Pretty much everyone seems to think the Chancellor’s wife got it wrong. But why?
When companies generate income around the world, but are found to pay little tax in the UK, there is frequently an outcry that tax should be paid in those countries where profits are generated, not the country where the company has its home. But when an individual does the same thing – the wife of the Chancellor of the Exchequer, Akshata Murty, for example, taking advantage of the so-called “non-domicile” status – there is an outcry for the opposite to happen.
Before I go on, I must make two points very clear. First, this article is most definitely not a defence of Akshata Murty (nor is it an attack on her). I know nothing about her personal or financial circumstances beyond what I have read in the papers these past few days. That information may not be complete. This article is about popular thinking on the matter and whether that thinking makes any sense.
Second, tax is complicated. International tax, even more so. I have spent several decades doing my best to know as little as possible about the subject, consistent with doing my job and complying with my own legal obligations (which are 100% in the UK). I don’t plan to start learning about tax now. But much of the outcry emanates from people who know even less than me, which is why an examination of their objectives interests me so much.
The mindset on last Thursday’s BBC Question Time seemed to be something like this: “She lives in the UK, so she should pay tax here.” I wondered how well would that go down in India? With Ms Murty earning around 11m in dividends last year from assets that she holds in India, would the audience in an Indian TV studio be sanguine about no tax reaching the Indian Exchequer because it was all paid to the UK Treasury?
If you think the audience would, or should, be quite happy about that, try thinking about Lady Tina Green, wife of Sir Philip Green. She is a British woman, living abroad, who has earned substantial amounts of income from UK assets, but she doesn’t pay UK tax on that income. When that became widely known it didn’t go down at all well over here.
One key difference between the Green and Murty examples is that Lady Green banked the income in the country where she was living, making it possible for her to spend it there. But, according to the Gov.uk website, the “non-domicile” benefit that Ms Murty has opted for applies only to overseas income that she does not bring into the UK. If there has been any benefit to her, that must mean that the money has remained abroad.
So we don’t like tax being defined by the country where the tax-payer lives (Green and Monaco) and we don’t like it when tax is decided in the country where the income is earned (Murty and India) or where it is banked (Murty again). We are running out of options for something to like. But let’s keep trying.
The common theme between India and Monaco is that they both have lower tax rates than the UK. But whereas Monaco is a tax haven, with no income tax, and one suspects that Lady Green might possibly have chosen to live there because of that, India is most definitely not a tax haven – it has a maximum tax rate of 30% – and it’s not a country that Ms Murty chose. She was born there. The company whose shares form her £700m asset is an Indian company. It was founded by her father, who is also an Indian citizen. He was born in India and still lives there.
It would, of course, be a complete affront to any sense of justice if Ms Murty were liable for the full amount of tax in both countries. But there is a solution to that, one which exists and which I have avoided mentioning so far. Tax could be paid in both countries, but with one country giving a credit for the tax paid in the other. So Ms Murty might be asked to pay UK income tax on her Indian income less whatever tax she had already paid in India. Or she might be asked to pay Indian income tax on her income less whatever tax she had already paid in the UK. It’s called Double Taxation Relief.
Whichever way round one does it, one of the countries won’t receive the full amount of income tax. If it’s India that gives credit for the tax paid in the UK, India would get nothing (because the UK tax rate is higher). If it’s the UK that gives credit for the tax paid in India, both countries would get something: India would get its full amount and the UK would give a discount. That would, of course, offend against the Question Time principle (“She lives in the UK, so she should pay tax here”), but it addresses any envy that people might have that other countries levy lower rates of tax.
So why exactly are we outraged that the Indian citizen, Ms Murty, paid income tax in India on her Indian income? Maybe we just don’t like anyone connected with the UK being able to take advantage of lower tax rates in another country, even if that country is not a tax haven, even though the assets were acquired in that other country before moving to the UK and even when both the assets and the income from those assets remain in that overseas country.
Maybe it's not about logic, fair play or even ethics. Maybe it’s just pure envy?
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