Senator Carl Levin has been running hearings into the way that various multinational companies use the tax code. It's entirely possible to have some sympathy for the position of the Distinguished Solon. It's also possible to entirely dismiss his concerns. Because what it really comes down to is whether we believe in the rule of law or not.
The Senator has a very good outline of what he's complaining about in his opening remarks which you can find here. I don't doubt that what he says is factually true.
However, here's what is really at the heart of this discussion. The vital question: is there such a thing as tax avoidance?
There are two positions that are clear and obvious concerning tax. One is where you are simply a scofflaw and just don't pay the tax that is due. This is tax evasion, is a criminal matter and if you're caught you'll be prosecuted and jailed for it. A very simple concept indeed. Then at the other end of the spectrum there is tax compliance. You fill out all the forms as required, write the check that is expected of you and this is tax compliance. Or even tax planning if you like. Again this is a fairly simple concept.
Distinguishing between the two is not difficult. If you claim a tax deduction for a mortgage that you don't have then this is evasion and "Hello jail cell!" for you. If you have a mortgage that Congress has deliberately decided you should have a tax deduction for then claiming said deduction is just tax compliance. You're doing what Congress wanted you to do, expected you to do.
However, there are those who insist that there is a third class: tax avoidance. This is where you do something that is entirely legal within the laws as Congress wrote them. But you use them in a manner or way which Congress (or, if we're to be slightly more accurate, certain members of it or other campaigners) thinks you shouldn't, or in ways that they didn't think you would, then this is labeled tax avoidance. It is this class of actions that the Senator is complaining about. Everything is entirely and strictly legal: otherwise it would not be hearings in Congress that are being reported but court cases. The argument is that while the law does allow these things perhaps it shouldn't. Or that while the law allows some limited use of these tactics not to the extent that they are being used. Or even that some people should be allowed to use them in some circumstances (that's why they're in the law after all) but other people in other circumstances should not be allowed to.
Which leads us to this from the Senator:
The bottom line of our investigation is that some multinationals use our current tax system to engage in shams and gimmicks to avoid paying the taxes they owe.
I agree that you can read it that way if you wish. I don't and for a very simple reason. I reject the very concept of tax avoidance itself. For I am insistent that we must abide by the rule of law. This not an argument I make specific to the US at all: I make the very same argument in my native UK as well (much to the disgust of certain tax campaigners). The law is the law and we are all subject to it. That's what the rule of law means. So, if a particular method of organising your business is legal then it's legal, period. There is no room for the concept that you are using the law as the legislature thinks it shouldn't be. There is just the law that they passed and which it is necessary to obey.
That is, there is only tax compliance or tax evasion: there is no such thing as tax avoidance. And thus there cannot be shams and gimmicks in relation to tax either. There can only be tax evasion, a criminal matter, or tax compliance, which is obeying the law.
Which does rather leave us with what to say to politicians who complain about tax avoidance? Well, what I have said to UK politicians is that, well, given that you're the people who write the laws you should probably change them so that those activities you decry move from being tax compliance to tax evasion. For there is no such thing as tax avoidance anyway.
