By using this website, you agree to the storing of cookies on your device to enhance site navigation, analyse site usage, and assist in our marketing efforts. View our Privacy Policy for more information.
Blog Post

Tax avoidance might be legal but it's time we seriously questioned its ethics


emember, remember, the 5th of November. Not, this time, for gunpowder, treason and plot. But for the news break by the International Consortium of Investigative Journalists (ICIJ) of the so-called “Paradise Papers”, a leak of 13.4m files detailing the financial behaviour of individual and corporate elites, many of whom use offshore financial centres to avoid paying tax in their home countries.

This is a major leak that not only questions the opportunities available to the wealthy in arranging their taxes, but also the extent to which governments facilitate such enduring arrangements for the benefit of an elite minority.

Tax takes many forms: income tax, corporate tax, land tax, capital gains tax, death tax, inheritance tax, sales tax, customs and excise tax, and value-added tax are all available to governments. Plus many more. Paying our taxes to fund public policy initiatives and investments is a central necessity of most societies – and most of us do meet these expectations.

But while there are those who seek to criminally evade their tax liabilities, or fraudulently deceive the government, we also see varying levels of non-compliance by others in society, raising questions about the ethics of minimising how much tax you pay.

For instance, there are entirely legal and approved ways of “avoiding” tax liabilities for both individuals and businesses. Reducing your tax bill through effective planning is legal, ethical – and in some forms encouraged by government-authorised schemes. For example, claiming tax relief on capital investment, saving in a tax-exempt ISA or saving for retirement by making contributions to a pension scheme are all legitimate forms of tax planning. The key point is that here we see tax relief obtained in the ways that the government intended.

The ethics of reducing tax liabilities becomes problematic when it is aggressively avoided through creative schemes that are not intended or authorised by the state – but which do abide by the letter of the law. It is here we see what is referred to as “tax avoidance”. This is formally legal but highly questionable, seriously harmful and often unethical.

Tax games

The Paradise Papers have again brought tax avoidance and the underlying ethics of this to mainstream public attention. As with previous scandals, such as the Panama Papers in 2016 and the Swiss/HSBC leaks in 2015, they reveal the ease with which corporations and high net worth individuals are able to organise their wealth and income transnationally, through the established global financial system, using offshore financial centres and a range of legal business structures to enable this.

We see corporations playing tax games by shifting profits between jurisdictions to exploit gaps and mismatches in their tax rules. We see them artificially trade with shell companies that form part of the same corporate groups, effectively doing business with themselves, to make profits disappear. This can result in little or no overall corporate tax being paid.

Notable individuals such as Lewis Hamilton, the Queen, Bono and others have been criticised in recent days for avoiding their tax liabilities through such schemes. Their levels of culpability will vary – whether fully aware, wilfully blind or just plain ignorant to how these arrangements function for their benefit.

But we must also scrutinise how leading banks, accountancy and financial firms which seek to creatively make use of unintended legal loopholes, facilitate these tax arrangements. And the fact that many – including Appleby (Bermuda) and Estera (Cayman Islands) – are based in British Overseas Territories.

A further common feature of the control of these schemes is also the assistance of third-party institutions known as trust and company service providers. These firms, such as Appleby and Estera – the source of the Paradise Papers leaks – set up and maintain corporate vehicles to structure artificial or contrived financial arrangements. We must question their role.

Society first

While it is legal to organise finances in this way, we must question the ethics of a system that makes the ultra-rich richer and leads to growing inequality around the world. This goes to the fundamental nature of how we believe society should function.

If we focus on the harm of tax avoidance to society, rather than how it is legally defined, then we can see that it contributes to growing inequality, increases tax burdens on resident taxpayers and undermines state legitimacy. Furthermore, the government’s accommodation of those structures that facilitate tax avoidance can also be misused by those looking to conceal criminal monies. For example, the UK has seen large investment from companies based in offshore tax havens into its property market, with suspicious wealth being used to buy high-end properties in London especially.

Tax avoidance not only shifts funds away from the public purse – which is even more pertinent in times of budgetary austerity and economic uncertainty (think Brexit) – but also undermines perceived social fairness. There is an improper transfer of money away from public goods.

Yet despite some political rhetoric outlining its deleterious effect, it is not being addressed with sufficient rigour. The UK – which has sovereignty over a number of the offshore states – has made a number of pledges to tackle tax avoidance – but this has not been followed by punitive, enforcement action.

A unitary tax regime – which treats a multinational business as a single entity in tax terms – may be one solution. But until there is a legal requirement for all avoidance schemes to be formally approved by the state before their use (rather than closed down after they are discovered), there will remain scope for tax entrepreneurs to avoid their liabilities.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Conversation

Heading 1

Heading 2

Heading 3

Heading 4

Heading 5
Heading 6

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.


Static and dynamic content editing

Heading 6

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

  1. dfasdfasfsf
  2. asdfasdf



The views expressed are those of the author and do not reflect the official policy or position of Hansuke. The content produced and presented by Hansuke is for general guidance and informational purposes only. It should not be construed as legal, tax, investment, financial or other advice. Hansuke does not accept any liability for any loss or damage which is incurred from you acting or not acting as a result of obtaining Hansuke’s visual or audible content.

The content used by the Hansuke has been obtained from or is based on sources that we believe to be accurate and reliable. Although reasonable care has been taken in gathering the necessary information, we cannot guarantee the accuracy or completeness of any information we publish and we accept no liability for any errors or omissions in material. You should always carry out your own independent verification of facts and data prior to making any investment, legal or tax decisions.

November 8, 2017

More from this series

View All

Join Our Newsletter and Get the Latest
Posts to Your Inbox

No spam ever. Read our Privacy Policy
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Latest News

View All
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.