Should Corporate Tax Avoidance Be Criminalised?

AuthorSolange Devenish
PositionUniversity of Southampton
[2016] Southampton Student Law Review Vol.6!
Should Corporate Tax Avoidance Be Criminalised?
Solange Devenish
University of Southampton
his article seeks to discuss whether corporate tax avoidance schemes should be
criminalised. This project has been influenced by the increased media
attention on the amount of tax paid by multi-national companies and the 2015
scandal linking HSBC Bank with tax evasion. HSBC has since been accused of
assisting its wealthy clients with tax evasion1 and ‘aggressive tax avoidance’,2 with
former Director of Public Prosecutions, Lord Ken Macdonald accusing HSBC of
engaging in “a systematic and profitable collusion in serious criminal activity”.3
Following this recent development, George Osborne, British Conservative party
politician and Chancellor of the Exchequer, in his first Parliamentary response to the
HSBC scandal, stated that new financial and civil penalties for bankers and
accountants who aid and abet tax evasion and ‘aggressive tax avoidance’ were
expected to be included in the 2015 budget. 4 Two measures have since been
announced. Firstly, legislation5 will be introduced to impose tougher measures for
‘serial avoiders’ and General Anti-Abuse Rule (GAAR) penalties.6 While considering
measures to stop corporate tax avoidance, the question of the possible role of the
criminal law continues to be a live issue.
This article focuses specifically on tax avoidance by large multinational corporations,
through the use of tax havens,7 transfer pricing8 and other artificial schemes. The
purpose of criminalisation is briefly discussed through the application of principles
1 Robert Peston, UK Uncut Protests Over Starbucks 'Tax Avoidance'(BBC UK News, 8 December
2012) -20650945> accessed 26 February 2015.
2 James Ball and others, Revealed: Swiss Account Secret of HSBC Chief Stuart GulliverThe Guardian
(London, 23 February 2015) -account-secret-of-
hsbc-chief-stuart-gulliver-revealed> accessed 26 February 2015.
3 Oliver Wright, HSBC Accused of 'Engaging a Systematic and Profitable Collusion in Serious
Criminal Activity'The Independent (London, 22 February 2015)
profitable-collusion-in-serious-criminal-activity-10062838.html> accessed 26 February 2015.
4 Nicholas Watt, HSBC Scandal: George Osborne Signals New Tax Evasion MeasuresThe Guardian
(London, 23 February 2015) -scandal-george-
osborne-tax-measures> accessed 26 February 2015.
5 HM Treasury. Summer Budget 2015. Crown copyright.
mmer_Budget_15_Web_Accessible.pdf accessed 4 April 2016.
6 HM Revenue & Custom. Tax avoidance: General Anti-Abuse
Rule. (2016)
rules accessed 4 April 2016.
7 Examples of tax havens include Panama, British Virgin Islands and Cayman Islands.
8A transfer price is a price adopted for book-keeping purposes that is used to value transactions
between affiliated enterprises integrated under the same management at artificially high or low levels,
in order to effect an unspecified income payme nt or capital transfer between those enterprises.
S.S.L.R Should Corporate Tax Avoidance Be Criminalised? Vol.6!
commonly used to justify the criminalisation of an act. These principles include
Mill’s harm principle,9 Feinberg’s offense principle10 and the principles of individual
autonomy, social welfare and morality. In discussing morality, the debate between
legal positivism and natural law is analysed so as to place the role of morality as a
justification in a wider context, where there is much debate on whether or not
morality has a place in law. These principles, for example the harm principle or
offense principle, are subsequently applied to corporate tax avoidance to assess
whether it satisfies the principles and/or the morality test. Arguments against
criminalising tax avoidance, such as the difficulty in regulating it and the possible
impact on the commercial attractiveness of England and Wales, are discussed.
Although tax avoidance is legal, in recent years there has been great public outcry on
this issue of tax avoidance, with some commentators referring to this practice as
‘aggressive tax avoidance’, sometimes even mistakenly confusing it with tax evasion,
or simply calling the act immoral. This topic remains relevant today as there has
been growing tension between the public and companies accused of not paying their
fair share of taxes. Recent cases of tax avoidance protests have been reported at
Starbucks cafes 11 and Barclays bank branches 12 across the UK. The public’s
dissatisfaction could be as a result of, inter alia, the difficult global economic times at
present, which place a greater strain on the lower classes. It could also be as a result
of the greater dissemination of information through the media, for example the April
2016 ‘Panama Papers’ leak which accused at least 12 national leaders of using
offshore tax regimes to reduce their taxes,13 which makes the issue of tax avoidance
and evasion a relevant one. Nevertheless, this article seeks to determine whether
criminalising corporate tax avoidance can be objectively justified.
The most crucial distinction between tax evasion and tax avoidance is that the former
is illegal while the latter is legal. It is important to acknowledge that all forms of
avoidance, whether termed as aggressive, acceptable or unacceptable, are legal.14
Evasion involves non-disclosure, concealment and fraud. There has been some
uncertainty about whether evasion necessarily involved fraud15 but former Director
9 John Stuart Mill, On Liberty (John W. Parker and Son 1859) 134.
10 Joel Feinberg, "Harmless Immoralitiesand Offensive Nuisances" in Issues in Law and Morality
(Norman S. Care and Thomas K. Trelogan (eds), Case Western Reserve University Press I97 3).
11 Robert Peston, UK Uncut Protests Over Starbucks 'Tax Avoidance'(BBC UK News, 8 December
2012) -20650945> accessed 26 February 2015.
12 David Batty, Barclays Branches Targeted in Protests Against Tax AvoidanceThe Guardian
(London, 19 February 2011)
tax-avoidance> accessed 3 March 2015.
13 Luke Harding, What are the Panama Papers? A guide to history's biggest data leakThe Guardian
(London, 5 April 2016)
about-the-panama-papers > accessed 15 April 2016.
14 Judith Freedman, ‘Defining Taxpayer Responsibility: In Support of a General Anti-Avoidance
Principle’ [2004] BTR 332, 336.
15 Michael P Devereux, Judith Freedman and John Vella, Tax Avoidance[2012] Oxford University
Centre for Business Taxation 1, 4
pdf> accessed 18 December 2014.

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