Just what IS tax avoidance?

tax-avoidence-2013-300x180Imagine that you’re a businessman, your business is in Near Town but you fancy a trip to do business in Farsville.  You’re not sure how to get there so you see an advisor who tells you there are three different roads; a coastal one, an inland one and one through tunnels in the mountains.

Each has different merits so you explain what you’re looking for regarding scenery, a place to eat along the way and how fast you can get there.  Your advisor thinks about things and advises the coastal road. “Don’t forget”, he says, “the speed limit on that road is 50 mph, so stick to 49 mph”.

Off you set, the scenery is nice and you make good time.  When you get to Farsville you’re surprised to find a crowd of angry looking people waiting for you.

“How dare you!” shouts one, “aggressively avoiding our toll-booth in the mountain tunnel”.

“It’s immoral!” cries another “speeding-fine avoidance at its worst.  We saw you doing 49 mph and the speed limit is 30 mph on the inland road”.

“But that’s one of the reason I chose my route” you try to explain, “to avoid the tolls; to travel at a decent speed.  If you want to lower the speed limit on the coastal road or if you want to put a toll on it you can do so. I don’t make the traffic rules around here, you do. Besides, if the speed limit on the coastal road was 30 mph, I’d have driven at 29 mph.  I still wouldn’t have exceeded the speed limit.”

But no-one seems to be listening and the crowd continues to shout about the tolls and speeding fines they could have received if you’d taken another course of action.  After a while you get fed up and drive back home (along the coastal road) deciding that you won’t be going to Farsville again.

Ok, it’s not quite Hans Christian Andersen but I hope it illustrates my point.  What IS tax avoidance?  After all, no-one talks about “speeding fine avoidance” if you stay below the speed limit.  Everyone knows that tax evasion is breaking the law.  As far as I can see, everything else is tax compliance.

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