Richard Murphy is a fairly vocal campaigner on tax, and has the ear of a number of people in politics and the media, so I think it’s worth spending some time looking at his views.
He has a few definitions of tax avoidance, but generally sticks to the “against Parliament’s intention” line. But there’s rather more to it than that.
He’s drafted a bill for Michael Meacher MP. It uses “tax avoidance” to mean setting up a state of affairs such that the tax result doesn’t accord with the economic result, but then carves out anything that Parliament has explicitly ruled on as not being avoidance (as well as anything that wasn’t done to achieve a tax advantage). So far as I can tell that really takes us back to “Parliament’s intention”, and subordinates the economic result to that.
In his submission for Unite to the Labour Party he says:
“Tax avoidance is any action that involves taking steps to secure a tax advantage never intended by parliament. This means it is about avoiding the intention of the law – hence the name ‘tax avoidance’. This definition is important. What it means is that if a tax relief is specifically intended for use by parliament – like the tax free exemption on an ISA, or the tax relief on a pension contribution – then no one can say that claiming it is tax avoidance. Nor can businesses claiming the expenses that are properly incurred by them be tax avoidance. Those are things parliament intended.”
On his blog, he’s said:
“HM Revenue and Customs has suggested that tax avoidance is identified by “transactions or arrangements which have little or no ‘economic’ substance or which have tax consequences not commensurate with the change in a taxpayer’s (or a group of related taxpayers’) economic position.”
That’s not bad, but I prefer to compare tax avoidance, which is hard to define, with tax compliance which I find easier to define. Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes.
In that case tax avoidance happens whenever someone chooses a course of action which results in the wrong amount of tax being paid, in the wrong place and at the wrong time.”
I think he means “or” at the end there (otherwise paying the wrong amount of tax at the right time and place is not avoidance), but the meaning is fairly clear.
In a debate organised by Accountancy Age, he said:
“HMRC and I agree tax avoidance is about exploiting loopholes within and between laws in the UK and elsewhere to get a benefit parliament did not intend. So let’s have none of the ‘paying money into an ISA is tax avoidance’ stuff, please.
Second, let’s be clear what tax avoidance is in this case. It’s about working in the grey area of uncertainty where the law is unclear. So you can’t claim it’s legal, because no one knows that. Instead it’s about exploitation of uncertainty to free-ride the system.”
“Tax is a moral issue and always will be so because the law cannot be, and never will be, certain.”
On his blog, he adds:
“But remember – you can’t be avoiding tax if you claim a relief parliament intended – such as paying into an ISA. That’s still paying the right amount of tax. So, in that case avoidance always requires that you seek to go round the law – which is literally of course what to avoid something means.”
Unfortunately, as Tim Worstall comments on his own blog in this regard:
“He [Murphy] defines things that are specifically meant and intended in law as not being tax avoidance. Of course they’re not sez ‘ee. He then defines what Amazon and Starbucks are doing as tax avoidance.
But what Amazon does is indeed laid out in law. In the double taxation treaty: the use of warehouses and logistics chains does not lead to the creation of a permanent establishment. Therefore, although they are undoubtedly not paying tax as a result of the way that they have organised themselves this cannot be tax avoidance. For in Murphy’s definition of avoidance is the insistence that it is only the unanticipated or unmeant use of the law which can lead to such. And, of course, if the law says that warehouses don’t create a permenent establishment and a company uses warehouses but does not create a permanent establishment then this is the pure and simple use of the law exactly as it was intended.
Similarly with Starbucks over say royalties: the law (this time EU law) states that it is actually illegal for the UK to attempt to tax such royalties going to another EU country. Given that we really cannot conclude that sending royalties to another EU country is tax avoidance now, can we?
He’s simply blind to the fact that his own definition of tax avoidance means that a lot of what he’s complaining about is not tax avoidance.”
I’d rather not just assume that Murphy is being inconsistent: I’d rather assume that the apparent inconsistency just means that there are nuances in his views that need to be clarified. That would suggest that somewhere in there we have deeper meaning of “Parliament intended” than one would expect at first glance.
If Murphy is right that Parliament hadn’t intended Amazon to be able to sell from Luxembourg into the UK without having a taxable UK presence, then the clear letter of the law is not reflecting Parliament’s intention. Perhaps it’s because they hadn’t appreciated the ramifications of the wording: they intended to exempt warehouses up to a certain size, but didn’t anticipate the scale of Amazon’s operations. Or maybe a situation where the legislation seems clear but gives an unexpected result is just an example of what he meant about the law being inherently uncertain.
In either case even very clear wording in the legislation is not necessarily a good guide to Parliament’s intentions. That leaves a taxpayer a little in the dark about how to determine those intentions, however.
He’s also said, in a post about Rolls Royce’s UK tax liability:
“I am saying that UK tax law is not properly taxing Rolls Royce”
I’m not sure how to read this. Does it mean that UK tax law is not reflecting Parliament’s intentions properly?
He has said that Rolls Royce’s profits should arise in the UK in proportion to the UK staff, which is about half. This seems like using his unitary taxation system, albeit ignoring the income and assets tests. This suggests that tax avoidance can include the situation where Parliament has not levied the correct amount of tax. This then leaves the “correct amount of tax” as a somewhat vague concept – unless you adopt Murphy’s rules.
So I think the best way to bring this together is to say that he seems to consider tax avoidance to consist of paying less tax than Parliament would intend if they adopted his principles.
I think this makes it a bit easier to interpret his announcements. It’s a rather wider definition of “tax avoidance” than HMRC uses, although as I’m working towards a different definition of my own I can’t fault him there. It’s a bit more specific than many campaigners use: at least he is working towards defining “fair share”
The problem I have with it is that just as Parliament’s intention is somewhat unclear at the moment, Murphy’s principles seem to be a bit vague. I’m not sure, for example, why he’s not applied unitary taxation fully to Rolls Royce, when he did to HSBC (and didn’t apply it all to Amazon), so I can’t be sure he means unitary taxation is definitely his preferred approach.