‘A heist that hits the poorest the hardest’

Outrage: The Queen’s connection to tax avoidance has prompted populist anger

Is tax avoidance immoral? How wrong is it really? Details about rich people’s finances have angered politicians, the press and the public. Yet, technically, nobody has done anything illegal.

“Tax haven scandal,” spits the Daily Mirror’s front page. “A heist that hits the world’s poorest the hardest,” says the charity Oxfam. The story of the Paradise Papers is only getting started, but already the world is outraged.

On Sunday, a network of news organisations began to publish details from the papers. Mostly leaked from the law firm Appleby, they reveal the financial dealings of some of the world’s richest people and companies. Appleby (and firms like it) help them to funnel their wealth stealthily into tax havens, saving them a lot of money.

So far, the leaks have implicated Amazon, Nike, various celebrities, the Queen, members of Donald Trump’s inner circle, and many more. The revelations have stirred anger around the world — not least in the UK, which is closely linked to many of the world’s biggest tax havens. Opposition leader Jeremy Corbyn has even suggested that the Queen should apologise.

Politicians like to condemn tax avoidance: everyone from Trump to Theresa May has pledged to tackle it. Yet they are doing little to rein in the system. One reason may be that they (and their donors) often benefit from it themselves, as these leaks reveal. Another complication is that tax avoiders are technically doing nothing wrong.

Unlike tax evasion — not paying the tax you legally owe — tax avoidance is lawful. It refers to legitimate steps taken to minimise what you owe. Defined in the broadest way, avoidance is widely practised, and sometimes encouraged by governments. Think of duty-free shopping or untaxed savings accounts.

However, when people speak of tax avoidance, they tend to mean sophisticated arrangements that exploit loopholes in the law. These are so complex that they require lawyers and accountants — and are therefore only available to the rich. Given the complexities of tax law, the line between avoidance and evasion is sometimes unclear.

That said, there is no evidence that anyone mentioned in the Paradise Papers has broken the law. Appleby insists that all its activities are above board. Is the outrage really justified?

Paradise’s cost

“No,” say some. “You can’t blame the wealthy for wanting to keep as much of their money as possible — you would do the same.” People have a duty to obey the law; as long as they do so, their behaviour is morally acceptable. This tax haven “scandal” is nothing of the sort. It is just an excuse to bash the rich.

“But therein lies the problem,” reply others. Tax avoidance may be legal, but the way the system is set up benefits the rich. This is clearly unfair, and therefore immoral. The reaction to the Paradise Papers shows that people want change. Governments should listen to them and ban tax havens.

You Decide

  1. Is tax avoidance morally wrong?
  2. What is the difference between morality and fairness?

Activities

  1. As a class, list all the different kinds of tax you can think of. Then vote on which (if any) are unfair.
  2. Imagine your annual income was £1m. Decide how much of this you would be willing to pay back in income tax, and explain your reasoning in a page-long essay.

Some People Say...

“Money, not morality, is the principle commerce of civilised nations.”

Thomas Jefferson

What do you think?

Q & A

What do we know?
The Paradise Papers comprise some 13.4m documents. They include law firms’ internal emails and bank statements covering dozens of thousands of clients. This leak, plus others like it (such as last year’s Panama Papers), give a snapshot of who avoids tax and to what extent. They highlight previously secret business links between individuals, and reveal the law firms’ private opinions and concerns about some of their clients.
What do we not know?
Given the vagueness of tax law and the secrecy surrounding tax havens, it is hard to say how widespread tax avoidance and evasion really are. Leaks like this only give an incomplete picture. One recent study estimates that 10% of the world’s wealth is stashed in havens, but that figure is hotly disputed.

Word Watch

A network of news organisations
A total of 380 journalists across the world worked on the project, which was coordinated by the US-based International Consortium of Investigative Journalists. The ICIJ was also responsible for last year’s similar Panama Papers story.
Tax havens
Territories which court tax avoiders with low tax rates and secretive financial systems. Many are idyllic tropical islands — hence “Paradise Papers”.
Closely linked
Many of Appleby’s branches are in British Overseas Territories, such as Bermuda and the Cayman Islands. These territories are not a part of the UK, but nor are they independent from it, and politicians in Westminster have a lot of power over their laws.
Should apologise
The Queen’s advisers invested a large sum in a tax haven. When asked whether she should apologise, Corbyn said “anyone” who uses a haven should do so. A spokesman later clarified that Corbyn was not calling on the Queen to apologise.
Doing little
Yesterday May refused to promise to set up an inquiry into tax avoidance or establish greater transparency over who uses tax havens.

PDF Download

Please click on "Print view" at the top of the page to see a print friendly version of the article.