I see the knives are already out following the Treasury’s amplification of how it plans to interpret profits earned through CFCs and how they will be treated. AccountancyAge reports strong reaction, while Alex Hawkes describes it as Marxist. I was interested in Alex’s choice of words because they resonate well with the conflict I see brewing over anti-avoidance. Describing the government’s move, Alex says:
The idea that genuine economic activity derives only from labour and couldn’t possibly come from capital is in fact not just old-fashioned, it’s pretty much Marxist…More than that, it smacks of a historic distaste, inspired by religious thought, for money lending, for usury, and for the profits derived purely from cash.
This seems the very antithesis of what New Labour has become. It’s in almost 180 degree opposition to the way leading proponents of TJN position themselves. Yet TJN regards the upcoming CFCs as a step in the right direction. So for once, TJN and government are aligned – if temporarily. 
If Alex’s assertion is correct, that implies that at least some TJN people are more Old Labour. Which sounds preposterous. What’s going on? Let’s play a game where you have to suspend belief:
Imagine you know nothing about tax avoidance, CFC etc. Assume you know nothing of economic theory but that life has been pretty good. You don’t usually question the economic system. Like most people, you grumble about the amount of tax you pay and the services they support.
Now imagine the new law is introduced with the following explanation:
As you know, we collect taxes to provide the services you wish us to provide. We have found that some of our largest corporations use special forms of structure to artificially reduce the amount of tax they pay in this country. We think this is bad because in doing so they avoid paying the right amount of tax. In turn, we believe that prevents us from delivering the services you elected us to provide.
My first reaction is indignation that large organisations are creating this inequality. But hang on, where did they get the advice with which to execute the schemes or did they dream the schemes up all by themselves? My trust and grip upon the world is slipping.
If conditions are such it is obvious everyone loses, then I imagine most people would react in the same or similar way. If I specifically remove assertions about economic positioning then something startling happens. We all (more or less) agree! But that’s not what happens in the real world.
It is very hard to feel indignation without also thinking: ‘Aah but…what about spending?’ Because we believe there is a social contract between ourselves as citizens and government in its handling of our money. I believe the government and HMRC recognise this in its grouping of income and expenditure charts.
Do you see where this is going? Regardless of political persuasion, economic preference, social class, gender or race – I’m betting most people would respond based on a mutual understanding of the need to have a safety net for everyone. In other words, we’re all in this together. Or most of us. That’s a starting point. It’s certainly a different way of approaching the problem. Because it then allows today’s government to publicly say:
We are struggling to deliver the service you want. That’s obvious for anyone to see. We know there’s waste in the system and we’re trying hard to tackle it. But for all the problems we as government have, it is becoming increasingly difficult to develop a tax administration system when estimates suggest that at least £20 billion is disappearing in taxes we cannot collect. That has a direct impact on our ability to put money back into the community to improve our lives.
This situation has arisen because of a combination of outdated laws and an aggressive tax avoidance industry. Our efforts to keep plugging the dam are failing. It is for that reason we are introducing a GAAR, a scrapping of the unfair domicile laws and announcing an outlawing of abusive tax avoidance activities. For our part, we are absolutely committed to ensuring that hand in hand with this, we will provide a simpler system for every taxpayer, and especially for the lifeblood of this country, our many small and medium sized businesses.
If we are successful in collecting these large amounts then we will have an abundance of choice. We will for the first time, be in a position to return to the country and ask — do you want improved services, reduced taxation, or both? That’s how much money is at stake and for the future of this country.
If I read that as a citizen, I’d be delighted. For me it sets the tone by which HMRC wins the argument wherever it may impact and justice is served. Largely because the argument does not appeal to outdated use of language to describe the environment of the day. It is an altogether less combative approach and one designed to appeal to reconciliation. Is this innovative or am I living on cloud cuckoo land?
Technorati Tags: HMRC, innovation, tax avoidance, tax gap, tax justice
