Sunday, February 28, 2010

Tax free and ethical

Triodos Bank has entered the tax debate in Britain with its promotion of Individual Savings Accounts (ISAs) as an ethical tax-free form of savings.

For rather a long time the tax avoidance industry has tried to confuse the public - not only in Britain but elsewhere as well - by seeking to equate their sordid practices with the altogether much more acceptable practice of tax planning designed to make use of government exemptions.

One of the boring rituals of so many tax debates involves some rather pompous tax adviser (normally male, late middle-aged) trying to obfuscate the issue by telling members of the audience who use ISAs - or their equivalent in other countries - that they are engaged in tax avoidance. Wrong! For policy purposes the income generated these savings schemes have been exempted from tax: by definition you cannot avoid a tax that does not apply.

The obfuscation lies with the claim that tax avoidance is OK - and in some respect equivalent to using tax exempt ISA products - because it involves the exploitation of loopholes that have not been explicitly closed down. This justification for tax avoidance goes back a long, long way to the Duke of Westminster ruling in 1936 which established the rule that "any taxpayer may organise his affairs in any way he wishes (provided it is legal) so as to minimise tax." An awful lot of skulduggery has flowed from the unintended consequences of this rule.

But a legal ruling, of course, does not make avoidance either ethical or acceptable, since it involves behaviour that is both anti-democratic and socially harmful. This is why we want a strong signal, in the form of a General Anti-Avoidance Principle, that will make it clear, not least to the judiciary, that engaging in tax avoidance is not an acceptable practice.

Triodos Bank does well to use its advertising to draw attention to the ethical issues surrounding tax. This follows close in the footsteps of a clear and unequivocal statement made at a tax justice event last week at Saint Martin-in-the-Fields by the Reverend Will Morris, a tax lawyer, that tax has an important moral dimension that cannot be overlooked in corporate or personal tax planning.

Disclosure: Tax Justice Network Association International Sans But Lucratif banks with Triodos Bank in Brussels.


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