Tax avoidance isn't always unclear

The fringes of what constitutes tax avoidance may be hazy, but that doesn't mean that some cases are

One common response to the anti-tax-avoidance work of campaigners like Richard Murphy is that tax avoidance is a nebulous thing to try and identify.

This is true. No one deliberately tries to pay the most tax possible, and tax exemptions of the sort that people and companies are regularly pilloried for using exist because at some point, a government decided that certain types of behaviour was worth encouraging through the tax system.

Even using tricky-to-apply definitions like "acting against the spirit of the law" doesn't quite work. The spirit of the law that exempts books from VAT is to encourage a learned populace, since a well-read public is considered to be a good thing. Is it really tax avoidance that The Da Vinci Code is exempt under the same law?

Yet using those arguments to discount tax avoidance entirely doesn't hold up. There are times when behaviour is clearly designed to avoid paying tax, in a way that provides no conceivable social benefit and in fact imposes a significant burden on the avoider (just not as significant as the tax burden). This week's New Yorker has a piece which opens with one such example.

James B. Stewart writes (£):

Since New York City tax laws don't apply to people who are deemed to be nonresidents, even if they own a residence in the city and work there, Robertson was allowed to spend no more than half a year – a hundred and eighty-three days – in New York City. This exile was self-imposed. If he had paid New York City tax, which in the top bracket reaches a rate of 3.6 per cent of taxable income, he could have spent as much time in the city as he wished...

Friday nights were particularly risky, since Robertson or his wife often had social events scheduled in the city. In order to "earn a tax day," as he put it, he usually left town on Friday before midnight, even if his wife stayed at the apartment. Robertson's driver had to be on alert: as long as they crossed the Queens border en route to Locust Valley by midnight, Robertson didn't have to "waste" a Saturday as a New York day. Even one minute of a day spent in the city counts as a day of residence. (Exceptions are made for people who are in transit from one destination outside the city to another – from Newark airport to Long Island, for example, or to LaGuardia for a flight.) Robertson said he never missed the midnight deadline, although when he couldn't get his driver or a limousine service in time he occasionally had to hail a cab. On one occasion, Robertson came back from a trip and found himself crossing into Manhattan at 11:45 P.M. That mistake cost him a full New York City day, which he could have avoided by whiling away fifteen minutes at the airport.

The full article is fascinating, albeit heavily paywalled, and it reveals the amount Robertson gained from this practice: $26,702,341, out of a taxable income of $732m. The gut response is that there is something wrong in this state of affairs, which encourages a man to expend huge amounts of energy on perfectly unproductive activity, to the net detriment of both himself and the state.

And yet there is no easy response. The best one may even be the one which is even more unpleasant to consider: the state should cut him a deal. Offer him the ability to stay in the city for some amount between $0 (the amount they get now) and $26m (the amount which is clearly high enough to motivate his behaviour). This would be the definition of "one rule for us, another for them", but at least it would result in "them" paying something.

 

New York New York, it's a hell of a town (to avoid tax in). Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
Show Hide image

The Home Office made Theresa May. But it could still destroy her

Even politicians who leave the Home Office a success may find themselves dogged by it. 

Good morning. When Theresa May left the Home Office for the last time, she told civil servants that there would always be a little bit of the Home Office inside her.

She meant in terms of its enduring effect on her, but today is a reminder of its enduring ability to do damage on her reputation in the present day.

The case of Jamal al-Harith, released from Guantanamo Bay under David Blunkett but handed a £1m compensation payout under Theresa May, who last week died in a suicide bomb attack on Iraqi forces in Mosul, where he was fighting on behalf of Isis. 

For all Blunkett left in the wake of a scandal, his handling of the department was seen to be effective and his reputation was enhanced, rather than diminished, by his tenure. May's reputation as a "safe pair of hands" in the country, as "one of us" on immigration as far as the Conservative right is concerned and her credibility as not just another headbanger on stop and search all come from her long tenure at the Home Office. 

The event was the cue for the Mail to engage in its preferred sport of Blair-bashing. It’s all his fault for the payout – which in addition to buying al-Harith a house may also have fattened the pockets of IS – and the release. Not so fast, replied Blair in a punchy statement: didn’t you campaign for him to be released, and wasn’t the payout approved by your old pal Theresa May? (I paraphrase slightly.)

That resulted in a difficult Q&A for Downing Street’s spokesman yesterday, which HuffPo’s Paul Waugh has posted in full here. As it was May’s old department which has the job of keeping tabs on domestic terror threats the row rebounds onto her. 

Blair is right to say that every government has to “balance proper concern for civil liberties with desire to protect our security”. And it would be an act of spectacular revisionism to declare that Blair’s government was overly concerned with civil liberty rather than internal security.

Whether al-Harith should never have been freed or, as his family believe, was picked up by mistake before being radicalised in prison is an open question. Certainly the journey from wrongly-incarcerated fellow traveller to hardened terrorist is one that we’ve seen before in Northern Ireland and may have occurred here.

Regardless, the presumption of innocence is an important one but it means that occasionally, that means that someone goes on to commit crimes again. (The case of Ian Stewart, convicted of murdering the author Helen Bailey yesterday, and who may have murdered his first wife Diane Stewart as well, is another example of this.)

Nonetheless, May won’t have got that right every time. Her tenure at the Home Office, so crucial to her reputation as a “safe pair of hands”, may yet be weaponised by a clever rival, whether from inside or outside the Conservative Party. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.