Tax and morality – can we judge what we don’t fully understand?

Today’s guest writer is Paul Lawrence.  Paul has been a Christian for over 30 years.  He has worked in financial services for over 20 years, most recently working in risk management.  He also has an MSc in Investment Banking and a strong interest in what a Christian approach money, giving and tax should look like.

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What have Starbucks and Barclays Structured Capital Markets (SCM) got in common?  No, this is not a joke but a very serious and emotive issue.  One was criticised for not making a profit and therefore not paying UK tax and the other was criticised for being too profitable.   And what is the difference between tax avoidance and tax evasion?  According to Denis Healy the former Chancellor of the Exchequer, ‘The difference between tax avoidance and tax evasion is the thickness of a prison wall.’  However, currently the legal and moral distinctions are being blurred.

Now this may be controversial, but I am going to go for it anyway in the hope that it will act as a catalyst for a productive discussion, but I would argue that neither Starbucks or Barclays SCM has done anything wrong.  My stance is not as an apologist for the City but as someone who is trying to cut through some of the political and journalistic hype.  Starbucks did not make a profit so, rightly did not pay any tax.  They did have a transfer pricing vehicle which allowed their brand to be owned in a different tax jurisdiction and so the UK business paid a foreign business to use the brand.  This is legal and in fact many governments allow this as a means for large companies to do business and create jobs in their countries.  Barclays SCM was providing a tax planning service to their clients, allowing them to minimise their tax liabilities.  Was this aggressive tax avoidance?  Most would say yes and at the same time fail to be able to define what aggressive tax avoidance is.  Maybe we just know it when we see it.  But again, what is the moral position?

I am sure most of us have at some time or other used Gift Aid as a means of ensuring that the charity we support gets the most possible income.  If we are higher rate tax payers then we also claim the difference between higher and basic rate tax on our tax returns.  This is clearly tax avoidance.  Pension contributions and ISAs also have beneficial tax status – this is also tax avoidance.  Legitimate business expenses reduce profit and therefore avoid tax.  Nobody would raise objections to these forms of tax avoidance.

But what about the moral case?  Well, Lord Clyde ruled “No man in this country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.”   Ayrshire Pullman Motor Services and Ritchie v. IRC (1929).  Surely morality is subjective and depends on the viewpoint of the observer.  So what about the Christian viewpoint?  Matthew 22 v21 gives Jesus’ reply when asked about the payment of tax “Give to Caesar what is Caesar’s and to God what is God’s”.  That to me implies that we should pay the taxes we are required to by law.

So why are people so adamant that there are some who are not pulling their weight in the area of taxation?  One answer is political – the old adage that ‘people vote Conservative because they want to pay less tax and people vote Labour because they want someone else to pay more’ may no longer be so clear cut but there are always people pointing the finger at someone else.  He or she should pay more but I can’t.  This, I suspect, is largely down to ignorance.  The majority of the people in this country never have to complete a tax return and many of those who do leave it all to their accountant.  Therefore it is easy to be led by politicians wanting to shift the blame for overspending to those who they demonise and say are not contributing enough.  How many of us whilst condemning aggressive tax avoidance, turn a blind eye to illegal tax evasion from someone paying ‘cash in hand’ and not declaring it.  It is easy to take a ‘moral’ stance against the faceless on issues we do not fully understand.

What would Jesus do?



Categories: Banking & capitalism, Bible, Morals & ethics

Tags: , , , , , , ,

23 replies

  1. Though I think much of what you say has merit, I think that you ignore the fact that really Christ’s words on the tax issue are an artful dodge by a man being set up for a fall, and so do not always give is the insight on some things we would wish – except that we should beware those opposed to us!
    However if we assume these words are not just an artful dodge but have real relevance on situations such as this, then I must say that I think you overlook the point that he asks whose head is on the coin … in this instance we would have to say it was the Queens head, a UK coin, and so therefore the taxes in question should be rendered to the UK Authorities :D
    We always come to the tax dodge, which let’s face it is what the whole discussion was about, and whether it be legal or moral! This whole discussion was about can we get out of our obligations on a matter of ‘legal’ dispute (be it that in the biblical instance it was religious law as opposed to secular law that would have provided the dodge…).
    The answer, as you have rightly alluded to, isn’t quite as clear cut as we would like it to be, and so really we need not just to refer to the one text when reaching our ‘Christian’ or ‘Biblical’ conclusion, we should not overlook other texts that might help outline the ‘morality’ of action on these things, for instance what about about the widows mite? or the parable of the Talents? which surely might also have some import into how Jesus would have suggested we see this action … and I think he would say that to pay less than we can – even if it seems we are paying much, and are acting in accord with the ‘law’ – is not morally right…

    • Melanie – I agree that Jesus gave a simplistic answer to avoid falling into a trap and that times are far more complex now. That is partly why I wanted to open this debate. I also think that we have an unquestionable moral obligation to give to the poor and support the church. And whilst in Biblical times the tithe would have looked much like a tax, I believe in separating the two by paying what is legally required in tax and giving in charity what my conscience demands.

      • Paul,
        I didn’t think I was saying that it’s more complex now, because I don’t think it is! I think this is the same discussion they were having then – whether we can get away with ‘paying’ tax that we don’t think we should have to based on moral or legalistic reasons …
        ‘An unquestionable moral obligation to the poor’…hmm that’s what the modern day taxes supposedly go in part towards, so paying them to the best of your ability surely is an unquestionable moral obligation then …
        and ‘giving in charity what my conscience demands’, that’s a hard one isn’t it because I’m sure that the rich giving in the temple felt the same way and gave as their consciences demanded but it was the widow that Christ held up as the examplar though …
        I’m not picking on you, as I said you raised valid points as to the rights and wrongs we all do on this issue, and you are right to raise them, but just as you call others to question on their actions and bias’ so also should you, and I, consider our own issues ;)

  2. It is somewhat patronising to indicate that those who disagree with you do not understand what they are discussing. Plenty of us involved in the tax justice movement have a fairly high level understanding of taxation and what constitutes tax avoidance.

    You suggest that it is difficult to define aggressive tax avoidance and whilst there is some difficulty there is already a good operational definition that is widely used. There are two formulations of this either “actions which have the sole purpose of reducing an organisations tax” or “actions which have the primary purpose of reducing an organisations tax”. One of these two formulations lies at the heart of every used or proposed General Anti Avoidance Rule (GAAR) across the globe. Obviously there will be some disagreement on whether an action has any other purpose or is not primarily for that purpose but it’s a place to start from and it has been used effectively.

    The Starbucks case for example could be ruled to be aggressive tax avoidance because they declare their business to be in a country which has no additional operational activities. They transfer their profit there primarily to reduce the amount of tax they pay. Others may argue against that but if that is the case then they are aggressively avoiding tax.

    The government are due to announce their own formulation of a GAAR with the finance bill due this week after it was developed through the Aaronson review. It is expected to be far more watered down than the pure form I articulate here but it is to some extent based on the same principles.

    As the for the immorality of tax avoidance I agree wholeheartedly with the official position of my church (the Methodist Church, whose position you can read here: http://www.methodistconference.org.uk/media/41199/11-poverty-and-inequality-0511.pdf). I do not agree with the view of that Conservative politician (Lord Clyde). As members of a society we have an obligation to other members of our society and part of that obligation we meet through paying tax to support those less well off than ourselves. Far from being a faceless issue every single person suffering because of cuts to public expenditure which might not have been if a company had paid their tax is the face of this issue.

    • Tim – thank you for your comment and I totally agree that it is patronising (and indeed arrogant) to imply that those who disagree with you do not understand the arguement. I sincerely apologise if you feel this was implied as it was not the intention. My intention was to initiate a debate, which I hope we are having.

      Taxes are legally enforcable and it is down to the government of the day to set the rates and the exemptions. Once these have been set I believe it is rather disingenuous to complain about companies or individuals who remain within the law but only just. It is like complaining about people driving at 29mph in a 30mph zone and saying that they are aggressively avoiding speeding fines.

      I must admit I did not have time to read all 44 pages of the Methodist Church position but I hope I have gained the essence of it. I wholeheartedly believe in acts of kindness and charity towards those who are unable to provide for themselves. I would argue that this is not the sole preserve of government and that it is detrimental to charitable giving as it spreads the belief that poverty is the problem of the government and not all of us individually. The other issue I have is the measure of poverty quoted. As we all know there are two main measures of poverty – absolute and relative. Jesus only saw absolute poverty and that is what the Bible talks about. Relative poverty had not been invented then. Absolute poverty has been virtually eradicated in this country. As for relative poverty, am I rich or poor? It depends not on me but those around me. If I am a millionaire but everyone else is a billionaire then by your definition I am in poverty. In my personal case you would say that I am living in poverty as I have no income since being made redundant from the city. However, the government will still refuse to give me any money since it perceives me to be rich (I live off my savings).

      The quickest way to reduce inequality in this country is to set the top marginal tax rate so high that all those who can leave. You will be left with just the poor who, absurdly are no longer relatively poor but as the country’s tax take will be lower, they will have a reduced standard of living.

      I believe people should take personal responsibility for the poor and I belive that we ahould keep the law of the land but I feel no obligation to treat HMRC as a charity in greater need of my money than I am.

      • Thanks for the response Paul, I think mostly we disagree on the role of government but I’ll get to that in a second. Absolute poverty is a bit of a tricky thing to measure because large parts of poverty are by their nature relative. Once you get above the level of destitution then poverty becomes a question of being able to live with dignity and meaningfully participate in society. You could say that when Jesus was talking about poverty he was only talking about destitution. If that is what you are interested in then you are right, aside from asylum seekers and a few other sections of society, destitution has mostly been eradicated. But there are still plenty of people who have to choose between heating their homes and feeding their kids and I would argue that they are in poverty in the same sense that Jesus talked about (for same case studies see the work of Church Action on Poverty).

        Income inequality is one good way of helping us measure who these people are. Absolute measures (like the $1/day) become largely meaningless from society to society as differences in prices across the spectrum and income spread mean that quality of life seems to lock much closer in to income inequality measures than to persistent levels. But I’d agree that as a measure it has problems because it does imply that if you removed the top you’d improve the bottom (For more on defining poverty you should read some of the good work coming from: http://poverty.ac.uk/).

        If you believe that this kind of a poverty is a problem then you should see that there is a massive challenge in how that can be defeated. Looking across the globe and through history shows us that charity alone hasn’t succeeded in removing destitution from a country let alone defeating poverty. Only by co-operation of the whole of society can such a large problem be defeated. In this country the welfare state has helped us almost defeat destitution and it must play a part in defeating poverty. If it is our moral duty as citizens (and as Christians) to help fight poverty then we have to help fund one of greatest instruments in doing so (the government). Then if you understand government in this way then tax avoidance is attempting to avoid your moral duty by arguing about the law. To take your speeding example, the main reason we don’t want people to speed is because people who speed are more likely to kill other people. If someone is going at 29mph and runs someone else over when they could not have, we don’t say that is morally OK because they were driving under the speed limit.

  3. I agree that they have done nothing legally wrong but what we are seeing is an increasing shining of light in areas we do, admittedly, not fully understand. And that comes from someone who has worked in tax for 30 years.

    Is it wrong to take a moral stance on something you don’t understand? I don’t think so. I am interested in motives and outcomes. The motive appears to be to pay as little as possible and the outcome is that others end up paying instead. I don’t need to understand how a gun works to realise the outcome of its use is not necessarilty a good thing.

    Now, once we know we don’t like the outcome, we then need to go and see what caused the problem. It’s a two stage process, but only starts from the sense that something is not right and a stirring that somethng needs to be done, in this case a change in the rules. I reminded of a phrase I first heard Jim Wallis use: “It is all very well pulling people out of the river, but we need to go upstream and see what is throwing them in in the first place”.

  4. I think this seems to hinge on what we mean by the term “wrong”. Are we talking about something that is illegal, sinful or, more ambiguously, immoral? If it is the first, then I think the division is fairly clear. If it is either of the latter two, or a combination of them, then the discussion is a fair bit more tricky.

    I probably ought to state here that I am a chartered accountant, I have an ISA and a pension.

    Even talking about taxes in a biblical sense is a tricky issue, given how Jesus’ “give to Caesar” was not exactly extensive. We also have the added difficulty of the fact that idea of tax in the Roman empire was hugely different from what it is now. So it’s questionable as to how applicable it is.

    For me, the question needs to focus on the motivation behind the person or the corporation engaged in avoidance. Are they doing it in order to increase their own wealth? Or do they have an ideological disagreement with the idea of taxes, seeking to pay as litle as possible, even if it actually means they have less net income? I never used to think this second group existed until I became an accountant and encountered such extreme views among the conservatives I worked around. I am happy to pay any taxes I owe, knowing that while some money is likely to be wasted, plenty goes into areas of public life that I have benefited from in the past (such as JSA when I was made redundant last year) or where others I’ve known have been provided for (such as my mother, who has used the NHS more as she gets older). Then, considering only those that I know, I am aware there are millions I don’t know. If I choose to avoid to tax, I am robbing them of the grace that I and my family have received.

    Ultimately, the fuel which feeds capitalism is greed. Without greed, all of capitalism would lose its raison d’etre. The bottom line then is, as a christian, I could not possibly endorse capitalism. Yet I have to work with capitalists, in a capitalist world. But then, I have to work with sinners in a sinful world anyway. We can be beacons of light and try to improve it little by little every day.

  5. I think Jesus would be much more concerned with the spirit of the law than the letter. The Gift Aid scheme exists in order to encourage citizens to give to charity and at no personal benefit to themselves – how strange that you should call this a form of tax avoidance. ISAs exist to encourage us to save rather than spend, and although of personal benefit they are also of benefit to society and devised for this purpose. These are surely not in the same league as the practices you defend?

  6. On another level, do we ever fully understand anything? Yet we have to make decisions based upon rational judgments everyday.

    Starbucks et al play games through transfer pricing – yet I suffer a confiscatory marginal tax rate of 40% and do not play games. WE NEED A FAIRER TAX SYSTEM!

  7. I also thought you came across as arrogant. The title says it. Your article is riddled with flaws.

  8. I never realised that as Christians we were called to just do the minimum…. I always thought we were called to do our best for God, and that we were called to sacrificial living.

    • Ged – we are called to sacrificial living. I believe strongly in sacrificial giving of myself and my wealth. However, that has nothing to do with taxation. Do you really suggest that we should deliberately pay more tax than we need to? How do you pay extra tax?

  9. I was recently speaking with a bereaved person whose spouse had some offshore arrangement in order to avoid paying tax. As part of probate the repatriation of that money meant a very high tax bill which led to bitter complaints about benefits ”scroungers” and ”why should i have to pay when these people are abusing the system” . Aside from the obvious hypocrisy they had indeed worked in the N.H.S for many years and later moved into the private health care field and had done very well for themselves financially. The irony being that their basic training had been paid for by taxation and they had been able to develop their skills as tax funded employees. So many of us require the help of state taxation in order to develop our potential, indeed our wealth and our means to help our families and others. Tax helps us to give as well as receive

  10. I wrote a piece of tax and morality a while back:
    http://godandpoliticsuk.org/2012/11/16/what-amazon-google-and-starbucks-teach-us-about-morality/

    There are some very important points that have been made here. What I find hardest with this debate is not the morality of tax avoidance, but rather my reaction to it.

    The IF campaign is currently trying to persuade governments to put legislation in place so that poor countries receive tax from multi-nationals because of their tax avoidance schemes. This has a big impact on countries that really could do with that source of income to improve the lives of many of their people. Taking without giving something back does a lot of harm. Although the practice is less problematic in this country, it’s not surprising there was such a strong reaction when the news got round that companies like Starbucks were not paying any tax in this country. Even if we don’t understand how the tax system works, we can still appreciate there is an injustice going on.

    Paul has alluded to something I struggle with. I’m quite happy to criticise these companies who at face value are aggressively avoiding tax, but I still use some of them. I still buy things from Amazon, even though I don’t approve of what they’re doing. I shop at Amazon because it’s convenient and usually cheap. If I was a bit more serious about this I guess I would be boycotting them, but I’m too lazy and apathetic and I’d rather save the money.

    I’m not sure if that makes me a hypocrite when I complain about them. I expect I give a higher percentage of my income to good causes than these companies, so it’s not directly comparable, but I still have a niggling feeling when I buy something from Amazon that maybe I’m compromising my principles yet again.

    • I’ve got a similar problem. I still use Google and Amazon, partly because they offer better services than others and partly because for some things there is no alternative. Whilst I’ve gone on above about the immorality of tax avoidance I struggle with blaming lots of companies for avoiding tax. Before HMV went under their CEO (or possibly another senior manager) wrote powerfully about how he believed tax avoidance was wrong but if his company did not do so it could not compete with Amazon, Play and other companies that did. Ideally the government should change the tax law so that the grey area of tax avoidance disappears and simply becomes tax evasion but that is difficult to do.

      Meanwhile the other side to it is that small to medium sized business are often unable to compete with larger companies because it’s not practical for them to set up tax avoidance schemes and so have an additional cost which larger companies don’t have.

  11. Paul,

    Thanks for an interesting piece.

    A few comments:

    1. The complexity of the tax system simply means we need to work harder to understand it. There is also here something about the Gospel imperative to bring light into dark places!

    2. You are right to distinguish the morality of giving from the morality of paying tax. But I would be troubled if you were completely exempting paying tax from any connection to morality. Government spending and the taxes raised to pay for it raises a huge range of moral issues.

    3. I also agree with you, at least in principle, that companies who pay what is legally required of them should not be criticised for immorality. However, it seems to me that this is precisely where the complexity that you identified comes home. Many tax avoidance schemes are of questionable legality, it just takes a great deal of time (and tax-payers money) to demonstrate it. There is something morally dubious about systematically pushing at boundaries in the hope that you will get away with some things.

    4. That said, I think one of the real questions that needs to be asked is why government is not legislating to close down avoidance schemes. This would be at least a contribution to dealing with the deficit that is so painful at present.

    5. There is also an issue of basic fairness, or equality in the market place, that comes to the fore in some of the major tax avoidance stories. If Starbucks is not paying the same rate of tax as a locally run coffee shop, they have an unfair market advantage. Similarly Amazon have an unfair advantage over high street book shops and so on. I don’t think the UK economy would be unduly threatened by either leaving the UK. There are others who would step in to service the demand that they have demonstrated and created. If those doing so were to contribute more to the UK in tax, that seems to me a good result!

    6. To return to the issue of complexity that you highlight. When companies are moving moving a banana (say) from where it is produced to the UK, but the money associated moves along a much more circuitous route, involving several other countries, there is a fine line between complexity and outright deception. That seems to me a decidedly moral issue!

    For those interested, I recommend Nicholas Shaxton’s book ‘Treasure Islands’, reviewed here: http://simontsays.blogspot.co.uk/2013/01/tax-havens.html

  12. Tax is definitely a moral issue because it is linked to fairness and care for others. I am amazed that my income tax return asks if i participate in a Tax avoidance scheme as if some types of avoidance can be deemed o.k. The idea that Starbucks can negotiate what they pay in tax but i as an individual cannot seems grossly wrong. If we cannot define clearly what Starbucks profits are in the U.K. because of complexity we need to make the system simpler. The onus should not be on us as consumers to worry about tax ethics in regard to where we should shop. It should be a given

  13. Very fitting tweet by John Sentamu today “If we want society to flourish all must contribute what they can for the Common Good. No-one should hide from their social responsibilities.”

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