My mother-in-law, may she rest in peace, used to say that the truth would always out (I never got to know if she had me in mind) but the truth is that we’ve been having something of an unlucky time in Europe these last few years. There’s a wonderful Spanish proverb which, roughly translated goes: (we’re so unlucky that), were we to buy a circus, the dwarves in the act would start to grow taller.
On the one hand, there’s the United Kingdom which seems determined to tell the rest of Europe to go to hell. Brexit reminded me of that famous headline in the ‘30s in The Times “Fog in the Channel – Europe Isolated”.
If Brexit and the single currency crisis weren’t enough, now we have a storm gathering around the whole issue of international tax.
Let’s put to one side, just for now, the imminent Common Reporting Standard (CRS) and go back to fundamental principles, first articulated in the 1930s which, despite the obvious barbarism of that time, now looks, from the perspective of the international tax planner, like an age of enlightenment. It was the noble Lord Tomlin who, in the case IRC v. Duke of Westminster (1936), famously said:
“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax”
Two years before, the Learned Hand J made a similar pronouncement in Helvering v. Gregory (1934). A man, he said, may quite legally arrange his affairs with the objective of paying the least amount of tax possible and, in doing so; “there is not even a patriotic duty to increase one’s taxes”.
It might be argued that these are sentiments and principles of a by-gone age or that it’s unique to English jurisprudence. Even if that were the case, the fact is that at least in the sphere of Anglo-Saxon tax planning, this is the fundamental principle on which legions of professionals have based their advice and plans in the intervening decades and legitimately sought to achieve for clients the objective to minimise tax due.
I may indeed risk the accusation of being out of touch but I’m nonetheless ready to proclaim that tax avoidance is not only legal and sinless (and remains so, despite CRS etc) but also ticks all three boxes for that sweet dream I saw over a market shop in Spain recently: Bueno, Bonito y Barato. It gets a little lost in translation but essentially, it’s (relatively) Cheap, Attractive and, on the whole, a darn Good Thing.
Before anyone says otherwise, let’s be clear that I’m talking about tax avoidance and not tax evasion. If you don’t know the difference, the internet is quite clear about it.
In this context, perhaps inevitably our thoughts must turn to the recent Apple versus the European Union case. In case you haven’t heard, the European Commission, an un-elected civil service, held on the 30th August 2016 that Apple Inc which is legally established in the Republic of Ireland, had numerous employees in that country and a written agreement with the sovereign Government of that Republic, had to pay no less than €13 billion in back taxes. It’ll be even more than that when interest is taken into account.
Following this unfortunate circumstance, Apple, with some justification, felt miffed. The Irish, too, were apparently hacked off at the thought of having to accept a cheque for the equivalent of 6.25% of their entire annual GDP. It’s tempting to think of a number of European countries who, in their shoes, cheque in hand, would have been dancing, laughing and toasting the good health of the Commission all the way to the bank.
But, assuming the Irish were genuinely upset, they, and Apple naturally, had every right to be so. The notion that a company, much as those involved in IRC v. Duke of Westminster or Helvering v. Gregory, no longer has the right to so order its affairs so as to pay the minimum amount of tax seems not so much the self-evident injustice that it is as something much more serious. It’s a heist.
A rhetorical question: how many countries and governments continue to have serious economic problems and crises around the world? In Europe, these are magnified by specific local problems.
Firstly, there is the notion that the conflagration affecting monetary “union” has been put out. Far from it. The fire is still blazing but it’s being contained in back rooms and dark places. The fireman has put on his Sunday best in an effort to convince the world that he’s off duty but the reality is that, in the background, he’s chucking everything he can at the fire because he ran out of water ages ago.
Secondly, even though Euro-governments would have us believe otherwise or the media have moved on from it, the crisis of migration to Europe from Africa and the Middle East shows no sign of stopping and the cost of that is going to be huge.
Thirdly, and possibly the most important aspect in this context, governments are locked in competition with each other to increase their revenues. They called it “harmful tax competition” and we thought it was about us when, actually, they’re the ones competing. How much is the US trying to fine Deutsche Bank? Is it anywhere close to €13billion?
As politics goes, it’s got to be the easiest game in town. Whacking the rich who legitimately try to avoid tax, using the same laws that you have yourself passed, is easier than taking candy from the kid in the proverb. Nowadays, nobody cares if the rich get knocked on the head. On the contrary, envy is, alas, the spirit of the age.
Politicians, the media, commentators, – left and right wing and the centre – all use words like “privacy” and “offshore” to mean “illegitimate secrecy” as if arranging your affairs in private automatically implies you’re a gangster. The day is surely coming when we will all need to file our tax returns on our Facebook page or send the Revenue a Whatsapp every time we want to do a deal or arrange a transaction.
Rather than holding up MNCs as the economic pillars on which the capitalist system is built and through which jobs are created, wealth is generated, delivering cash to employees, shareholders and, without a shred of irony, governments themselves, “big business” and similar terms seem also to have become euphemisms for illegitimate and grasping commercial practice.
The Apple case is a serious problem because, even though the Commission came to that view in accordance with the EU’s own standards and norms, it telegraphs the message to the world that in today’s Europe you cannot come to an agreement with a national government and be secure that it’s unequivocally certain.
Tax planners and those, like Abacus Gibraltar, who implement their plans, have no shortage of clients – that in itself tells a story. Neither are we afraid of having to do it transparently and without the aim of hiding the result, always respecting the right to privacy, because we’ve always done it like that.
Even though we live in an age of exhibitionism and the zeitgeist is not to think about things too much or too deeply, the reality is that for so long as there are laws for the payment of tax, someone somewhere is going to sit down and see what can be done to use them as the skeleton of an alternative plan.
This IS a big deal because my mother-in-law was right: truth is not subjective. To write off as criminals all of us who undertake this kind of work for clients is simply a lie. We all know that the real problem is dirty money, hidden away or used for immoral or illegal purposes, like drug-trafficking, terrorism and war. The blood of millions of Africans, for instance, cries out above the illicit gains of brutal dictators, tucked away in countries like Switzerland over the decades. The dishonesty lies in not tackling that, rather than trying to make it an issue of utility bills, passport copies and tax avoidance structures for the legitimately prosperous.
So, governments will always look for an ever-bigger tax take but there will similarly always be, by logical deduction, honest, legal and transparent avoidance
I’ll dare to go further. Offshore financial centres, from the smallest Caribbean island to the really big ones like Delaware, Luxembourg and The Netherlands, via the Channel Islands and Gibraltar, are an important and necessary conduit for international capital flows and the conduct and interchange of global commerce.
Still further. All those of us who do this work and those who buy the results of it still have the constitutional right to privacy and, dare one say it, secrecy. It’s a legitimate and morally justifiable part of being in business. Last time I looked, privacy had not yet been abolished.
So, Bueno, Bonito y, por general, Barato.
I may be a dinosaur but I’m not embarrassed about what I and my fellow professionals do. And to Apple I would say: Come to Gibraltar. We may be small but we will get the job done.