[encypruon]

Wasn't one of the largest tax fraud scandals[1] just that?

> An international group of bankers, lawyers and stockbrokers - reportedly with links to the City of London - appears to have fiddled the tax system, employing practices which were at best unethical, at worst illegal.

> With a bit of imaginative paperwork, and by exploiting a procedure which allows more than one person or institution to simultaneously own a share, they were able to claim numerous tax refunds. The practice was outlawed in 2012.

In my (incomplete) understanding this was a vulnerability in the law that has not been patched until 2012 when it had already been exploited for a while. It wasn't just tax avoidance but extracting money from treasuries, so it should be blatantly obvious that this was not the intent of the lawmaker.

[1] https://www.bbc.co.uk/news/world-europe-40199259

[amalcon]

From the article:

> In the first type, German banks and stockbrokers bought and sold shares for foreign investors in a way which allowed them to claim a tax refund for which they were not eligible. Many question the legality of the practice.

This is more "nobody noticed they were doing it" than "it was obviously happening, and the government shrugged its shoulders." Obviously, unlike a computer, it is quite possible for humans to just not notice that you're doing an illegal thing.

> In the second (a more complicated variation), investors and banks bought and sold shares just before and just after dividends were paid. With a bit of imaginative paperwork, and by exploiting a procedure which allows more than one person or institution to simultaneously own a share, they were able to claim numerous tax refunds. The practice was outlawed in 2012.

This is a subtle loophole, which probably did not admit an easy patch without serious unintended consequences (the category for which I used Spectre as an example).

[sandworm101]

But note that these loopholes involve taxation. Tax laws are based on intricate policy considerations. They aren't based on 10-commandments, carved in stone, legal principals. They are expected to be updated regularly. Courts will often presume "loopholes" in tax code to be there for a reason and throw the law back at the legislature for corrections.

[tialaramex]

General Anti-Avoidance Rules fix this.

A GAAR (which lots of countries have these days) goes roughly like this:

If you do something that only makes sense because it reduces your liability to taxation, that doesn't work, and tax is due as if you hadn't done it.

The UK's version uses a "double reasonableness" test, which tells a jury that the way to assess the rule is not just to decide whether they, ostensibly reasonable people, think the accused did something that makes no sense except to avoid tax, but that they should imagine whether _any_ hypothetical reasonable person could have thought it was reasonable to do this. That's a deliberately high bar for the tax authorities.

I don't think having an Irish subsidiary with four employees that supposedly sells all your products produced in China under direction of staff mostly based in Swindon seems reasonable if not for the tax benefit, but somebody else might reasonably think so, and so I concede that a "double reasonableness" test would allow you to keep claiming the tax benefits of doing that.

On the other hand, if you pay hardly any taxes because you claim to be a "second hand car dealer" but it turns out you never saw any of these cars you were supposedly dealing in, know nothing about cars, and had arranged in advance for the cars to be bought and sold at a calculated loss so as to avoid taxation, now I struggle to imagine how any reasonable person could not see that for what it is, and so (sure enough) real celebrities who tried such a scheme ended up having to pay their taxes (and for the lawyers they'd hired to try to argue this was fine).

Another fun element of GAAR is to require people who sell avoidance schemes to tell you about them. The requirement goes like this. If you sell somebody a tax avoidance scheme that doesn't work you're in hot water _unless_ you told the tax authorities about this scheme first. This way the authorities know what's coming, and the people who dream up schemes keep their income, the only downside is if you're a grifter hoping to avoid taxes it might be less likely to work now. Boo hoo.

[pas]

> This is a subtle loophole, which probably did not admit an easy patch [...]

That's probably false. It's enough to make sure entities holding shares can never set up a system to avoid paying taxes on them. And in any case holding shares can not result in net gain (so no tax credit can result from holding shares).

The law always can be amended and further complicated, even in inconsistent ways! And let courts sort it out. (And then fix it again, and repeat.)

[yellowapple]

> This is more "nobody noticed they were doing it" than "it was obviously happening, and the government shrugged its shoulders." Obviously, unlike a computer, it is quite possible for humans to just not notice that you're doing an illegal thing.

That sounds exactly like a zero-day bug of the sort that caused e.g. Heartbleed and Shellshock.