Today I mean to look at the first of the proposals in Progress’ Tackling Tax Avoidance Charter which is to:

‘Name and shame’ companies and individuals engaged in tax avoidance. This would both have a powerful deterrent effect and help to change the culture among those people who see tax avoidance as legitimate and desirable rather than the abrogation of civic duty that it really is.

The attractions of this course are manifest.

• Few people, today, would agree with Lord Oliver, speaking as a Law Lord, in Craven v White that:

the fact that the purpose of a scheme is tax avoidance does not carry any implication that it is in any way reprehensible or other than perfectly honest and respectable.

• The specialist tax tribunal is often confronted with applications for appeals to be held in private and – these days – almost never accedes to them. One can, thus, say that the notion that one has the right to privacy in relation to ones, controversial, tax affairs is already in heavy retreat.
• Naming in shaming is bound to have a powerful deterrent effect. As US Supreme Court Judge Louis Brandeis observed, “Sunlight is the best disinfectant”. And so it is in this field – as anyone who has picked up a newspaper recently will tell you.

The attractiveness of the outcome ought not, however, cause you to close your eyes to the difficulties of getting to it. These problems might best be explained by comparing what is proposed to that which already exists.

Section 94 of the Finance Act 2009 enables HMRC to publish the names of “deliberate” defaulters. The operation of the provision was considered by HMRC in October 2010 in a well argued paper which revealed that naming and shaming deliberate defaulters was a powerful tool which would work and which raised the stakes for would be tax evaders.

So far so good. However, the operation of section 94 is subject to two (relevant) limitations. First, it applies to those who engage, broadly, in evasion (rather than avoidance). And, second, names are published only once the subject (in effect) accepts that s/he or it is a deliberate defaulter.

So what do these limitations tell us about the call to name and shame tax avoiders?

First, whilst there is a settled understanding of what constitutes tax evasion, there is no equivalent for tax avoidance. This is no mere matter of semantics.

Amongst commentators there is profound and genuine disagreement as to what avoidance actually is (a matter I have explored in several of my previous blog posts – see in particular that of 11 June 2013). And this is not (or not just) a question of how you describe tax avoidance; there’s an even more important (prior) question about what avoidance actually is.

The consultation group which considered and devised the General Anti Abuse Rule wrested at some length with these questions. And the concepts and language they ultimately adopted to resolve them (which can be found here) are so complex as to be described as unworkable by many. I disagree; I think the GAAR will prove highly effective but the fact remains that tax avoidance is conceptually and definitionally extremely complex.

Second, unlike “deliberate” default, “tax avoidance” is not a term of legal art. So, again unlike “deliberate” defaulter, there is no ‘other’ legal conclusion to which the label “tax avoider” might be attached.

What are the consequences of this?

You would need not merely to work out what tax avoidance is and then define it (my first limitation) but you would also have to create, and fund, a mechanism to determine whether a particular transaction satisfied that description.

And basic considerations of fairness would dictate that if you were to be ‘named and shamed’ by HMRC you would  need an opportunity to contend before an independent tribunal that you had not engaged in tax avoidance. And HMRC would have to spend money defending their decision. And that money, because expended only upon pinning a label to someone, could not lead directly to the recovery of tax. It might, in other words, fairly be considered ill-spent.

It is not easy to see a wholesale solution to these difficulties. But there is a limited one.

Tax law does, from time to time, badge transactions as “abusive” (the GAAR) or as having a main tax avoidance object (any number of targeted anti avoidance rules (“TAARs”)). Legislation could, relatively easily, be introduced that those engaging in transactions caught by the GAAR or a TAAR should be named and shamed. Such a measure would not go quite as far as Progress propose – it would not catch all tax avoiders – but it would catch a fair number and achieve much of the deterrent effect that Progress seeks.