From: AlanBaggett@volcanomail.com   
      
   Morality And Tax : CRA SOTW   
      
   Article by Kim G. C Moody   
   Moodys Gartner Tax Law LLP   
      
      
   "...there is nothing sinister in so arranging one's affairs as to keep taxes   
   as low as possible. Everybody does so, rich or poor; and all do right, for   
   nobody owes any public duty to pay more than the law demands... To demand more   
   of mortals is mere cant.   
   "    
      
   Learned Hand in Commissioner v. Newman, 159 F2d 848 (1947).   
      
   Everywhere you look lately, the press seems to be reporting another group or   
   person that is pontificating about the "evils" of tax avoidance and tax   
   planning. The usual rhetoric is that corporations or individuals who plan to   
   reduce their taxes are    
   engaging in immoral practices since they should be paying their "fair share".   
   Large corporations like Google, Apple, Starbucks and now Twitter have been   
   roasted for their tax strategies. The pressure got so heated that Starbucks   
   agreed to make a    
   voluntary payment to the UK Treasury notwithstanding they were under no legal   
   obligation to do so. And to top it off, the International Bar Association has   
   recently released a report stating that the facilitation of tax avoidance   
   strategies could    
   constitute a violation of international human rights law. Let's take a moment   
   to reflect on the magnitude of that assertion: tax avoidance strategies are   
   tantamount to the denial of life, liberty, property, education, etc. It   
   appears to me that the    
   International Bar Association needs to update its hyperbole filter.   
      
   Thankfully, there have been some voices of reason that offer counter views.   
   However, sometimes it is not easy to hear these voices over the din of   
   populous prattle. Sadly, it is not surprising that reasoned analysis is often   
   difficult to find given how    
   popular and easy it is to state that tax avoidance is immoral. Let me offer   
   some simple counterpoints.   
      
   To begin with, I understand governments' need to raise revenues to provide   
   services (one might say "to address the 'human rights' of") to their   
   residents. I am also sympathetic to the fact that the world is still reeling   
   from one of the worst recessions    
   in modern history. Most countries have been dramatically impacted by that   
   recession and many have been forced to make difficult decisions about their   
   delivery of fundamental services that are generally expected from government.   
      
   However, the obligation to pay tax (ignoring for the moment the challenges of   
   the developing world) ultimately arises from the obligations enshrined in   
   statutes. Tax avoidance involves planning one's affairs to ensure that the   
   quantum of tax owed is    
   minimized according to, and in compliance with, applicable laws. Accordingly,   
   tax avoidance is legal in that it is in compliance with applicable laws (as   
   opposed to tax evasion which is deliberate non-compliance with taxing statutes   
   and is illegal).   
      
   However, can planning or avoidance not be in the "spirit" of the law?   
   Certainly. Over the years, many countries have responded to inappropriate tax   
   avoidance by introducing "general anti-avoidance rules" (as codified in   
   section 245 of Canada's Income Tax    
   Act) or "substance over form" rules (as codified in section 7701(o) of the US   
   Internal Revenue Code). Such legislation attempts to shut down planning that   
   is otherwise in compliance with the law but may not be in the "spirit" of the   
   law. As long as such    
   legislation exists, then governments possess the tools to counteract planning   
   that may not be in the "spirit" of the legislation.   
      
   I realize that the above counter argument is simplistic but so are the   
   arguments that taxpayers should "pay their fair share," and that failure to do   
   so constitutes a grave injustice. What exactly is someone's "fair share"?   
   Should one taxpayer suffer    
   moral derision because it pays more (or less) tax than another taxpayer when   
   the first taxpayer has acted in accordance with applicable laws?   
      
   When companies like Starbucks make voluntary payments to a country,   
   notwithstanding their tax planning was in compliance with applicable laws, how   
   are such payments characterized? Clearly such voluntary payments cannot be   
   considered a payment of tax. Are    
   they charitable donations? Marketing payments? In my view, such a payment by   
   one of my favorite coffee companies was short sighted and dangerous. If such   
   payments become the norm, what will become of the "rule of law"? In other   
   words, a person can be in    
   compliance with all tax laws but it might not be "good enough" because they   
   haven't paid their "fair share". Thus we descend the slippery slope that   
   results from mixing morality and tax policy.   
      
   In my opinion, politicians, media and others who trumpet easy-to-make   
   moralistic comments about tax planning and avoidance should direct their   
   efforts in a more positive fashion which could result in legislation that   
   "shuts down" inappropriate tax    
   planning. This is much easier said than done but ultimately it is much more   
   analytical, logical, and appropriate than simply trumpeting that people should   
   "pay their fair share".   
      
   The OECD has taken such an analytical approach of this issue in addressing the   
   manner by which certain taxpayers shift their profits from a high-tax   
   jurisdiction to a low-tax jurisdiction. In July 2013, the OECD released a   
   report discussing base erosion    
   and profit shifting ("BEPS") in which it identified certain abusive practices   
   that need to be addressed. Member countries seem intent to act quickly to   
   implement such principles. My personal opinion is that we will likely see some   
   significant changes in    
   this particular area of tax avoidance but ultimately the implementation of   
   specific legislation in each member country of the OECD will be difficult.    
   Notwithstanding, the engagement and discussion of what is appropriate tax   
   planning and the subsequent    
   introduction of laws to enforce such principles is the proper way to address   
   these issues. The use of a pillory to shame taxpayers who engage in legal tax   
   avoidance is simply not an effective method of addressing the issue.   
      
   In the meantime, taxpayers should not feel guilty for properly planning their   
   affairs which results in tax minimization within the confines of the law. If   
   one does feel guilty, perhaps they could redirect their guilt by making   
   sufficient charitable    
   contributions to their favorite charities. My thoughts... not yours.   
      
      
   [continued in next message]   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)