People aren’t as averse to paying taxes as they once were.
“Twenty years ago both the government and the public as a whole took the attitude that aggressive tax avoidance was fine if it passed muster legally,” David Harvey, chief executive of STEP Worldwide told Advisor.ca during the association’s Toronto conference.
“But they now see things much differently because of the events of 2008; it’s also due to the government needing more revenue.”
Harvey says this combination of changing public perceptions about tax avoidance, along with new regulations, means advisors must retool both the technical and soft sides of their practices.
“You can’t take the attitude that the letter of the law is the only thing you need to look at—ethics and moral judgment matter as well,” Harvey says. “That doesn’t mean tax avoidance is always wrong; in fact, it’s often put in place by governments for very specific reasons, like supporting businesses and encouraging people to save for old age.”
Read: “Don’t go to jail for your clients”: STEP
Further, changing tax regimes both in North America and the EU present complexities advisors didn’t have to worry about in previous years. This, Harvey says, is requiring them to “develop expertise in areas they may not have thought about before.”
He adds the public is listening when news breaks about companies who employ highly aggressive tax avoidance strategies, and in many cases will stop giving them business.
Read: How Apple paid almost no tax
A recent case involving British comedian Jimmy Carr illustrates the changing perspective.
Carr participated in an especially aggressive but entirely legal tax avoidance scheme. “Twenty years ago everyone was doing it; but now he has reputational problems,” says Harvey.
“Will people continue going to his shows, and will he get TV contracts? A good advisor would have said, ‘Yes, it’s perfectly legal, but you can do some other planning that doesn’t come off as so aggressive and won’t expose you to reputational damage.”
Read: Protect your rep
The same applies to people who hide behind philanthropy, he adds.
“They think because they’re philanthropic, they can take aggressive strategies in other areas. But people will see through it and the advisor needs to think about this in the planning process.”
Harvey grants it’s not the advisor’s job to be conscience of his or her clients. “But it is our job to get our clients to think about their consciences,” he suggests.
He says a government should concentrate on creating an environment of certainty on tax issues, both for businesses and individual taxpayers. Incomplete or imprecise legislation, not just higher rates, can lead businesses to relocate into more predictable jurisdictions.
Read: 5 ways Canada is targeting international tax evasion
“Like citizens, businesses vote with their feet.
“If you look at the U.K., a lot of businesses are relocating for the sake of certainty. Some actually relocate to slightly higher-tax jurisdictions because of the certainty they offer,” Harvey says. “These businesses know what’s going to happen in the next ten years and they trust the government will keep things consistent.”
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