Comment by barrkel 3 days ago
The word chosen at the end of the article:
> I’m sure the international tax lawyers around the world are strategizing new tax evasion strategies even as I write these words.
It should be clear that tax avoidance and evasion are quite different things, and the Double Irish Dutch Sandwich was tax avoidance and not evasion.
"Tax avoidance and evasion are not ..."
Those are formally defined terms here in the UK [citation needed - must find one].
Tax avoidance is avoiding paying a tax by following some legally sanctioned rules. For example, in the UK, using an ISA, which is a form of bank savings account, for which the interest is paid tax free. ISAs were created by an Act of Parliament. By saving in an ISA you avoid paying some tax.
Tax evasion is avoiding paying tax ... by not paying tax that is due, according to the law of the land.
There are no grey areas these days. When you do "Self Assessment" in the UK, one of the early questions paraphrases to "have you done anything dodgy". I think it is something like: "Have you participated in any tax evasion schemes within the tax year considered here". Without looking it up now (which takes a while), it may even use the word avoidance instead of evasion.
Self assessment is similar to how the US and some other countries do taxation.
In the UK the norm is Pay As You Earn (PAYE). Your employer does everything - you earn a wage and tax (Income Tax and National Insurance) is extracted at source and the balance is paid to you. The taxes are passed on to His Majesty's Customs and Revenue (HMRC). You can fill in a Form P11D if you want to claim expenses for something you supplied or pay for benefits received from your employment. Most employees in the UK don't care about taxation too much - it just happens.
Tax avoidance and evasion are very different beasts. Do be careful.
Is that fair to say given that it's been found illegal?
It's more complicated because the Irish law people were following was found to be invalid, not that the people leveraging it we're breaking the law as understood at the time, but it still seems unfair to call this approach legitimate.
> It's more complicated because the Irish law people were following was found to be invalid,
It wasn’t found to be invalid per se. The European Court of Justice found that the tax breaks Ireland was offering were unlawful state aid (a corporate subsidy that violates EU law) in the case of large multinationals such as Apple. From what I understand of the ruling, it only applies to large multinationals, and Ireland is allowed to continue to offer the same tax breaks to smaller firms.
https://curia.europa.eu/jcms/upload/docs/application/pdf/202...
Also, while IANAL, I have read some EU law textbooks, and one thing they make clear is that ECJ decisions do not always have “direct effect” - the ECJ can declare a national law to be in violation of EU law, but whether that by itself invalidates the national law depends on the specific grounds the ECJ used. So, without having looked into the legal details of this specific ruling, I’m not even sure if it makes the Irish law invalid, as opposed to merely illegal. The distinction is, an illegal law, the national government is obliged to repeal/amend it, and if they fail the EU can punish them, but it remains in force until they repeal/amend it; whereas an invalid law they have to immediately stop enforcing it.
Everyone in Ireland [and almost everyone else] seems to be under the impression that this is what just happened with the CJEU ruling last week. But it's not.
Ireland, since the mid-1980s, has been offering Apple (and ONLY Apple) a bespoke tax arrangement which is not only unlawful state aid under EU rules but also straight-up illegal under Irish law as well. This "deal" was never codified in primary or secondary legislation in Ireland. The government of famously-not-crooked-in-any-way Charlie Haughey did this deal under the table, and all subsequent administrations have been behaving like it was legal. It never was.
This case was about Apple in particular and it is very important to understand that this has never at any point been the law in Ireland as it was understood at the time.
Apple was treated differently to all other companies -- those companies were subject to the laws at the time which allowed multijurisdictional shenanigans as described in the OP link. There was never any legal basis for Revenue's different level of enforcement for Apple alone.
> Is that fair to say given that it's been found illegal?
Those activities were not illegal at the time. If the laws have changed, then as a tax paying entity, these people/businesses will have to comply with the new laws and/or remove themselves from the jurisdiction where these laws preside.
Well, if I eat a steak this year and eating animals is made illegal next year, was it legitimate that I ate a steak this year?
This comment comes up every time tax evasion is discussed, and it's always presented as self-evident, when it really is not. I think there's no distinction, except an illusory one invented by tax evaders, and I've never seen a coherent argument to the contrary.
Tax avoidance and tax evasion are defined terms and the distinction between them is that the first one is the set of things that are legal. Some of these are obviously legal, like buying an electric car so you can get a tax credit you're eligible for if you buy an electric car. But companies will try to find and use all of these, including the ones that go right up to the line of what's allowed.
The actual problem is that tax codes are complicated enough to allow this game to be played. You want to try to assign the profits of a multinational supply chain to a particular jurisdiction and then end up surprised it ends up somewhere with low taxes? The premise is wrong. All of the revenue is somebody's profit/income. Just tax revenue where the final product is sold, allow deductions for cost of goods sold when the tax on that portion has already been collected by the supplier and stop having any other taxes that give the accountants complicated rules to game.
There is a clear legal distinction in fact between tax evasion and tax avoidance. Tax evasion is illegal. Tax avoidance is not. Tax evasion means you are doing something illegal to not pay taxes, taxes that you would otherwise owe for example if the government had total knowledge of your financial records. Tax avoidance means you are staying within the letter of the law and that your actions taken in the process of doing everything you can to limit the taxes you owe are legal actions.
It's quite simply the difference between taking legal and illegal action. And if the IRS were to be fully aware of what you've done, whether you have broken the law or not. With tax avoidance you do everything you can to not actually break the law (you want to take max advantage without crossing the line). With tax evasion you are breaking the law.
The IRS will almost always try to nail you for tax evasion if they find out what you're doing. The IRS will rarely be able to get you for something related to tax avoidance if you're very careful / strict about it and stay within the letter of the law. Obviously this applies in the US context, however I find that very commonly when people discuss tax evasion vs tax avoidance, they're talking about the premise I'm talking about: one is about taking illegal actions, one is legal and narrowly walks the letter of the law to limit taxes.
Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion? Courts are not generally very impressed by them - which is why it requires a captured government (Ireland) to do them and ideally some sort of multinational scheme so every challenge is a hugely difficult endeavour.
> Did you know UK tax law makes every scheme whose primary purpose is tax avoidance tax evasion?
This is the kind of law politicians pass thinking they're being clever when they're really just being incoherent.
If the government makes renewable energy a tax deduction and then you invest in renewable energy to get the tax deduction, that's tax avoidance. The primary purpose of making the investment is to reduce your tax burden and if it wasn't a deduction (i.e. it didn't allow you to avoid taxes) then you'd have bought the power from the power company instead. But causing you to change your behavior in order to avoid taxes is the purpose behind making that a tax deduction.
If you're deciding where to put your facility and the decision comes down to which jurisdiction has a lower tax rate, that's tax avoidance. You're avoiding taxes in the higher tax jurisdiction by putting your operations in the lower tax jurisdiction. But that is likewise the intended purpose of the lower tax rate. That jurisdiction wants businesses to set up there, or wants local businesses to have more money so they build more facilities and hire more local people etc.
If the government raises the tax on cigarettes and that causes you to quit smoking... you get the idea.
It makes no sense for it to be illegal for you to do the thing the government intentionally passed law to give you the incentive to do. But more than that, how are they supposed to prove it? They claim you quit smoking to avoid the tax, you claim it was because you didn't want to get cancer.
Hypothetically they could uncover some email in which you were complaining about the high taxes before you quit, but that doesn't actually prove anything -- the tax could make you chafe even if your primary purpose was to avoid cancer. Moreover, the well-counseled entity is not going to write that email, which makes it a law against writing something down rather than a law against doing something, and those are the worst because the evil megacorps who know they're doing something shady make sure to cross all their t's and the ones who get punished are the guileless ones who didn't know there was effectively a law against complaining about taxes.
The word evade has a specific meaning in English, implying avoidance by trickery. And it has a specific legal meaning, which is knowingly bending or breaking the law. They are not synonyms, especially in a tax context.
That's correct. Deliberately restructuring your activities beyond common sense in order to reduce taxes even further, however, is legally evading them, by the normal definition of the English word "evade".
If you are running a business and someone points out you can reduce taxes by registering a corporation, that's normal - most businesses are some type of corporation.
If someone points out you can reduce taxes even further by registering an Irish subsidiary and sending them license fees, that's abnormal, and now you're using trickery to avoid taxes. UNLESS your business really does do R&D in Ireland at an arms-length subsidiary which charges license fees. In that case, the legal structure mirrors what is actually happening, so it's fine!
There will always be legal (but arguably immoral) ways to minimise your taxes, and there will always be illegal ways to minimise your taxes. Those are different problems with different solutions. It's a useful distinction to make, that warrants having different words.
The point people are making (to mostly deaf ears) is that many tax "avoidance" strategies are just unprosecuted tax evasion strategies. If you claim deductions you don't qualify for, that's obviously just tax evasion, but most taxpayers will get away with it. Does their lack of a conviction mean they're just tax avoiding? Of course not.. so when some company dreams up a scheme where the 'owner' of a laptop changes 6 times to various subsidiaries in countries that laptop has never entered, is that just sophisticated tax avoidance? Or is the obviously illegal scheme tax evasion? (Illegal in the sense that almost every jurisdiction has laws that will pierce transactions that only occur to minimize taxes).
Tax avoidance and evasion are not distinct categories. Some things are clearly legal. Some things are clearly illegal. And for many things, the legality can only be determined by a court after the fact.
Laws are inherently ambiguous. There is no objective classification that tells for each possible action whether it is legal or illegal. That's why courts and lawyers are needed.