The Morality of Tax Avoidance

Creighton Law Review, Vol. 43, No. 3, pp. 693-745, 2010

Victoria University of Wellington Legal Research Paper No. 9/2012

54 Pages Posted: 29 Jul 2010 Last revised: 8 Apr 2015

Zoë M. Prebble

University of British Columbia - Faculty of Law; University of Michigan Law School - LLM Candidate; New Zealand Law Commission

John Prebble QC

Victoria University of Wellington - Faculty of Law; Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien; University of Notre Dame Australia - School of Law

Date Written: 2010

Abstract

If “tax avoidance” means “contriving legal transactions that reduce tax in ways that are contrary to legislative policy”, then “evasion” is illegal reduction and “mitigation” is unexceptionable reduction. Apparently, tax avoidance may occur endogenously, within the existing economic framework of a business or an estate plan, or exogenously, by resort to an independent tax shelter. The distinction is apparent, but not real. (a) Whether an arrangement amounts to avoidance and, if so, (b) whether the avoidance is moral are fundamentally the same questions in all contexts, including estate planning. Judges sometimes claim that tax avoidance is moral. That claim appears to be based on the distinction that avoidance is legal whereas evasion is illegal. A legal/illegal test cannot determine questions of morality. Others who aver that tax avoidance is moral base their claims on four assumptions: that taxpayers have a moral right to their pre-tax income; that avoidance is a victimless activity; that the immorality of evasion is derived solely from its illegality (and therefore that avoidance, which has the same factual matrix, is moral); and that morality is wholly independent of the law. These assumptions are mistaken. Evasion is immoral in a deep sense, not simply as malum prohibitum. Since evasion and avoidance share their essential elements, and are separated only by a legal difference, it follows that avoidance is also immoral. Public opinion can test this conclusion, albeit imperfectly. The approach is deontological, focusing on actions, not on agents, and comparative, drawing on cases from several jurisdictions.

Keywords: Income Tax Law, Tax Shelters, Anti-Avoidance, Morality, Estate Planning, malum in se, Tax Evasion, Tax Avoidance, Ethics, Duke of Westminster, Learned Hand

JEL Classification: K34

Suggested Citation

Prebble, Zoë M. and Prebble QC, John, The Morality of Tax Avoidance (2010). Creighton Law Review, Vol. 43, No. 3, pp. 693-745, 2010; Victoria University of Wellington Legal Research Paper No. 9/2012. Available at SSRN: https://ssrn.com/abstract=1650363

Zoë M. Prebble

University of British Columbia - Faculty of Law ( email )

1822 East Mall
Vancouver, British Columbia V6T 1Z1
Canada

University of Michigan Law School - LLM Candidate ( email )

Ann Arbor, MI
United States

New Zealand Law Commission ( email )

Wellington
New Zealand

John Prebble QC (Contact Author)

Victoria University of Wellington - Faculty of Law ( email )

PO Box 600
Wellington, 6140
New Zealand
+64 4 463 6311 (Phone)
Papers Indexed at HOME PAGE (Fax)

HOME PAGE: http://www.victoria.ac.nz/law/staff/prebble-scholarly.aspx

Institut für Österreichisches und Internationales Steuerrecht, Wirtschaftsuniversität Wien ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

University of Notre Dame Australia - School of Law

Sydney Campus, New South Wales
Australia

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