with over 98 companies having been reported to have used the same in avoiding taxation. A negative public attitude has been witnessed due to these and advocacy has been seen coming from campaign and public interest groups such as the public justice network. The rage from the public even went higher in the year 2012 (Freedman 2012). Most of the UK citizens think tax avoidance is the next business ethics issue that most businesses need to address. As an easy way to ensure that the nightmare of tax avoidance is resolved most so by business organizations in the UK, the public lays it clear that businesses must be made to pay their fair share of taxes (Hasseldine and Morris 2013). The UK government must as well ensure that their firms located in other countries pay their taxes in such countries in the required manner. The HMRC must not just talk of fairness but ensure the same is adhered to. To ensure that the mystery behind tax avoidance is a thing of the past, due to the negative public mood towards this vice. The judicial, legislative and the administrative approaches have all been brought on board to counter the vice. Legislation towards this is divided into two; those to ensure the way a tax system deals with respective agreements or transactions and that which bring TAARs on board. The former works in a way that ensures that rules change incrementally as it tackles one problem after the other. These rules have been used to realize stiff distinctions to aid in tax planning in an effort to help alleviate tax avoidance (Freedman 2012). Among these was the abolition of the advance corporate tax that took place in the year 1998. On the other hand the introduction of the TAARs has ensured that the taxpayer is in the position of knowing their real costs when it comes to payment of taxes. They are further able to know whether the commercial transactions that they engage in conform to the requirements of the respective TAARs (Cooper 1997). More general motive TAARs have been considered by most of the participants in the OUCBT as being too vague, and this have been considered to be a threat to the respective commercial transactions. More widely drafted anti-avoidance rules are against the principles of effectiveness, efficiency and hence less attractive for businesses whose main intentions are to be served by a simpler and less complex taxation system, this is according to, Tax Avoidance. (n.d.). Through advancement in jurisprudence in all areas of law, there has been an emphasis in the change by the judiciary of the manner in which they should handle tax avoidance issues and cases. This is despite the validity of the older cases such as that of Furniss v. Dawson. According to, Tax Avoidance Robbing Britain of [Pounds Sterling] 5bn a Year, (2012, November 21), rulings in the docs do not however apply doctrines that are clearly repugnant. The judicial systems are required to employ the use of cases that employ the use of parliamentary purpose in making the rulings towards cases. In the past it was the duty of the courts to define the roles of statutes a situation which has since changed; this role is simply seen as important currently. As written by Lord Hoffman that, ‘The primacy of the construction of the particular taxing provision and the illegitimacy of rules of general application has been reaffirmed by [Barclays Mercantile]. The judge reiterated the fact that there is no form of anti-avoidance that has been written by the courts. According to, Tax avoidance, tax evasion: a survey of the treatment of tax avoidance and tax evasion in the main industrialized countries of the world. (1982), the administrative approach takes the path of defining the relationship that exists between the taxman and the business organizations. The resolutions that are followed by this form of rule are for instance the “Risk Rating” approach of business organizations. It gives a clear description of the extent to which companies can allow for intrusion into its taxation affairs by the tax authority (Hasseldine and Morris 2013). This approach was meant to act as an incentive towards the taxpayer in an administrative way by way of providing a transparency in their dealings concerning taxation. His is though not effective since it has no way of ensuring companies completely changed their behavior (Cooper 1997). Companies through their tax managers are known to always be involved in cost-benefit analysis calculations and in the event they realize that the cost of adhering to the rules by the HMRC are more than their desired revenue realizations, they are unlikely to change their behavior. According to, Canadas New Tax Avoidance Transaction Reporting Regime.. (2011, January 26), other approaches have been like those of introducing GARRs and the way to draft such rules has been a subject of controversy. GAAR has ensured that a review of the Finance Act is conducted at least from the year 1997 all through to the year 2008. GAARs have as well come with a lot of challenges; these provisions are known to be able to counter some tax avoidance transactions while on the other hand they are unable to provide a complete answer to tax avoidance (Maas 2013). The other concept or provision is the abuse of law provision which is familiar to many civil law jurisdictions. The principle is widely used since it has been found to apply in the case of most countries within the European Community. According to, Accounting for changes to the imputation system of taxation, (United Kingdom taxation standards), (1998, February 1), tackling tax avoidance may be an endless debate given the complexity of the matter itself. The problem starts right from the definition of this term and therefore the first way to end this debate is the provision of a clear definition of this element and then we would follow this by the elimination of the boundaries within the tax system of most countries. In the past so many years neither legislation nor the judiciary has proved to be an effective and efficient way of tackling tax avoidance (Mo 2003). Instead, such advances have only lead the tax systems to even become more complex hence more costly to both the tax payer and the government. Irrespective of the approach taken to handle tax avoidance, the debate will only be conclusive if there is a full engagement in the consultative process. This should go a long way in allowing all the affected parties to participate properly. The introduction of rules should go the full length procedure and their introduction must never be hastened. The introduction of the principle based drafting by the government is therefore something that is much in place. This is because of the fact that it will help deal with any malice and hence deal with the scourge of tax avoidance more conclusively and in a sustainable way. References Accounting for changes to the imputation system of taxation, (United Kingdom taxation standards), (1998, February 1), Management Accounting, 1, 25-29. Canadas New Tax Avoidance Transaction Reporting Regime, (2011, January 26), Mondaq Business Briefing, p. 12. Cooper, GS, 1997, Tax avoidance and the rule of law, IBFD Publications in association with the Australian Tax Research Foundation: Amsterdam, The Netherlands. European Commission: Consultation on Double Non-Taxation Cases, (2012, May 1), Tax Executive, 1, 12-14. Freedman J, 2004, Defining taxpayer responsibility: in support of a general anti avoidance principle, British Tax Review, 332-357 Freedman J, Loomer G, Vella J, 2009, Corporate tax risk and tax avoidance: new approaches, British Tax Review, 74 - 116 Freedman J, 2012, Editorial GAAR as a process and the process of discussing the GAAR, British Tax Review, 22-27 Hasseldine J and Morris G, 2013, Corporate social responsibility and tax avoidance: A comment and reflection, Accounting Forum, 37, 1-14 Maas R 2013, Looking for Avoidance, Taxation, 28 February 2013 (available via Lexislibrary) Mo, PL, 2003, Tax avoidance and anti-avoidance measures in major developing economies. Westport, Conn.: Praeger. Sikka P, 2010, Smoke and mirrors: Corporate social responsibility and tax avoidance, Accounting Forum, 34, 153-168 Sikka P, 2013, Smoke and mirrors: Corporate social responsibility and tax avoidance – A reply to Hasseldine and Morris Accounting Forum, 37, 15-28 Tax Avoidance, (n.d.), Taxation Rules and Regulations, Retrieved March 25, 2014, from http://www.tax.org.uk Tax Avoidance Robbing Britain of [Pounds Sterling] 5bn a Year, (2012, November 21), Daily Mail, pp. 23-27. Tax avoidance, tax evasion: a survey of the treatment of tax avoidance and tax evasion in the main industrialized countries of the world. (1982). London: International Bar Association in co-operation with Sweet & Maxwell. Read More