How can BEPS “succeed” without clear definitions?

I was struck by the comments sent by CFE to the European Commission, Parliament and Council as Europe votes in the European  elections over the next few days, about the need for clarity in tax law. I quote their comment in full:

“1. Tax must be in the law

The law will have to decide in a clear and unambiguous manner on which arrangements are

acceptable and which are not. Acting within the limits of the law is a fundamental right of each

individual. Taxpayers need legal certainty for planning their business and managing their assets long term.

Advisers need certainty to prevent them from incurring civil, disciplinary and criminal liability

for serving their clients. Uncertainty arises from the notion of the spirit of the law prevailing over the letter of the law. The EU and member states should not seek to introduce unclear concepts like “aggressive tax planning” which blur the distinction between legal and illegal and are subject to the whims of public opinion. Tax systems shall ensure a certain level of flexibility to be able to respond to developments in the tax field and to minimise compliance costs.

→ Clearly define key concepts such as abuse, avoidance, artificiality or double non‐taxation;

→ Tax-avoidance laws must be clear, well-known, and not open to discretion.”

It seems to me that this goes to the heart of the issue. My frustration is that at meetings and discussions there is no clear agreed set of definitions for the issues which CFE describe. Often discussions descend into disagreements about what is being discussed for just this reason but there doesn’t  seem to be an effort to agree definitions for these key concepts.

Now some will say that we all know what we are talking about, but unfortunately in much the same way as beauty is in the eye of the beholder, different people will draw the line around aggressive tax planning differently.

An example of this is the confusion between evasion and aggressive tax planning. At a recent conference, Sol Picciotto of Tax Justice Network described the tax planning of Take That members  in the UK as evasion. I have to disagree with him, Take That members declared their income, they then entered into a tax scheme to shelter that income from tax. I think that is aggressive tax planning not evasion, but the fact that we cannot agree on that is depressing after all the debate which has gone on over the last few years.

Returning to the EU, as the forum on tax governance has demonstrated there is no agreed legal definition of aggressive tax planning that is agreed by member states and can thus be used in the forum. How member states are meant to deal with “aggressive tax planning” in a cross border context without a legal definition is an interesting question . How taxpayers operate in these circumstances is also interesting, how do they interpret the “spirit of the law”?

To build a solid house you need good foundations, to build an international tax concensus you need common definitions as the foundations for a system  which can operate under domestic law and cross border. Governments need to focus on this key task if BEPS is to succeed and be workable.

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