Risk Mining the Public Exchequer: what tax avoidance is

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Tax justice reports

Risk Mining the Public Exchequer: what tax avoidance is

This article offers a theory of tax avoidance. It looks at the point when legitimate tax planning becomes tax abuse, and notes that from that point onwards – when tax advice deliberately creates ‘tax risk’ for the public authorities (i.e. the risk that, if challenged, the tax filing position would fail) anti-social tax avoidance begins. 

This article offers a new theory of tax avoidance. It looks at the point when legitimate tax planning becomes tax abuse, and notes that from that point onwards – when tax advice deliberately creates ‘tax risk’ for the public authorities (i.e. the risk that, if challenged, the tax filing position would fail,) anti-social tax avoidance begins. 

The author explains tax avoidance,
“extracts value from the public exchequer by seeking to withhold money, some of which should as a matter of law be paid into it.”
This is referred to as ‘risk mining’. 
Studying existing ‘theory’ regarding tax risk management and using Amazon UK/Luxembourg tax structuring to illustrate, the article shows how tax avoidance is a category of tax risk management. It also explains damage exacted on the public purse through the effect of ‘financial transfers out of the public exchequer’.

Key findings

  • The vast majority of tax planning, whether or not it merits the label ‘tax avoidance’ succeeds by default
  • only a test of the law can determine when tax advice, tax planning moves to the realm of tax avoidance, or aggressive tax avoidance.
  • The belief that some tax avoidance activity is ‘perfectly legal’ may well be wrong when.
  • Where a ‘tax risk’ is introduced through tax planning or other ‘it effects a financial transfer out of the public exchequer and into the hands of the taxpayer’. 

Key recommendations

  • Corporate tax discourse should acknowledge “that ‘tax risk management’ encompasses within it tax avoidance at any level of aggression”
  • Responsible corporate tax behaviour must involve not only managing tax risk better, but avoiding practice in tax planning that ‘introduces tax risk factors or otherwise increases tax risk’. 

Additional resources