| 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. |