Read more: Is reform of international tax law possible?
For once, I am with David Cameron. A number of Sunday papers said that his mother's gift of £200,000 was a tax “dodge.” The Mail on Sunday used the word in its front page headline. It was no such thing. But the issue goes deeper than this particular transaction. The reporting of the whole "Panama Papers" leak saga has been bedevilled by sloppy language.
Most, if not all, of us know the difference between tax avoidance, which is legal, and tax evasion, which is criminal. The newspapers have been careful to describe most of the behaviour disclosed by the leaked Panama documents as tax avoidance. The papers regularly trot out a statement along the lines of: “there is no evidence that this was illegal.” However, we are led to believe that the behaviour was in some way wrong.
This is not good enough. The problem is the term “tax avoidance.” It is too elastic. It allows journalists with not quite enough evidence of wrongdoing to imply misbehaviour while inserting the “no evidence” phrase as a device to avoid being sued for libel.
Here is a suggestion. Let us ban the term “tax avoidance.” Instead, decide which of two terms to apply. We should say “tax planning” when describing activities in keeping with the spirit of the law, and “tax dodging” to describe activities that are technically legal but designed to circumvent the spirit of the law. “Tax planning” includes opening an ISA account, putting money into a pension fund—and giving your son £200,000 more than seven years before you die. “Tax dodging” is the kind of thing the comedian Jimmy Carr, among others, confessed to a few years ago. The scheme used by Carr was called K2, which sees earners "quit" their jobs and sign employment contracts with offshore shell companies. These companies then pay them lower salaries but "loan" them money in addition. These loans can be written down as tax liabilities.
We would then have three terms: tax planning, which does not warrant criticism; tax dodging, which is morally wrong but technically legal; and tax evasion, which is plainly criminal.
Where do Panama’s offshore trusts fit into this scheme? The truth is that, with many of the recent revelations, we can’t be sure. Depending on the specific circumstances, a trust can assist tax planning, tax dodging or tax evasion. On its own, the existence of such a trust might arouse suspicion, but it does not prove either moral turpitude or legal guilt.
For example, the Inland Revenue has long accepted that Britons who earn money abroad may keep it in an offshore account, where its value can grow free of tax—provided that when that money is repatriated, it is then taxed. But if the owner of that money fails to declare it, or tries to repatriate it by a roundabout route in order to avoid tax, then—depending on the precise circumstances—he/she is guilty of tax dodging or tax evasion.
I have no idea whether Ian Cameron, the Prime Minister’s father, was a tax planner, a tax dodger or a tax evader. The evidence set out in the stories so far is inconclusive. Until and unless more specific evidence comes to light, we should avoid rushing to judgment, and remember Sir Thomas Macaulay’s dictum: “We know no spectacle so ridiculous as the British public in one of its periodical fits of morality.”
For once, I am with David Cameron. A number of Sunday papers said that his mother's gift of £200,000 was a tax “dodge.” The Mail on Sunday used the word in its front page headline. It was no such thing. But the issue goes deeper than this particular transaction. The reporting of the whole "Panama Papers" leak saga has been bedevilled by sloppy language.
Most, if not all, of us know the difference between tax avoidance, which is legal, and tax evasion, which is criminal. The newspapers have been careful to describe most of the behaviour disclosed by the leaked Panama documents as tax avoidance. The papers regularly trot out a statement along the lines of: “there is no evidence that this was illegal.” However, we are led to believe that the behaviour was in some way wrong.
This is not good enough. The problem is the term “tax avoidance.” It is too elastic. It allows journalists with not quite enough evidence of wrongdoing to imply misbehaviour while inserting the “no evidence” phrase as a device to avoid being sued for libel.
Here is a suggestion. Let us ban the term “tax avoidance.” Instead, decide which of two terms to apply. We should say “tax planning” when describing activities in keeping with the spirit of the law, and “tax dodging” to describe activities that are technically legal but designed to circumvent the spirit of the law. “Tax planning” includes opening an ISA account, putting money into a pension fund—and giving your son £200,000 more than seven years before you die. “Tax dodging” is the kind of thing the comedian Jimmy Carr, among others, confessed to a few years ago. The scheme used by Carr was called K2, which sees earners "quit" their jobs and sign employment contracts with offshore shell companies. These companies then pay them lower salaries but "loan" them money in addition. These loans can be written down as tax liabilities.
We would then have three terms: tax planning, which does not warrant criticism; tax dodging, which is morally wrong but technically legal; and tax evasion, which is plainly criminal.
Where do Panama’s offshore trusts fit into this scheme? The truth is that, with many of the recent revelations, we can’t be sure. Depending on the specific circumstances, a trust can assist tax planning, tax dodging or tax evasion. On its own, the existence of such a trust might arouse suspicion, but it does not prove either moral turpitude or legal guilt.
For example, the Inland Revenue has long accepted that Britons who earn money abroad may keep it in an offshore account, where its value can grow free of tax—provided that when that money is repatriated, it is then taxed. But if the owner of that money fails to declare it, or tries to repatriate it by a roundabout route in order to avoid tax, then—depending on the precise circumstances—he/she is guilty of tax dodging or tax evasion.
I have no idea whether Ian Cameron, the Prime Minister’s father, was a tax planner, a tax dodger or a tax evader. The evidence set out in the stories so far is inconclusive. Until and unless more specific evidence comes to light, we should avoid rushing to judgment, and remember Sir Thomas Macaulay’s dictum: “We know no spectacle so ridiculous as the British public in one of its periodical fits of morality.”
