A new holding company created in the Cayman Islands expressly to sell assets worth tens of millions of dollars. Those assets assigned an accounting value of zero, effectively invisible in the company’s balance sheet. An “arbitrary” US$10,000 cash injection explicitly designed to activate a tax law permitting a “total tax free gain of about US$60 million”, calibrated not to affect the “commercial effects of the transaction”.
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| Obligatory tax-blog picture of the Cayman Islands. Pretty, isn't it. (Creative Commons slack12/Flickr) |
What label should we
give to engineered offshore transactions designed to avoid paying tax? I used
to think I knew the answer to that question, but as 2014 draws another turbulent year of tax controversies to a close, I’m not so sure.
An odd cross-current
has become detectable in the “tax avoidance” debate this year. The
professional and business side of the debate used to be dominated by a fairly
standard position: boiler-plate
defensiveness crossed with ‘Duke-of-Westminster’
fundamentalism about the legal and ethical neutrality of shrinking one’s tax
bill to the legal minimum. Over the last twelve to eighteen months almost every vocal big
business, business association and tax professional body has moved away from
that previous default. Almost everyone now accepts that choices between filing
positions have consequences – if not ethical then at least reputational - that
taxpayers should take into account. But in the next breath there tends to follow
a second sentiment: that one’s own behaviour has either already changed, or
didn’t need to change in the first place; that the scale of corporate tax
avoidance has been overblown; and that in any case the corporate income tax
isn’t a very good idea to start with.
