Should I choose, for recreational reasons and shielded from public view by the thick walls of Maugham Towers, to wear a diving mask and snorkel I might reasonably assert a right to privacy in relation to that choice. Should I step, thus dressed, into the formal gardens of Maugham Towers I might maintain it still. But should I fail to de-snorkel before wandering up to the newsagents, my reasonable claim to privacy would vanish.
There is a right to privacy. A good right. One that can be found in most attempts to articulate what basic human rights look like. But this post isn’t an attempt to describe the law of privacy. The questions I want to pose concern the shape the right to privacy should take.
My mooted enjoyment of diving gear may or may not be a matter of public curiosity but for so long as I choose to confine that enjoyment to a private sphere the public has no right to know. But the right is contextual. I can waive it by my actions. I can make choices that alter the balance between my right to privacy and such passing curiosity as the public may possess. By those choices I can denude of value my claim to privacy. We may collectively hold that it is better that we preserve the rights of those who wish to take photographs outside a newsagents than the claims to privacy of those who choose to shop at them.
A week or so ago Alexi Mostrous, the Times journalist who has made so many of these stories his own, wrote about Tony Blair’s rather complex personal finances. Those arrangements were said to be set up for reasons of privacy:
And yet what is clear is that an arrangement whereby Mr Blair simply chose to receive the money directly – without the interposition of any company, or partnership or trust structure – would have provided the nearest thing the law offers to perfect privacy. So one should approach with scepticism any contention that this arrangement was about privacy. Because the choices Mr Blair made reduced rather than enhanced it.
No tax justice campaigners of which I am aware campaign for the public disclosure of income or gains that individual (lawyer-speak for ‘real’, like you and me) taxpayers enjoy. There is a reason for this. It is because the most natural arrangements – Y provides X with income where Y and X are individuals – is adequately able to be taxed. That arrangement is inimical to avoidance and any sophisticated form of evasion.
It is when we choose to create and interpose legal structures – trusts, partnerships, companies and variants thereon – between X and Y that there arise the conditions within which avoidance and evasion can occur. Of course, often or usually we choose to interpose those structures for good reasons. Trusts provide a mechanism for protecting the assets of the vulnerable. The limited liability attaching to companies encourages us to indulge the animal spirits that cause us to create businesses and generate wealth.
But there is no good reason why we as a society should not attach to the choice of these legal structures a price – an enhanced degree of public scrutiny – for using them. Charging a price does not breach anyone’s right to privacy. It is the choice to use them – to walk to the newsagents – that carries the concomitant loss of privacy.
I would go further.
Where we know that those structures create the conditions within which behaviours inimical to the interests of broader society – such as tax evasion and avoidance and money laundering – can occur, society should charge a price for using them, especially where that price is designed to reduce the risk of those behaviours.
Of course, we should think sentiently about what that price should be. It should reflect the legitimate uses to which those structures are put. And also the risks that they create. And it should be mindful of assertions of privacy that legitimately serve – for many do not – the public interest.
But having made the decision about what that price looks like, it is right that it be paid.
Some of the media coverage of the Panama Papers might suggest that the thinking I have outlined above is heretical. But it is not heretical – it is not even new. Rather, we have just forgotten it.
Let me take one of many examples.
Section 113 of the Companies Act 2006 creates an obligation on the part of companies to maintain a register of shareholders which is available to the public. The entitlement on the part of the public to examine this information can be seen as a price in reduced privacy that attaches to the use of a company structure. Hold assets through a company and the public should know.
Is this price qualitatively different from the apparently contentious proposal that there be public registers of beneficial ownership of companies?
I don’t think so.
There is, it seems to me, only one explanation for a state of affairs that has section 113 on our statute books but rejects the notion of public registers of beneficial ownership of companies. That explanation is that we have lost sight of why we introduced the rule now to be found in section 113. What possible purpose is served by a provision that obliges a transparency that we now allow to be occluded?
Let me sum up.
Many assertions that to do X or Y would breach the privacy of Z misdiagnose the cause of Z’s loss of privacy. On analysis, it is the choices that Z makes not the doing of X or Y that occasion that loss. Society should weigh in the balance its broader interests when it sets the conditions under which Z can choose to use structures that create the conditions within which avoidance and evasion can occur. None of this is heretical – or even new.
A clear eye towards principles that should be uncontroversial. A review of trust law and company law and partnership law with these principles in mind. Measures – easily found – to secure that the purpose of these principles by UK residents is not subverted by the use of non-UK structures.
What could be wrong with this?
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Waiting for Godot 
Excellent post as always. The analogy with s 113 of the CA 2006 is especially apt. Indeed, the CA 2006 in general is built around the idea of a company paying a price for the benefits conferred upon it by the law. Conducting business through a company or LLP provides notable advantages, namely limited liability and corporate personality. The price to be paid for these benefits is transparency, and companies and directors are subject to significant disclosure obligations, and most of the information disclosed can be freely found online, either on the company’s website or via Companies House free beta search system.
As limited liability and corporate personality can tempt directors to unlawful activity, it is only right that companies and directors are subject to disclosure obligations. Sunlight is the best disinfectant and all that. Whilst I am not a tax lawyer, it seems to me that a strong case can be made for the same principle applying to other vehicles and structures that confer tax benefits, and which could be used for nefarious purposes.
Thank you. I found the point compelling – as you could see.
Interesting analysis of what might be called the law of intended consequences, ie this form is legally adopted, so that requires things like shareholder registers. As you say, it seems surprising to find this can be misunderstood.
But I suspect the implications of this run wide. In practice the ideal of Individual X paying Individual Y must be limited. Many of us are employees of limited companies, or institutions like schools, the Health Service, Central and Local Government, and so on. So I’d be interested to read any views on the degree to which these kinds of employees are entitled to any financial/tax privacy. For example, there is a central register of amounts paid to central and local government employees above a certain grade. It is relatively easy to link job titles to salaries. And Annual Reports detail pay of the most senior staff.
https://data.gov.uk/data/search?q=Salary+
Companies publish information on the remuneration packages of Directors.
Would it be easier to apply if the formulation was to say that Y is the payer/engager and that what really matters is whether or not there is an intermediary between them and individual X? This could encompass misuse of personal service companies, “consultancy”, trusts, and the like.
Most employees of limited companies haven’t themselves made a choice to interpose legal structures. And my post also recognises that an analysis of what waiver of privacy is required “should reflect the legitimate uses to which those structures are put.” So I don’t think (if this is what you mean to imply) that it at all follows that the natural consequence of my argument is that everyone who works for a limited company has implicitly waived the right to privacy.
re Blair – might an argument that his privacy would be (better) protected by such structures be made that while the legal position on privacy of individual taxpayers might be sound, he has seen such confidential/private files/dossiers no longer remaining so – the MPs’ expenses reports come to mind, and the losing of CDs with information on et c.? With that in contemplation and the media’s and public’s interest in him and his post-PM career, perhaps the appetite for greater complications and obscurations that would apparently put stronger practical difficulties in the way of disclosure even if further from the law’s provision of perfect privacy is understandable.
Your excellent logic reveals a great truism, namely:-
“If you want to keep your finances to yourself, simply do just that and don’t involve an elaborate network of intermediaries”
One day, though, I hope your post will be an anachronism because of public right of access to all of our tax disclosures, as we are told already happens in Sweden.
We are at the stage of social development now where if gross inequality still exists, we should be able to see where and to what extent. Then we can make informed opinions on which inequalities that have arisen are just (rewards of frugality hard work and risk) and those which are not.
I appreciate and completely accept the general thrust of this, but I wonder about this:
“the most natural arrangements – Y provides X with income where Y and X are individuals – is adequately able to be taxed. That arrangement is inimical to avoidance and any sophisticated form of evasion”
It may be inimical to sophisticated evasion, but to the unsophisticated approach of cash in hand? I think an argument can be made for publicising tax returns, and allowing what could be called crowd sourcing for the identification of anomalous relationships between people’s apparent spending and declared income, although there would be less complementary terms for the same activity.
It’s obviously not something which will happen soon, since it would require enormous change in UK attitudes, but society could function with a greater degree of openness. It could be argued that openness would support a dynamic economy, since most people who are well paid, or rich, quite like the rest of the world to know about it. Cf. Veblen’s idea of conspicuous consumption.
I also suspect that a process is already working in this direction, with the effective pressure on our leading politician to publish tax returns, although I think this is a very thin end of a wedge, which could still easily snap.
You absolutely have in mind what I meant when I talked of sophisticated evasion. I’m not sure you need the sledgehammer of publication to catch a glancing blow on ‘unsophisticated’ evasion. But that’s a different point.
Great post as usual.
I would take a slightly different view that Companies Act requirements are there to protect against information asymmetry rather than to make the user ‘pay’ for the benefits. Where one trades with an individual, it is easy to assess that individual’s standing and one’s likelihood of being ripped off. Not so a company or LLP. Public filing (in the world before offshore opacity) overcame this. Of course, this is no argument against your overall point (which i agree with) but maybe:
1. It reduces the argument to apply disclosure to trusts (do trusts ‘trade?’).
2. It implies that the law is there, not to protect the rights of passers-by to photograph shops, but to ensure that the newsagent knows exactly to whom he is selling a copy of Viz.
No, but failure to prosecute does translate into failure to cause prospective tax evaders to recognise there are real and meaningful risks and costs attached to evasion. That’s the fiscal argument – pursuing today’s yield is short termist. It kicks the can down the road…
Yeah. I agree with you that the present Company transparency requirements are not *intended* to impose a price in terms of transparency. But they do – or I was arguing should – rather have that effect…
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Excellent post. Although I do think that Companies House have gone a little too far in publishing the full date of birth of every UK company director in the public free record at beta.companieshouse.gov.uk ready to be hoovered up by web-robots to be used to industrialise identity theft.
Another cost which companies and their owners used to incur as a price for limiting their liability was to be obliged to publish full audited accounts. While I wouldn’t wish to go back to a requirement for every company to be audited, I cannot see what the public gains by allowing companies to submit abbreviated accounts to Companies House. These obscure what has been going on.
Companies are legally obliged to provide full accounts to their shareholders so (if they are complying with their obligations) abbreviated accounts are an extra expense. It would then be a small further step towards transparency to require publication of the corporation tax calculations as well.