TAX AVOIDANCE REVISITED
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TAX AVOIDANCE REVISITED
I
am currently reading “The Great Tax Robbery: How Britain became a tax haven for
fat cats and big business” by Richard Brooks.
I am a student of tax avoidance. I
like reading such books to try to understand what tax avoidance is. However they have to be approached with great
caution because, like most fact-based fiction, the author is often more
interested in creating a racy story than letting the facts speak for
themselves. They tend to be selective
with facts, often putting greater emphasis on facts that help their story than
the facts can properly bear and omitting or glossing over those that detract
from the plot.
I
am particularly taken by the fact that the scourge of tax avoiders – or to be
exact what she, often unfairly, perceives to be tax avoiders – Margaret Hodge
MP, describes the book as “Required reading”.
This is not however intended as a review of the book, particularly as it
is a book that does not grip me to such an extent that I cannot put it down
until I finish it, and have so far only reached Chapter 3.
I
want to talk about tax avoidance in general and about Sir Philip Green in
particular. Mr Brooks tells me that
“Free from income tax in Monaco, Tina Green is the ultimate owner, through a
series of offshore companies and trusts, of the Arcadia business empire run by
her husband Philip and comprising some of the British high street’s biggest
names … It is a set up that in 2005
famously enabled the Greens to take a £1.2bn dividend from Arcadia tax-free,
saving them the £300m tax that would have been due if it had been paid to a UK
tax resident … But were [protestors]
right to dub [Sir Philip Green] “Britain’s most notorious serial tax avoider”? As Green pointed out, he pays income tax here
and his companies pay corporation tax. His
wife really lives in Monaco, just like many sports stars including Paula
Radcliffe and businessmen such as Sir Stelios Hiji-Ioannou …” . He concludes, “Of course on any plain
understanding of the term, tax avoiding is clearly what Green is doing. He is going out of his way to escape, dodge,
avert, circumvent-avoid-a tax bill”.
Although facts can be boring, I don’t actually think the set up allowed “the
Greens” to take a £1.2billion dividend.
I think it allowed Mrs Green on her own to do so, but then if Sir Philip
Green did not receive anything, it is hard to see how he is avoiding tax, so
the story runs better by giving the impression that he did.
But
that again is not my point. It is that I
don’t believe that Sir Philip Green has avoided UK tax, so my understanding of “the
term, tax avoidance” differs from that which Mr Brooks believe to be plain.
So
what does Mr Brooks mean by tax avoidance?
In a section headed “State-sponsored tax dodging” (by which he means
that complying with the tax law is itself avoidance because the law grants what
in his view are too many concessions or exemptions), he says, “what the
government regards as tax avoidance diverges even further from what everybody
else does – broadly transactions designed simply to reduce a tax bill below
real income at the relevant headline rate”.
I
don’t actually understand what that means.
The headline rate of tax on the top slice of my income is 40%. If I pay £10,000 into my pension scheme, I
get tax relief on it at 40%. That will
reduce the headline rate on the top slice of my income to below 40%, which
suggests to me that Mr Brooks thinks that by saving for my retirement via a
pension scheme, I am avoiding tax. If I
take £15,000 of my taxed income and put it into an ISA, it will generate
dividends on which I will not pay tax.
Had I made the same investment in the same unit trusts direct, I would
have paid 32.5% tax on the dividend, so as the only reason to use the ISA is
for the tax break. That in Mr Brooks
view is tax avoidance as I have reduced the headline rate from 32.5% to
nil. Far from “everybody else” than the
government accepting Mr Brooks’ definition, I suspect that if most people think
about it they will regard it as ludicrous.
But
back to Sir Philip Green (or Green as Mr Brooks insists on calling him – have you
ever noticed how common politeness seems to be incompatible with left-wing
polemics). What exactly has happened.
a)
Sir
Philip married Tina Green. But lots of
people marry. I cannot believe that “everyone”
would regard that as tax avoidance.
b)
Tina
Green is South African. I doubt that “everyone”
regards marrying a foreigner as tax avoidance.
c)
Tina
Green lives abroad. As far as I know,
she does so voluntarily. She is not
forced to live abroad. She has no
particular affinity with England. Her
first husband was Greek-South African.
d)
Sir
Philip Green chooses to live with his wife.
Accordingly he was also resident abroad, at least until 5 April 2012,
after which the UK new statutory residence test contain provisions which
attempt to make him UK resident after that date. I understand that quite a lot of people live
in France and work in the UK. I suspect
that they would be very surprised if that makes them tax avoiders.
e)
He
passed the opportunity to acquire the shares in Arcadia to his wife. Wikepedia tells me that he bought them and
sold them to her 24 hours later. But
there is no suggestion that she did not use her own money to buy them. Even if Sir Philip had gifted the shares to
her, it is not uncommon within a marriage.
I suspect that most people would be horrified to learn that sharing the
family wealth between husband and wife is tax avoidance. Virtually all married couples that I know do
that. Indeed, most pass assets to their
children too! Is that even more wicked?
f)
Sir
Philip works in the UK – and pays UK tax on his UK earnings. Paying tax surely can’t be tax avoidance.
g)
He
works for his wife’s company. So do lots
of other people. And in these days of
equality, a lot of wives work for their husband’s companies. Are they all avoiding tax?
h)
The
UK tax system does not impose a tax charge on dividends paid to a non-resident
by a UK company, leaving it to the country of residence to impose tax if it
wishes. I appreciate that Mr Brooks
regards that fact as State-sponsored avoidance, but I doubt that “everyone”, or
even most people, share his view.
i)
Monaco
does not tax dividends received by a Monagasque resident. I have been to Monaco. I wouldn’t shop there. Everything is wildly expensive. I suspect that is because Monaco raises the
bulk of its revenue from sales taxes whereas the UK splits between sales taxes
and income taxes. But this is hardly
Lady Green’s fault. I find it difficult
to see that she is somehow avoiding UK tax by choosing to live in Monaco rather
than somewhere else. Would she still be
avoiding tax if she were to move a few miles down the road to Nice and pay
heavy French taxes on her dividends? In
other words, is what annoys Mr Brooks not that she is paying no UK tax, but
rather that by living in Monaco she is paying no income tax anywhere.
So
where is the tax avoidance? All I can
think of is that it is a combination of the fact that the UK chooses not to
impose income tax on dividends paid to a non-resident, Monaco chooses not to
impose income tax on dividends received by its residents and Mrs Green likes to
live in Monaco. If so, I very much doubt
that “everyone” regards that combination as tax avoidance. Lady Green has no control over what either
the UK government or the Monagasque government chooses to do. She does of course have a choice as to
whether to live in sunny Monaco or rainy London, but I doubt most people would
regard choosing the sun over the rain as tax avoidance.
Oh,
I nearly forgot, Mr Brooks places great significance that when he talks to the
Press, Sir Philip sometimes refers to Arcadia as “my company”. But most of us are surely not too concerned
about the legal niceties in conversation.
Indeed, I think “my company” is as apt to describe the company that one
manages as a company that one owns.
Incidentally,
I am a bit puzzled by the “series of offshore companies and trusts” through
which Lady Green holds her shares.
Wikepedia tells me that she owns a single Jersey holding company which
owns all her retail investments, but that doesn’t sound as much like avoidance
as a chain of companies and trusts. And
of course Wikepedia is notoriously unreliable.
But then if the first couple of chapters of Mr Brook’ book is representative,
I tend to think the same thing about him.
posted by CBW at 9:12 am
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