HSBC have failed advising the difference between tax avoidance and tax evasion to their clients

This theme has been played out and debated over centuries. Two thousand years ago Jesus was reported to have said “Give back to Caesar what is Caesar’s and to God what is Gods”, Caesar being modern day HMRC.

Tax evasion

To elaborate further, tax evasion is the illegal non-payment or under-payment of taxes. This practice is indeed ubiquitous and flies in the face of the “taxman”. Tax evasion usually results from the making of a false declaration or, for that matter, no declaration at all of taxes due to the relevant tax authorities. Inevitably, the end result is that the perpetrator will face legal penalties (which may be civil or criminal) if the perpetrator of tax evasion is caught.

Tax avoidance

Conversely tax avoidance is seeking to mitigate a potential tax bill within the boundaries of the established laws of the jurisdiction in which the tax is levied. This practice is not to deceive the authorities (that would be, as above, a tax evasion) but contrary to confine the reporting within the presumed spirit of the law.

This vague synopsis involves the exploitation of loopholes, gaps in tax and other legislation in ways not anticipated by the law. There is a plethora of loopholes in domestic tax law alone, but they may also be between domestic tax law and company law or between domestic tax law and accounting regulations, to name but a few examples.

HSBC foray into Switzerland – the land of mandarins.

As we are fully aware, most international financial institutions have private banking facilities on offer to their corporate clients and ultra-high net worth individuals, seeking advice to mitigate their tax liabilities.
This inevitably encompasses the exploitation of gaps that exist between domestic tax law and the law of other countries when undertaking international transactions.

In my personal opinion, the generally accepted explanation, without infringing any International bylaws, is as follows: use the legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.

Tax evasion is the fruit of all evil; as such it should be eradicated globally. But one has to comprehend the innate differences to that of tax avoidance and it is not just a question of semantics. Moreover, at a time when a country is imminently facing the onslaught of elections, all politicians of all political persuasions jump on the bandwagon of condemning prevaricators practising this illicit art. The fact is that this practice is still occurring and the will to implement sweeping changes falters when elected, irrespective of party colours.

Stand up and be counted – Honour amongst thieves!

When canvassing for financial backing, the appeal of big business is so overwhelming when they consider the burdening costs of electioneering. No one can afford not to have big business on their side. So when corporations plough donations into their preferred parties’ dwindling coffers, is there any regulatory body oversight that questions the corporations’ reciprocal expectations?

This war of attrition between the parties is weighed out carefully to reach a consensus prior to going to the country. Their public self mirrors, in fact, their politics, which is, in essence, opportunistic, populist and inauthentic.

The HSBC kerfuffle is being tried in the public domain but as yet the incumbent party has not offered a plausible retort to the opposition’s rhetoric. It’s easy to pontificate when you’re not in the firing line but at the time of the HSBC incident it coincides with opposition’s time in power…

What makes a muck of things is that when the culprit is caught they levant in such a skulked fashion that only politicians are able to articulate their way out of arms fire. In this case, the institution says sorry and reprobation is immediate but, what of the crime?

Machiavellian to a “T”. The end justifies the means.

So when one reads the apologies from the CEO of HSBC, accepting the flagrant malpractice of banking rules, shouldn’t the accomplices say sorry too i.e. politicians and regulatory agencies?

So the guilty party of this iniquitous act is hung out solely to dry and exposed to the full wrath of the law. Machiavellian or not, the end, thus far, has justified the financial gain and to date the number of CEOs facing punitive damages is noted by their absence.

Come in from the “Cold”

Little do people know, that is the general public, that there are numerous tax efficient methods that fully exploit, within the full remit of the law, the benefits of preserving your accumulated wealth without the need of engineering complex offshore structures!

By António Rosa

António Rosa is an international Financial Adviser at Blacktower Financial Management (Int) Limited with offices in Quinta do Lago and Lisbon.
289 355 685 | [email protected]
Blacktower Financial Management (Int) Limited is licensed by the Gibraltar Financial Services Commission Licence No 00805B
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