The release of the Paradise Papers has triggered a strong
response from many sectors of society. This has raised an interesting question.
When structuring the affairs of a company, are company directors free to pursue
whatever legal means are available to minimise tax payable without thinking
about the moral and ethical dimensions of what they are doing?
In this context, there has been much judicial commentary dating from early in the last century.
Lord Macnaghten declared in Commissioner of Stamp Duties v Byrnes: [1]
“No one may act in contravention of the law. But no one is bound to leave his property at the mercy of the revenue authorities if he can legally escape their grasp.”
This was followed some 25 years later by the infamous decision of the House of Lords in Inland Revenue Commissioners v Duke of Westminster in which Lord Tomlin made the oft-quoted comment: [2]
“Every man is entitled if he can to order 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 this result, then, however unappreciative the Commissioners … or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
As recently as 1999, the highly regarded late Justice Graham Hill declared on this question of morality: [3]
“… there is a real danger in judges deciding cases by reference to their own morality or sense of justice. This is so for no other reason than … that views of morality differ from person to person …”
Thus, it seems clear that morality and ethics, at least according to the judiciary, plays no part in tax law.
Parts of the broader community wholeheartedly endorse the view of the judiciary.
A parliamentary committee heard in 1991 from the late Kerry Packer that: [4]
“Of course I’m minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read because, as a government, I can tell you, you’re not spending it that well that we should be donating extra.”
While this would seem to be the conventional view, it may be under challenge as a result of certain tax legislation in relation to, for example, schemes designed to establish subsidiaries in a country where the presence in that country is limited to an office with a shingle on a wall. Such arrangements have been subject to some scrutiny by the worldwide tax authorities in recent times.
The question arises as to the extent to which morality and ethics can play a part in determining whether such practices are valid and effective under Australian tax law. [5]
Of most interest here is a trio of provisions from the Income Tax Assessment Act 1936 (Cth), namely Pt IVA and, in particular, s 177DA (regarding schemes that limit a taxable presence in Australia) and s 177J (regarding schemes that divert profits away from Australia).
These three provisions seem to provide a broader legislative capacity which might be argued to allow issues of morality and ethics to enter into the discussion.
While the words of the “eight factors” contained in s 177D(2) do not refer to morality or ethics, by using terms such as “the manner in which the scheme was entered into or carried out” and “form and substance of the scheme”, they are starting to hint at particular aspects of schemes that are perhaps akin to morality and ethics.
If a scheme was entered into in a highly secretive way on 29 June in a given year and, if successful, would deliver a huge tax deduction not otherwise available in the same year, could it be the case that the secrecy, the timing and the magnitude of the tax saving all go to the “manner” in which the scheme was entered into? If so, is it not the “features” of the scheme that go to the morality of the scheme?
Equally, if there is no actual substantive presence in a particular jurisdiction and huge profits are being shifted to that jurisdiction, that may go to the substance of the scheme. Again, I emphasise that morality and ethics are not referred to explicitly, but there is perhaps a hint of morality and ethics in the phrasing of these provisions.
Clearly, the tolerance for aggressive tax schemes within the broad community has diminished in recent times and the revelations in the Paradise Papers will only add to that trend. Legislative enactments in Australia and elsewhere (e.g. the United Kingdom), while not explicitly referring to morality and ethics, may be providing a broader ambit to enable revenue authorities the ability to challenge schemes which aggressively work to diminish the taxation liability which would otherwise arise in the country that is the true source of the economic activity in question.
Directors of companies need to be particularly aware of this changed legislative framework and will need to have regard to the specific words used in these provisions.
Professor Blogger - Robert Deutsch: Is there a place for morality and ethics in tax law?In this context, there has been much judicial commentary dating from early in the last century.
Lord Macnaghten declared in Commissioner of Stamp Duties v Byrnes: [1]
“No one may act in contravention of the law. But no one is bound to leave his property at the mercy of the revenue authorities if he can legally escape their grasp.”
This was followed some 25 years later by the infamous decision of the House of Lords in Inland Revenue Commissioners v Duke of Westminster in which Lord Tomlin made the oft-quoted comment: [2]
“Every man is entitled if he can to order 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 this result, then, however unappreciative the Commissioners … or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
As recently as 1999, the highly regarded late Justice Graham Hill declared on this question of morality: [3]
“… there is a real danger in judges deciding cases by reference to their own morality or sense of justice. This is so for no other reason than … that views of morality differ from person to person …”
Thus, it seems clear that morality and ethics, at least according to the judiciary, plays no part in tax law.
Parts of the broader community wholeheartedly endorse the view of the judiciary.
A parliamentary committee heard in 1991 from the late Kerry Packer that: [4]
“Of course I’m minimising my tax. And if anybody in this country doesn’t minimise their tax, they want their heads read because, as a government, I can tell you, you’re not spending it that well that we should be donating extra.”
While this would seem to be the conventional view, it may be under challenge as a result of certain tax legislation in relation to, for example, schemes designed to establish subsidiaries in a country where the presence in that country is limited to an office with a shingle on a wall. Such arrangements have been subject to some scrutiny by the worldwide tax authorities in recent times.
The question arises as to the extent to which morality and ethics can play a part in determining whether such practices are valid and effective under Australian tax law. [5]
Of most interest here is a trio of provisions from the Income Tax Assessment Act 1936 (Cth), namely Pt IVA and, in particular, s 177DA (regarding schemes that limit a taxable presence in Australia) and s 177J (regarding schemes that divert profits away from Australia).
These three provisions seem to provide a broader legislative capacity which might be argued to allow issues of morality and ethics to enter into the discussion.
While the words of the “eight factors” contained in s 177D(2) do not refer to morality or ethics, by using terms such as “the manner in which the scheme was entered into or carried out” and “form and substance of the scheme”, they are starting to hint at particular aspects of schemes that are perhaps akin to morality and ethics.
If a scheme was entered into in a highly secretive way on 29 June in a given year and, if successful, would deliver a huge tax deduction not otherwise available in the same year, could it be the case that the secrecy, the timing and the magnitude of the tax saving all go to the “manner” in which the scheme was entered into? If so, is it not the “features” of the scheme that go to the morality of the scheme?
Equally, if there is no actual substantive presence in a particular jurisdiction and huge profits are being shifted to that jurisdiction, that may go to the substance of the scheme. Again, I emphasise that morality and ethics are not referred to explicitly, but there is perhaps a hint of morality and ethics in the phrasing of these provisions.
Clearly, the tolerance for aggressive tax schemes within the broad community has diminished in recent times and the revelations in the Paradise Papers will only add to that trend. Legislative enactments in Australia and elsewhere (e.g. the United Kingdom), while not explicitly referring to morality and ethics, may be providing a broader ambit to enable revenue authorities the ability to challenge schemes which aggressively work to diminish the taxation liability which would otherwise arise in the country that is the true source of the economic activity in question.
Directors of companies need to be particularly aware of this changed legislative framework and will need to have regard to the specific words used in these provisions.
Tax chief Chris Jordan targets property rental rorts - The Australian
EU 'tax haven' blacklist labelled a 'whitewash'
OUT: LOVE IS IN THE AIR. IN: Viagra is in the air near Pfizer’s plant. “One whiff and you’re stiff . . . . There were women having babies all the time, there were babies everywhere.” Pfizer denies any airborne, er, emissions.
IT’S A FAD, ANYWAY: Lawrence Solomon: Ban the bike! How cities made a huge mistake in promoting cycling: Cycling lanes consume more space than they free up, add to pollution and drain the public purse.
UPDATE (FROM GLENN): These are the foreign policy “experts.” Is it any wonder people are talking about the death of expertise?
A whinge-fest of a royal commission
A whinge-fest of a royal commission
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I am beginning to feel almost sorry for royal commissioner
Ken Hayne. He's expected to come up with substantive and sensible
recommendations - supposedly in double quick time - to manage a range of
contradictory agendas, unrealistic demands and competing (putting it
politely) interests. Naturally, everyone has an opinion of what changes a
royal commission into the banking, superannuation and financial services
industry is expected to produce.
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New open data directory
collects standards from around the world
statescoop – “A
partnership between two civic data groups has led to the launch of a
free directory of open data standards with the goal of making it easier for
governments to find specifications that suit their open data needs. The Open Data Standards Directory
has about 60 entries of open data standards governments could use to
publish data on transit, infrastructure, crime, elections and other information
that might interest the public. The directory, launched earlier this month, is
a partnership between Johns Hopkins University’s Center for Government
Excellence (GovEX) and Geothink,
a Canadian open data research group…”
I am starting this post with a deeply appreciative and respectful Thank You to Robert Ambrogi who has logged 15 years and counting of blogging at his legendary Law Sites. Bob’s unflagging support has been a touchstone for me as I too completed 15 years of blogging here at my site, BeSpacific. In a welcome follow-up to 2016, BeSpacific is again included in the American Bar Association (ABA) Web 100: Best law blogs for 2017. In addition, BeSpacific received more than 600 votes to place a very respectable Third in the 2017 Best Legal Tech Blog category via The Expert Institute’s Best Legal Blog contest – the “annual competition that showcases the very best that the legal blogging world has to offer.” Thank you to all who voted. Reminder, please vote again in 2018!
I am a full time Knowledge Manager, Law/Financial/Congressional/Regulatory/Research Services Librarian and Senior News Analyst in my “day job,” and after walking the collies at night, I focus on BeSpacific every evening. From among more than several hundred sources I read regularly, I identify some twenty or thirty that I determine merit inclusion in my database of 45,000 postings (and growing), as they pertain to research, knowledge management, and expert subject matter sources on topics that include: law, technology, high profile government documents and legislation, civil liberties, legal research, cybersecurity, privacy, climate change and environmental law. The sources I do not include on BeSpacific I post on my LLRX twitter feed [with over 14,500 postings- please feel free to subscribe] and via emails that my friends and colleagues thankfully indulge me by reading. Kudos and thanks to all of these folks as well. As I remind myself daily, it is crucial to “be specific” in this work – to identify, locate, review and deliver to my readers the primary documents, reliable commentary and analysis, and actionable resources that will continuously assist them in their work. I created BeSpacific in no small measure so that I could provide a searchable, content rich, accurate and reliable database to communities of best practice that would always be available, up-to-date, and of tangible value. This effort has been supported by the superlative server host who maintains both BeSpacific and LLRX. In closing, stepping off tiny soap box with gratitude – and always maintaining hope for the future. Peace.
ABA Best 100 Law Blogs 2017 and Expert Witness Best Legal Tech Blog 2017
Corporate Tax Transparency