Murphy was responding in his blog to a journalist’s question about why he was “not worried about the erosion in the distinction between tax avoidance, which they suggested to be legal, and tax evasion [sic], which they suggested to be illegal”.
He said that the argument that tax avoidance is legal over simplifies modern tax law, which has proven it to be illegal.
Legal precedence
Murphy linked the evasion vs avoidance legal argument to a House of Lords ruling in 1869 on Partington v Attorney-General.
The ruling stated: “If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be.
“In other words, if there be admissible, in any statute what is called an equitable construction, certainly such a construction is not admissible in a taxing statute.”
Simplification
This “grossly simplifies” modern tax law, Murphy said.
However, he added: “For the purposes of the argument that the journalist put to me, the 1869 opinion remains true”.
“The difference between tax avoidance and evasion is based on a strict interpretation of what the law says and avoiders are wholly within their rights if they can find a way around that legal construction.
“When it comes to the morality of tax law, this is the construct of law the defenders of tax law use.”
Modern tax interpretation
Murphy contends, however, that “this is not the way tax law actually is now” and provided three points of evidence.
He cited the General Anti-Abuse Rules and other legislation that make clear that avoidance is illegal.
“Those who make this claim that the law must be paramount are basing their argument on law that no longer exits.”
Secondly, he added that, “it is a moral judgment to base your argument on a law that no longer exists”.
“In other words, those who are saying morality must be kept out of tax law are doing exactly what they condemn.”
“And third, this legal basis of interpretation of law is not the only basis for interpretation of law we have in the UK.”
Murphy explained that the model of equitable interpretation of law seeks to look at the conduct and intent of the person to whom the law is being applied.
“This forms the basis for the new concept of the abuse of tax law, where the intention of the taxpayer to cheat the system is what matters.”
Inconsistent argument
“[This] is why the old divide between avoidance and evasion is disappearing. Legally and ethically it is now recognised to have no use. It is inconsistent with modern tax law. It contravenes the morality of society that underpins our concept of equity. As such it has no place in modern tax debate and it’s immoral to use it,” Murphy said.
