Ethics of tax planning

[Martinus]

A fine example of a company ethically working for the fiduciary responsibility of their owners:

https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fire#Consequences_and_legacy

The owners, were acquitted at trial for the murder of their employees, because they "didn't know" the doors were locked. A few hundred people died.

They were found civilly responsible for the deaths, to the tune of $75 per dead employee. They were paid $400 per employee by the insurance company, so bully for them on their fiduciary responsibility to themselves.

They did nothing illegal, and were not punished in any significant way, so I guess we can conclude that they acted ethically when they locked their employees into a 8th floor factory with inadequate fire prevention and burned nearly 150 people alive. Nothing unethical about that! Legal == ethical!

It's a strawman. Nobody here is arguing that any legal action is ethical.

However, the obligation to pay taxes does not exist outside of law - it is defined exhaustively by what the law says it is (or have you ever paid more sales or VAT tax at a store than was required?).

[Martinus]

Binary my ass. If it was that simple, they wouldn't have entire law firms doing nothing but figuring out how to help the wealthy not pay taxes.

All the more hilarious considering Marti's law firm pretty much does exactly that in Murders & Acquisitions.

Only because something is not obvious to a layman it does not mean it is not binary.

There are many things we do not know yet about the universe, and which require considerable research to determine. It does not mean there is no objective truth either.

[Berkut]

A fine example of a company ethically working for the fiduciary responsibility of their owners:

https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fire#Consequences_and_legacy

The owners, were acquitted at trial for the murder of their employees, because they "didn't know" the doors were locked. A few hundred people died.

They were found civilly responsible for the deaths, to the tune of $75 per dead employee. They were paid $400 per employee by the insurance company, so bully for them on their fiduciary responsibility to themselves.

They did nothing illegal, and were not punished in any significant way, so I guess we can conclude that they acted ethically when they locked their employees into a 8th floor factory with inadequate fire prevention and burned nearly 150 people alive. Nothing unethical about that! Legal == ethical!

It's a strawman. Nobody here is arguing that any legal action is ethical.

However, the obligation to pay taxes does not exist outside of law - it is defined exhaustively by what the law says it is (or have you ever paid more sales or VAT tax at a store than was required?).

The obligation to pay for your share of shared resources most certainly does exist outside of the law, and taxes are simply a means to collect on that shared obligation.

The obligation to not steal exists outside the law as well, even though we have laws that cover stealing.

Paying taxes is not some special set of legal obligations different from all others. Tax law is simply those laws that lay out how we collect from each other in order to sustain the public and shared good that we as a social creatures have decided is needed.

It is not some special category of law that gets exempted from ethical consideration.

[Martinus]

Not really. There is no obligation to pay taxes outside of a legal system.

[dps]

Well it is perfectly legal to turn those political dissidents over to the state secret police and will certainly make you safer in the long term. Must be ethical to do whatever the KGB tells you.

Ok reflecting on the thread it seems Berkut led me astray here. I think the point was that this principle, legality is ethics, only applies in the narrow world of tax law. I don't agree but that is different from this.

I think that there's an important distinction here between things that might be called "natural" crimes--things like rape, murder, robbery, etc. that most people would consider "wrong" even if there were no laws against them;  and what might be called "status" offenses--things that aren't necessarilly considered morally wrong per se, but which are criminal acts because there are laws against them--truancy, jaywalking, etc.  Of course, things aren't always completely clear-cut--for example, some people consider the consumption of alcohol immoral, some don't;  and among those who don't, there's room for a lot of different ideas about minors consuming alcohol.  Berkut, I think, is in effect arguing that income tax evasion is inherently morally wrong, i.e., unethical (though he probably wouldn't put it quite that way, and may very well take exception to my interpretation of his position), while a r is arguing that tax avoidance is perfectly legal and therefore ethical. 

Both are at least partly wrong, IMO.  Berkut is wrong because, taken at face value, he appears at least to be disregarding the difference between income tax avoidance and income tax evasion.  (He also may be classifying income tax evasion as a "natural" crime instead of a "status" offense, and I'm not sure where I stand on that.)  Alfred russell is wrong because he seems to be ignoring Berkut's point that the line between avoidance and evasion is not particularly clear.  Maybe "wrong" isn't exactly the correct term here--I think mostly they're discussing two different points and talking past each other.

EDIT:  and of course Berkut addresses some of my points while I was typing.

[Berkut]

re: dps

It certainly is a spectrum, of course.

Tax avoidance certainly is not un-ethical of course, at least not in theory, since we structure our tax codes in order to actually encourage behavior. How could it be unethical to engage in behavior we as a society have decided we want to encourage?

But there is a line, and of course it is a blurry line. But there is some point at which you are basically just shirking your responsibility to society to pay a reasonable share by exploiting loopholes and the structure of the rules intended to make the system as fair and un-onerous as possible to actual evade paying taxes.

What annoys me about this is that people like Trump will bitch and moan about the Laffer curve, and demand that they get special dispensations, and then when they get them, turn around and exploit them in order to pay even less - which just makes us more inclined to ditching the complexity altogether.

[The Brain]

I'm not aware of any ethical requirement to maximize government revenue.

[grumbler]

It was incredibly unethical, yet by the laws of the day was legal. They changed the laws of course afterwards, because they realized that the laws allowed behavior that was grossly unethical and immoral.

As even your source shows, this statement is untrue.  The behavior was illegal even by the laws of the day, which is why the owners went to trial.

I'm not sure why you are riding this bombastic position (that it is unethical for companies to pay only such taxes as the law requires) down in flames, but good luck with that.  try using better examples to avoid that singed feeling.

[alfred russel]

Alfred russell is wrong because he seems to be ignoring Berkut's point that the line between avoidance and evasion is not particularly clear. 

Berkut is in part arguing that certain legal tax positions are unethical. I'm disputing that. and that alone.

I dispute your statement that I become wrong by limiting the scope of my argument.

[Valmy]

I'm not aware of any ethical requirement to maximize government revenue.

What if you are a tax collector?

[The Brain]

I'm not aware of any ethical requirement to maximize government revenue.

What if you are a tax collector?

I don't think they should collect more than what's owed.

[Berkut]

Alfred russell is wrong because he seems to be ignoring Berkut's point that the line between avoidance and evasion is not particularly clear. 

Berkut is in part arguing that certain legal tax positions are unethical. I'm disputing that. and that alone.

I think that is a fair assessment of my position. If nothing else, it is refreshing to see someone disagree with someone without the need to strawman their position.

My argument is that tax codes are not "special" laws that exist in any manner that is different from any other laws, and just like other laws, there are plenty of things that could be legal that are not ethical.

[Savonarola]

Berkut is in part arguing that certain legal tax positions are unethical. I'm disputing that. and that alone.

You're a CPA, right, Dorsey?  Should I understand from this that there is nothing in your code of professional ethics concerning taxes beyond what the law states?

Same question to Martinus, or any other lawyer who does tax work.

[dps]

Berkut is in part arguing that certain legal tax positions are unethical. I'm disputing that. and that alone.

You're a CPA, right, Dorsey?  Should I understand from this that there is nothing in your code of professional ethics concerning taxes beyond what the law states?

Same question to Martinus, or any other lawyer who does tax work.

I don't know about CPAs, but it is a bit off-putting to see "Dorsey" and "ethics" mentioned in the same paragraph.

[Martinus]

Berkut is in part arguing that certain legal tax positions are unethical. I'm disputing that. and that alone.

You're a CPA, right, Dorsey?  Should I understand from this that there is nothing in your code of professional ethics concerning taxes beyond what the law states?

Same question to Martinus, or any other lawyer who does tax work.

In essence, no.

Now, most jurisdictions (including Poland) have broad anti-tax evasion legal clauses which essentially state that it is illegal to undertake an artificial transaction purely or predominantly for the purpose of reducing the amount of payable taxes, where no reasonable entrepreneur would take such an action if the tax benefit was absent (e.g. you are transferring an asset between two subsidiaries to reduce your tax, where such transaction has no commercial justification of any kind). Such clauses would, most likely, catch most of what the laymen consider "shady". But this is entirely within the confines of my original argument - that when it comes to taxes you are not supposed to do what is illegal.

However if, for example, the client who wants to buy a company comes to me, and there are two ways of doing so (say, in a cash-for-shares transaction and a shares-for-shares transaction), the structures are equivalent in commercial terms but one allows him to pay lower tax on the acquisition (or subsequent disposal) than the other, there is absolutely nothing preventing me from advising him to choose the beneficial structure.