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Tax: a subject best avoided?

by: (Associate Director, Research and Development) on

You really can’t move for the subject of tax at the moment.

Every day (well, certainly here in the UK) we have another story about which firms haven’t been paying much tax on their stratospheric incomes. That said, most are global firms with international reach, so there are definitely other jurisdictions with an interest (particularly the US it seems).

This week, Apple was caught up in it, with an appearance before a US Senate Committee.

Starbucks tax practices were highlighted earlier in 2013, as were those of Google and Amazon.

The general point seem to be that in times of Joe Public feeling the economic pinch, some of the major firms who are patronised by the general populous are not returning the favour.

But have they actually done anything ‘wrong’?

The Distinction

To be clear, I’m not an expert on tax and accounting matters. But from what I understand, the initial answer seems to be ‘no’.

Investopedia.com defines tax avoidance as “the use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits.”

By way of contrast, it defines tax evasion as “an illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability. Those caught evading taxes are generally subject to criminal charges and substantial penalties.”

So here, the distinction is essentially ‘is it legal?’ If so, away you go – use your most creative and knowledgeable Accountants and mitigate your liability.

But is it ‘Right’?

This is a different question altogether, and one which is now starting to lead the debate. PM David Cameron doesn’t think so, and opposition leader Ed Milliband is getting in on the act.

So again we come back to the ideas of culture and ethics. Bit of a theme in 2013. What do we want massive firms to do, and do we now take an interest since we’ve realised they’re seemingly not doing it?

Strictly speaking, tax isn’t an issue which we focus on in our courses (albeit the FATF have recognised tax evasion as a predicate offence for money laundering), but culture and ethics certainly are. And it is these aspects which the media and the public are picking up on.

What’s interesting is it is no longer just the Banks which are the focus of this, but any institutions where it seems that the cultural or ethical stance to issues such as tax, whilst apparently being quite legal, still seem questionable.

So we return to the conundrum of what is legal versus what is ‘right’.

Final thought - why are the two things not the same already?  

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