Licensing tax advice December 5, 2012 at 9:10 am

We are finally seeing the beginnings of a backlash against the kind of aggressive tax planning that is commonplace among multi-nationals and which has done so much to increase deficits and inequality. In this context, I have a modest proposal: license tax advice.

We could proceed as follows. First, giving tax advice to corporations or providing advice on tax structures would become a licensed activity, with personal criminal liability for breaking the law for both giver and taker. Second, a curriculum of training would be developed including ethics, tax law, accounting, and financial products. An exam based on this curriculum would be developed, and a condition for gaining a license would be passing the exam. There would then be continuing professional development requirements, and a five yearly re-licensing requirement which includes continuing ethics training.

Here’s the kicker. The exam would be really, really hard. Entry to the ‘profession’ of defrauding the government would therefore be controlled. We would also charge a sensible license fee, £50,000 say, and require a performance fund of at least £1 million. 80% of all compensation received by the licensee over a minimum would be posted to the performance fund. The ‘profession’ would have rules including standards of disclosure, intent, and so on, and the performance fund would be forfeit in the event of breaches of these rules as determined by the licensing body. Unethical tax structuring would also result in the loss of license and a lifetime ban.

The licensing body would have a governing council which included ordinary tax payers as well as professionals and politicians. It would be subject to parliamentary scrutiny. That would be a good start.

11 Responses to “Licensing tax advice”

  1. Chartered Tax Adviser?

  2. That sounds like the legal profession to me, and I suppose it works there. The cheap fix would be to just include tax advice under the legal umbrella, since tax advice is based on laws anyway.

    The downside of such a selection process is that the people that got through the net would be very smart, so probably exactly the same group of people that provide the most convoluted tax structures.

    I can’t quite decide whether we need more legislation to close loopholes, or a massive overhaul of tax to make it simple and avoid the loopholes in the first place.

  3. Phil – I agree, there is a tension there. Part of the problem is that many of the loopholes come from international treaties rather than our own laws, so we would have to renegotiate those, which will take some time. Simplification has to be part of it too, though, not least so that you don’t need an advisor to be able to pay your taxes.

    We already have too many smart people advising on tax – at least the selection process and the cost of being licensed would allow us to manage the flow to some degree.

  4. Oh please! – how is this not rent-seeking on top of rent seeking? In addition to people fearing that they may run afoul of the UK’s tyrannical libel and “hate” speech laws they would also have to watch what they write, say or tweet lest such words be construed as offering “unlicensed” tax advice.

    I guess you’re not quite suggesting that people should be required to pass an exam before being allowed to respond to incentives – just that this requirement should apply to those who guide hapless taxpayers through byzantine tax codes in an attempt to discover what those incentives actually are. What exactly would be “really, really hard” about the exam? Are we talking mathematics hard or how-many-angels-can-dance-on-the-head-of-a-pin and what-is-the-emperor’s-favorite-color hard?

    Why is it assumed that the government’s ethics are pure here? How about we require those who MAKE tax law to pass a really, really hard (the mathematics kind) exam before they are “licensed” to create another tax?

    If the tax code were simpler and yes, “fairer” there wouldn’t be much in the way of loopholes to take advantage of. And if government were smaller, less powerful and more restrained, there wouldn’t be that much political favoritism to buy…or need for more taxes in the first place. Creating artificial barriers to legally outsmarting stupid or poorly written laws would be simply asininity on stilts and deserving of every adverse outcome it subsequently produced, squared.

  5. UPDATE: I had to wait a whole five minutes before news of another basket of arbitrary taxes emerged from your neck of the woods:

    http://www.irishtimes.com/newspaper/breaking/2012/1205/breaking1.html

    Would suggesting that your drunkard friend get on the wagon for a while qualify as unlicenced medical or unlicenced tax advice? :)

  6. Mercury – 1. Guilty as charged. Yes, it is rent-seeking – and deliberately so. Penal rent seeking at that.

    2. “this requirement should apply to those who guide hapless taxpayers” – only corporate tax payers. I might even allow a de minimis exemption for those who are advising corporations whose ultimate parent had both a balance sheet and earnings under some threshold, and where the UK tax bill was less than, say, a £100,000.

    3. “What exactly would be “really, really hard” about the exam?” Two things. First it would have difficult ethical questions to make sure that licensees understood where the moral line between avoidance and legitimate business choice was drawn.. Second it would be gratuitously difficult for its own sake in order to discourage this activity. I make no bones at all that the spirit of my proposal is to make it really difficult and expensive to advise on tax avoidance.

    4. “If the tax code were simpler and yes, “fairer” there wouldn’t be much in the way of loopholes to take advantage of.” Agreed, but as much of the complexity is in intergovernmental affairs rather than in national ones, it is hard to act unilaterally. Look at google’s Double Irish for instance: https://en.wikipedia.org/wiki/Double_Irish_arrangement
    Fixing that would probably require renegotiation of at least one and possibly more than one of the Irish/Dutch, Irish/Cayman, Dutch/Cayman treaties. That won’t happen soon – and Bermuda or BVI or whoever will always be waiting to pick up any dropped Cayman balls. Licensing could be announced today and in place in a year.

  7. Mr Noonan has nothing to do with me, and I know little about the Irish economy, but I do doubt whether increasing tax by €1.25 billion and cutting expenditure by €2.25 billion is right. I’d be more in the tax €4.5 billion more (mostly on the rich), spend €1 billion more school.

  8. I will concede your good intentions but at the very least it seems highly improbable that layering more complexity on top of a massive, bug-ridden, complex system will result in more benefits than problems and dysfunction. You also beg the question as to where exactly the moral line is these days between government self-aggrandizement and its legitimate areas of concern/powers of coercion.

    It’s possible that such a scheme might have the very likely net-positive effect of discouraging corporations from growing beyond a certain, large size (which I believe increases systemic risks and is detrimental to individual liberties and well-being) but again, it would be even nicer if there were such a (properly functioning) constraint on government itself.

    It’s popular to characterize the Left as being fearful of big corporate power and the Right as being fearful of big government power but I’m afraid that the two have achieved a robust symbiosis while we were fighting amongst ourselves. So, I don’t think this type of plan has much chance of success.

  9. Why can’t multinational just hire those guys and have unit deep in their corp structure?
    To me your proposal restricts individual or smaller companies tax schemes, but not the biggest corporations.

  10. Konstantin – Because there will not be many of them to go around. Not many at all…

  11. Your proposal suffers from the same issue as the tax system: international fragmentation. The outcome should just be that UK tax advisers set up shop in New York or Paris where they can operate unlicensed. Or do you expect extra territorial enforcement powers? I guess the Treasury could operate a fleet of killer drones to take out overseas tax advisers.