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The confusion over tax avoidance

Tax avoidance and evasion have become hotly debated topics during the global financial crisis as governments have sought to maximise tax revenues as part of their deficit reduction drives. In the UK the debate has become increasingly shrill and unclear as revelations about multinational businesses not paying, what some politicians and members of the public perceive to be, a high enough proportion of tax, have dominated recent headlines. 

Margaret Hodge, a member of the British Parliament, has talked about businesses paying their “fair share” of tax and has said that tax avoidance is “completely and utterly and totally immoral.” The key phrase here is “fair share of tax”. There is no suggestion that any of the businesses talked about in the media recently are guilty of any wrongdoing, so what does Ms Hodge mean by “fair share”? To even accuse these businesses of being slippery goes too far. Multinational businesses are entitled - and expected by shareholders - to do all they can to minimise their tax liabilities. The problem with Ms Hodge’s remarks is that, in the eyes of the public, the distinction between legitimate tax avoidance and illegal tax evasion is being blurred, and this is leading to some unclear thinking. 

Despite what some people may think, few businesses and individuals plan to pay more tax than they absolutely have to. Businesses may have channelled revenues to countries with lower tax rates, but there is nothing particularly new about that practice. It is only now, in the grip of a public debt crisis, that politicians are looking to make political capital out of this issue. Let’s be clear: tax law is created by politicians. If they want businesses and individuals to pay more tax, they have it within their power to change the law. If there are loopholes that need to be closed, then they can close them. Complaining about businesses who fully comply with their tax obligations is part of a growing anti-business rhetoric in some Western countries. There is a serious debate here – such as whether tax law is biased in favour of multinationals at the expense of domestic entrepreneurs and individuals, for example - but we need to have that debate in a clear and reasoned manner, and dispense with some of the more woolly language of recent months.

Author

Jean M Stephens
Chief Executive Officer

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