This article offers a new theory of tax avoidance. It looks at the point when legitimate tax planning becomes tax abuse, and notes that from that point onwards – when tax advice deliberately creates ‘tax risk’ for the public authorities (i.e. the risk that, if challenged, the tax filing position would fail,) anti-social tax avoidance begins.
The author explains tax avoidance,
“extracts value from the public exchequer by seeking to withhold money, some of which should as a matter of law be paid into it.”
This is referred to as ‘risk mining’.
Studying existing ‘theory’ regarding tax risk management and using Amazon UK/Luxembourg tax structuring to illustrate, the article shows how tax avoidance is a category of tax risk management. It also explains damage exacted on the public purse through the effect of ‘financial transfers out of the public exchequer’.
Key findings
- The vast majority of tax planning, whether or not it merits the label ‘tax avoidance’ succeeds by default
- Only a test of the law can determine when tax advice, tax planning moves to the realm of tax avoidance, or aggressive tax avoidance.
- The belief that some tax avoidance activity is ‘perfectly legal’ may well be wrong when.
- Where a ‘tax risk’ is introduced through tax planning or other ‘it effects a financial transfer out of the public exchequer and into the hands of the taxpayer’.
Key recommendations
- Corporate tax discourse should acknowledge “that ‘tax risk management’ encompasses within it tax avoidance at any level of aggression”
- Responsible corporate tax behaviour must involve not only managing tax risk better, but avoiding practice in tax planning that ‘introduces tax risk factors or otherwise increases tax risk’.