There is a very clear distinction between tax avoidance and tax evasion from academic publications. Tax books have defined tax avoidance as “the lawful minimization of tax liability through sound financial planning techniques, while tax evasion is the “unlawful attempt to minimize tax liability through fraudulent techniques to circumvent or frustrate tax laws”. The consequences of either action are also clear. The former is not punishable by law while the latter is. However, the lines between evasion and avoidance have become blurred between the government and the general public.
In an academic publication, tax revenues are denoted as “the lifeblood of the social contract, vital to the development and maintenance of physical infrastructure and to the sustenance of the infrastructure of justice that underpins liberty and the market economy” (Hutton, 2002:75). However, it seems that the majority of multinational corporations have been structured in such a way that enables and promotes tax avoidance in its operations. Christensen and Murphy have argued that Corporations should be more socially responsible regarding this and refrain from using profit-laundering vehicles created without substantial economic purpose.
The main issue stems from the complex tax structure currently in place. The government has recognised the complexities in tax law and it has also identified that these complexities have increased to a point where the burden for taxpayers in complying with the law has become a real issue. A report from a professional services firm has found that 61% of companies in the UK are unclear about the distinction between legitimate tax planning and tax avoidance. Furthermore, the government’s anti-avoidance legislation is the added fuel this complexity. Moreover, it has been pointed out that the more detailed the rules, the better the opportunity there could be to find and exploit loopholes.
The government currently uses legislative, judicial and administrative approaches in its anti-avoidance arsenal. The issue of complexity arises from the fact that the legislative changes are incremental, only tacking one problem after another rather than tackling the fundamental underlying problems that need changing. It is argued that this piecemeal approach often gives rise to distinctions or boundaries in the tax rules, which feed the tax avoidance planning. This approach is reactive rather than proactive producing complex and unwieldy systems that leave loopholes.
UK uncut, a protest group who forced the Arcadia Group’s flagship Topshop and BHS stores to temporarily close has accused the government of making massive cuts to public services, while letting rich individuals and corporations avoid billions of pounds of tax and urges members of the public to join them in their crusade against these wealthy tax avoiders. UK uncut is intent on building powerful grassroots mass movements as a method of achieving their aims. It is clear that the UK Uncut movement is trying to bring tax avoidance in the same line as tax dodging, which is generally deplored by the public.
Tax avoidance strategies are completely legal in the UK. However, UK Uncut are arguing that these strategies are “immoral in such financially straitened times”. What the movement is trying to accomplish is to change public opinion regarding the social acceptability of tax avoidance strategies by wealthy corporations. In an interview by BBC Radio 4, UK Uncut spokesman, Murray Williams, said: “In a time when we're being told that we're all in this together and when we've all got to accept these harsh cuts to housing benefit and the NHS and take a hike in VAT ... trying to claim that these companies then don't have to pay their fair share of that too – I just don't think that's on."
From the point of view of the Arcadia group and other large corporations involved in the same activities, it could be argued that ‘the law is the law and all you have to do is comply...
References: Brittain-Caitlin, W, (2010), Creating an onshore nation is the only way to restore financial sovereignty http://www.guardian.co.uk/commentisfree/2010/dec/28/protests-tax-havens last accessed 22/02/11
Kho-Sy. E. 2009. THE LEGALITY OF THE ASSAULT ON TAX AVOIDANCE PRACTICES
IN THE PHILIPPINES
Murphy. R. 2011. Tax Research UK http://www.taxresearch.org.uk/Blog/2006/07/18/do-tax-practitioners-need-to-exercise-moral-judgement/ last accessed 10/02/11
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