In the context of the financial crisis, and the government’s ever expanding fiscal deficit, it is perhaps no surprise that the issue of taxation has become one of the most hotly debated topics in the United Kingdom’s upcoming election.

Nor is it surprising that the establishment has successfully avoided any discussion of what makes dealing with the deficit so imperative, namely, the taxpayer bailout of the banking system.

What is worthy of some note is how the current debate has transformed into a witch hunt focused upon particular individuals deemed not to be fulfilling their moral obligation to pay their “fair share” of tax.

One person who recently ran afoul of this populist fervor is the ex-chairman of HSBC Stephen Green, who presided over the bank at a time when its private banking arm helped wealthy clients (including a number of celebrities) avoid taxes by squirreling their assets away in non-declared Swiss accounts.

This is rather embarrassing for the political establishment in the UK that previously lavished upon Green significant power and influence. However, to whatever extent Green was consciously responsible for what occurred, he should be lauded a hero. Far from being a transgressor of morality, he deserves recognition for aiding and abetting the only morality worthy of the name to flourish; the morality of self-ownership and private property that underpin the free market.

Voluntary Exchange vs. Taxation

Assuming the bank’s clients did not accumulate their fortune through violence or fraud, then clearly they became wealthy through providing products and services to fellow human beings who valued those services more highly than the amount of money they voluntarily parted with in the transaction.

Somewhat atypically for a modern bank, HSBC displayed a zealous regard for the safeguarding of their client’s assets and their clients in turn were happy to accept protection. It was yet another consensual and thus “moral” transaction. Yet both parties are held out to be the quintessence of immorality. For they are said to have aggrieved a third party: the state. By depriving the state of funds, we are told, they obstructed the state’s ability to carry out its mission to secure the welfare of all of society. Furthermore HSBC and its customers benefited from the contributions of their fellow citizens without making good on their own required “contribution.” Thus, Chancellor of the Exchequer, George Osborne declared “people evading tax should be treated same as common thieves.”

That this logic can be so unquestioningly accepted attests to the extent to which the population fully accepts the violence required to collect taxes. Like a robber with a gun, the state generates its revenues through coercive appropriations as opposed to providing a product or service that can be offered in a mutually beneficial exchange. The only difference, as Lysander Spooner pointed out, is that the robber is not so pretentious as to declare himself your lawful sovereign in exchange for the “protection” he offers.

The appropriate, and indeed moral, response to the threat of state violence is to act precisely as the much maligned tax avoiders in HSBC’s scheme have done. As Rothbard argues:

Just as no one is morally required to answer a robber truthfully when he asks if there are any valuables in one’s house, so no one can be morally required to answer truthfully similar questions asked by the state e.g., when filling out income tax returns.

Nevertheless, a depressing combination of cynicism and guilt prevails. No one dares question the sacred duty owed by everyone to the health of the state, yet everyone goes about reducing the burden of that duty in whatever way they can.

The Fading Distinction Between Tax Avoidance and Tax Evasion

“But certainly,” you may say, “a person acting in good faith should be permitted to openly and unashamedly reduce their tax burden within legal limits.”

Well, no. What has emerged from the recent fervor over tax avoidance is that such a distinction is no longer valid. It is true that the British courts did once recognize the distinction between “tax avoidance”; reducing a tax burden through propitious financial planning within the limits of the law, and “tax evasion”; reducing a tax burden in contravention of the law through dishonesty and concealment. This distinction was clarified in the infamous Duke of Westminster case where Lord Tomlin sensibly concluded that

Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.

Even this distinction, for those concerned with the moral status of the individual, should have been far from satisfactory. It acceded to Hobbes’s risible dictum that “the liberty of subjects consisteth in the silence of the law,” which is to say, individuals do not have the right to dispose of their lives and property at all; they only do so to the extent that the state hasn’t yet deigned to make a rule.

However, this notional reserve of liberty provided by Westminster is no longer beyond the Leviathan’s reach. In December 2010, parliament rolled out the General Anti Abuse Rule (GAAR) which permits the courts, when considering the legality of an individual’s tax arrangements, to look beyond the letter of tax law to apply a twofold test as to whether:

(1) It would be reasonable to conclude that their main purpose, or one of their main purposes, was to obtain a tax advantage; and

(2) [the tax arrangements] are ‘abusive,’ which means they cannot reasonably be regarded as a reasonable course of action.

What the first limb of the test means is that the Westminister principle is dead. Obeying the law is no longer a guarantee of avoiding criminal sanction. Indeed, mere intent or mens rea, of diminishing a tax burden when embarking upon a particular financial action invokes criminal liability. Liability can only be certainly avoided if the main aim of a financial arrangement had nothing to do to with reducing tax (presumably where the motive is sudden necessity or extemporaneous fancy). Though designed to shut down complex tax avoidance schemes used by the rich and famous, when taken to its logical conclusion, this technically makes liable anyone utilizing what are presently considered uncontroversial financial planning techniques, like those who wait until retirement to cash in an investment to avoid paying higher rate of tax.

Of course, whether a person is ultimately liable depends on the second limb of the GAAR test; whether the transaction is “abusive.” Yet this is an arbitrary measure entirely dependent on judicial discretion. Rule of law and legal certainty are effectively dispensed with and power invested in the wise judge to peruse through any transaction and, looking to principles of ‘social justice,” the judge is permitted to determine it “unfair.” Specifically, the judge must bear in mind “the premise that the levying of tax is the principal mechanism by which the state pays for the services and facilities that it provides for its citizens, and that all taxpayers should pay their fair contribution.”

The sinister conflation of avoidance and evasion is therefore no longer a matter of verbal disingenuousness. It is a statement of law. There is no such thing as legitimate “avoidance.” To defy one’s sacred and moral duty to the state is actually criminal as George Osborne confirmed. For the foreseeable future then, we can expect more ironic spectacles of moral opprobrium being rained down upon people like Green, not for belonging to the fraudulent infrastructure of the state-central banking nexus, but rather for upholding, probably in spite of himself, the moral imperative to protect his client’s assets.


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