The Elephant in the Boardroom
Tax. Is it the responsibility of business to pay tax? If so how much?
It’s a characteristic of corporate responsibility (CR) that the simplest questions are actually the most difficult. That’s why very few companies like to talk about tax in their CR reports. If they told you the truth they’d blush, so best not mention it and hope none of their ‘stakeholders’ notices.
The reality is, all large quoted companies must take action to minimise their taxes. If they didn’t, the CEO and CFO would be hauled in front of investors and required to explain why they were wasting so much shareholders’ money. To do this they have a tax ‘strategy’ that involves a number of tax ‘avoidance’ schemes. Avoidance is the term used by finance guys and tax advisors to mean a novel and legal way of paying less tax. This is not to be confused with tax ‘evasion’ which may also be novel but is illegal.
Since tax law is necessarily complex and many loopholes and interpretations of the laws are under continual legal challenge, the boundary between ‘avoidance’ and ‘evasion’ is not as crisp as the tax experts would have you believe. Clearly lying on your tax return is evasion. But dreaming up a complex series of transactions to minimise tax that you believe to be legal, which is eventually found by a court not to be so – that’s a failed avoidance scheme.
Trouble is, to the vast majority of people, there’s no distinction. It’s all cheating and feeds the persecution theory that Leona Helmsley was right when she said “We don’t pay taxes. Only the little people pay taxes”.UK newspaper The Guardian has been running a series under the banner, “tax gap” to expose the avoidance practices of a number of well known companies, all of which would claim to be responsible businesses. The Guardian made a hash of this last year trying to nail Tesco on tax and ended up having to pay compensation to the supermarket because they simply didn’t understand tax well enough. This time, presumably they have hired an expert.
It’s gruesome reading. Big trusted companies on which we all rely, twisting and turning to avoid tax. But let’s get past the rush to judgement. Let’s assume a deal has to be struck between company and state that is equitable. Just how aggressive can a company’s tax strategy be to be socially responsible? And what is the measure of ‘aggression’?
The CR world has shed no light in here at all. They’ve been so busy defining eight categories of cultural diversity (not counting Vietnam veterans) that they somehow missed the biggie. Social responsibility involves contributing to society.Tax is one area where CR and business interest do not coincide. There’s no ‘win win’ here. So what should the company serious about CR – and there are some – do about tax?
I’m no expert, but I’m going to stick my neck out and suggest that there will never be a satisfactory quantitative measure of tax aggression or responsibility. What we could have is judgement and transparency. If company tax planning was undertaken in public, and decisions referred to a committee including non-executives and independent expert stakeholders, then the board would, to some degree, be relieved of the pressure of minimising tax.
No doubt the tax experts are falling around laughing. Ok here’s my question to those guys making a living by inventing tax avoidance schemes to sell to corporate clients. They work in large accountancy and management consultancy firms and also some banks and law firms. How do you square what you do with your own firm’s CR policy? Are you sure you are not breaching your own rules every day? And just how well are you getting along with your own CR team selling responsibility services under the same brand?
Sage
