This statement by US Justice Oliver Wendell Holmes, is chiselled into the portico of the IRS building in Washington.
It is a statement of the blindingly obvious!
No country can run its social and civic affairs without being able to pay for them, and without taxation of various forms, such services and facilities disappear, or never exist in the first place.
The principle is that all those individuals who earn money in the jurisdiction concerned should pay a percentage of tax to contribute to the effective running of the social infrastructure. This includes income tax levied against employed individuals, Corporation Tax, which is levied against the profits of companies who sell goodsd and services and who run their affairs here, Value Added Taxes and other payments which are mandated by Parliament.
Increasingly, in these straightened times, it has become fashionable for wealthy people, highly profitable companies, and those who want to reap all the benefits of a civilised society but who do not wish to pay for them, to assert their rights to avoid paying tax. These individuals and companies use a variety of dubious arguments to back up their morally-doubtful assertions.
Most recently, Starbucks has threatened to suspend millions of pounds of investment in Britain after what it described as constant and unfair attacks over its tax affairs by the Prime Minister and the Government.
Starbucks UK managing director, Kris Engskov, recently demanded talks at Downing Street after the Prime Minister said tax-avoiding companies had to “wake up and smell the coffee”. Mr Cameron’s use of the phrase at the World Economic Forum in Switzerland last week was taken as a direct attack on Starbucks which has been criticised for not paying corporation tax in Britain.
The US coffee chain has found itself under regular attack after it was disclosed that since its arrival in Britain in 1998, it has paid £8.5 million in corporation tax, despite total sales of £3 billion. It said last month it had made a profit in only one year.
Mr Engskov was so concerned about the “politicisation” of the tax issue that he asked for the talks at No 10, where he met officials last Friday. Starbucks argues that it makes no profits in the UK and so is not required to pay the tax.
“The PM is singling the business out for cheap shots, a company that, it should not be forgotten, has pledged to pay tax now and into the future,” said a source close to the firm.
David Cameron conversely, has said that companies like Amazon and Starbucks which avoided tax lacked “moral scruples”.
Well, now one of the UK’s top accountants has joined the chorus of whining against attacks on corporate tax avoidance by politicians, by telling the authorities to change the law if they are unhappy with the ethics.
Responding to calls for companies to “pay their fair share”, Mark Otty, Ernst & Young’s managing partner for Europe, Middle East and Africa, claimed that companies had a duty to pay the lowest rate permitted.
This is one of the many ludicrous arguments put forward by people like Otty, whose sense of judgement about what is moral and what is purely legal has led them into a maze of twisted logic. Companies, they argue, owe a primary duty to their shareholders, and must therefore seek to maximise their profits in order to return shareholder dividends. To achieve this they must take stringent steps to avoid paying tax wherever possible.
In order to achieve this desirable state of affairs, they will create a series of artificial structures and constructs, through which, they will claim, the company is required to conduct its business affairs. The fact that these constructions are entirely artificial and bear no resemblance to reality is neither here nor there. They are created merely to provide a series of fiscal hurdles which the company must overcome in order to conduct its business. In so doing it claims relief against tax levies because of the need to comply with these artificial structures.
Most if not all of these tax advisers keep as their mantra, a statement made by a Scottish Judge, Lord Clyde when he said;
"... No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue..."
The fact that the noble Lord made this statement which identifies a very laissez-faire attitude towards the relationship between the tax-payer and the State, is no doubt reflected by the fact that it was made in the case of Ayrshire Pullman Motor Services v Inland Revenue 14 Tax Case 754, at 763,764, in 1929.
Things have changed a significant amount since those pre-war days, and I doubt it very much that any judge sitting today would be willing to make statements of such a liberal slant! However, it is perhaps indicative of the distance from contemporary reality that so many tax planners share that they would think that such a statement is still justifiable.
Mark Otty's intervention follows Starbucks’ threat to suspend millions of pounds of planned investment in the UK if the attacks continue. Goldman Sachs chief executive Lloyd Blankfein has also warned that the row risks stigmatising “every right-thinking person who organises his or her affairs in a sensible way”.
Otty observed: “The only way you can resolve this issue is through a legal code. I don’t see how you can have any assessment on payments of tax other than what is in the statute. The simplest solution is to stop banging on about morality and change the law. ”
Public anger has mounted at the way global companies such as Google, Starbucks and Amazon move profits from one country to another to lower their tax rate. While the behaviour is not illegal, MPs have called it “immoral”.
So how does Starbucks engage in this so-called 'legal' behaviour.
Accounts filed by its UK subsidiary show that since it opened in the UK in 1998 the company has racked up over 3 billion pounds ($4.8 billion) in coffee sales, and opened 735 outlets but paid only 8.6 million pounds in income taxes, largely due because the taxman disallowed some deductions.
Over the past three years, Starbucks has reported no profit, and paid no income tax, on sales of 1.2 billion pounds in the UK.
Starbucks makes its UK unit and other overseas operations pay a royalty fee - at Starbucks, of six percent of total sales - for the use of its ‘intellectual property' such as its brand and business processes. These payments reduce taxable income in the UK.
McDonald's also charges its UK subsidiary a royalty for ‘intellectual property', although at a lower rate of 4-5 percent.
The tax advisers are constantly dreaming up new schemes with which to reduce the tax-take, but what they do is transparently artificial, and bears no resemblance to any real business commercial structure. They like to argue that they are enabling business to grow and develop new jobs, but in reality, they are merely enabling these businesses to relocate millions of pounds worth of profit, on which tax should be paid, and hide it in some benevolent tax haven.
They are assisting, advising and encouraging wealthy individuals and businesses in ways of hiding monies which should be subjected to tax treatment, thus denying the state access to the money which it needs to maintain a civilised society. The only way that these wholly deceitful schemes stay in the zone that enables them to be called 'legal' is that they have to be reported to the HMRC before they are used. So, being declared to the Revenue, enables them to stay just 'legal' all the time that HMRC have to spend evaluating them, which can take time, considering how many schemes they have to review. The great irony is that in virtually all the cases that are reported, HMRC determine them to be illegal and do not allow them for tax-savings purposes. So this is nothing more than buying time for rich people to hive off a chunk of taxable earnings until they too are declared illegal.
This is just time-deferred tax evasion by any other name, and it sucks!
Will the big tax advisors stop engaging in this rich man's game of taxation roulette? Not a bit of it, they are making too much revenue out of it and earning fortunes for themselves. What is even more ironic is that they get invited in by HM Treasury to advise on new financial proposals and how their tax treatment should be viewed, and then they go back to their firms, and expand their practices advising clients on the new proposals! At a time of austerity, when everyone in the country is supposed to be working together for the common weal, and making sacrifices, these advisors are actively working against the fiscal interests of the UK - they are openly damaging the fabric of the body-financial - and they should be treated as fiscal terrorists. They are no different from those who would seek to damage and undermine the fabric of our democratic society by planting bombs, except they are creating even more financial damage by their actions, and we should know them for what they are.
So, I have a 'modest proposal' to advance for ways to treat these companies who seem to feel it is perfectly permissible to wave their tax avoidance policies in our faces. My proposal is that they should be denied any of the benefits which provide our country with a civilised underpinning. Taxes help to build hospitals, schools, and other public facilities. They help to maintain law and order, they pay for defence, and they provide the infrastructure on which the country is organised.
If they don't want to pay taxes, then these companies should be denied policing services, if they suffer criminal losses, let them sort them out themselves. If they need the fire service, they will attend but primarily to ensure that the fire does not damage adjacent premises, and at the end when the fire is under control, they will be sent a bill for the costs incurred.
I am certain that it is not beyond the wit of man to identify other tax-supported services which could be denied to these businesses, if they refuse to pay tax at a transparent and fair rate. In the banking world, banks who provide such services to clients should be placed on a list of entities whose chief executives and Chairmen never receive awards, gongs or knighthoods, and the same goes for the major accounting firms who specialise in these offerings. If you help others to cheat on their lawful taxes, you will pay in other ways. Bankers and accountants, and lawyers love these putty medals, and seats on quangos and advisory boards, and if they are involved in facilitating tax cheating in these ways, then let them do so at their peril.
We all have to pay tax, there is nothing so inevitable as Benjamin Franklin advised us. None of us like doing it, but it is necessary to maintain a civilised environment. If people want to find a jurisdiction where the rich don't pay tax, and where it has virtually reached a stage where the Government openly turns a blind eye to the actions of the wealthy in avoiding payment, try living in Pakistan for a while, and see how much you like it, I have been there quite a lot, and I know!