SRA Should Not Condemn Lawful Tax Avoidance

SRA Should Not Condemn Lawful Tax Avoidance

The Solicitors Regulation Authority of England and Wales has just announced a crackdown and investigation against 26 firms over alleged failures in their anti-money laundering procedures.

The SRA move appears to arise, at least in part, out of its investigations and warning regarding tax avoidance issued to law firms in late 2017.

Given that the both the original warning and the ensuing investigations raise potential money laundering issues, it may be that the SRA’s overarching objective is to ensure that law firms comply with not only with SRA regulations, but also the broader AML issues as the two are inextricably linked.     

I agree with the SRA that law firms need to be vigilant. However, in the case of the provision of advice in regard of tax avoidance (unlike the recent AML disciplinary actions), I believe the SRA may have got it wrong.

The SRA has several guiding principles under which solicitors operate and are duty-bound to implement. The first is:

You must uphold the rule of law and the proper administration of justice – You have obligations not only to the clients but also the court and to third parties with whom you have dealings on your clients’ behalf.

Sadly, the SRA would appear to have forgotten this first principle. In late 2017, it circulated a warning notice that suggested solicitors who facilitated tax avoidance, including effective avoidance, would be in breach of its code of conduct. My position on taxation departs from the one taken by members of what I call “the anti-1% brigade.” My position is simple: "Tax avoidance" is lawful, while "tax evasion" is a crime.

I understand the moral argument suggesting that individuals and companies should not avoid paying tax commensurate with their earnings. However, the law does not always overlap with morality. We are all obliged to live our lives to the letter of the law. If the law permits individuals and companies to exploit lawful tax avoidance strategies, I struggle to see what legal professional ethical wrong is done by a lawyer helping a client to achieve that end.

The SRA’s warning notice to solicitors that those who facilitate tax avoidance measures may breach the SRA’s code of professional conduct strikes as an aggressive regulatory shot over the bow of English tax lawyers.

Lord James Clyde held that: “No man in this country is under the smallest obligation, moral or other, so as to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.” This is a succinct statement that captures the premise of tax avoidance.

However, the SRA offers the opinion that this approach has been rejected by Parliament by bringing in the General Anti-Abuse Rule 2013 legislation. The SRA goes on to add that the widespread assumption that "tax avoidance is legal" no longer applies, stating that Her Majesty's Revenue and Customs will act against what it refers to as "abusive tax avoidance schemes”.

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