Tax is just one more Corporate Social Issue

Oddly enough, there was a time when Britain had no patience with corporate tax avoiders. David Williams, of KPMG’s Tax Business School, says that legal tax cases during the Second World War showed a marked shift in the attitude of the courts.

“There was a feeling there where everybody pulled together,” Williams said. “It was the last time society and the state really were seen as virtually the same thing. To reduce your tax payment in that sort of circumstance would have been seen as an enormously irresponsible thing to do.”

Nowadays, however, it is rare for big business to see the payment of taxes as an explicit social duty.

Public companies frequently claim to practise “corporate social responsibility” (CSR), and most leading businesses boast of charitable and green activities in their annual reports.

Barclays Bank calls itself a “responsible global citizen,” with concerns ranging from carbon emissions to credit card fees. It even has a reputation committee, chaired by deputy chairman Nigel Rudd. But nowhere does its policy mention Barclays’ tax avoidance schemes.

The advertising group WPP, before moving to the Irish Republic last November to cut its taxes, boasted six different kinds of “corporate responsibility,” including minimising its environmental impact and only engaging in “ethical marketing.” Tax did not figure in the list.

The drinks firm Diageo does go into laudable detail about tax policy. Nowadays, it claims to allocate taxes fairly between countries, trade with subsidiaries on a genuine “arms-length” basis, and only book profits in “the territories where our assets, activities and risks are located”. But the company declines to discuss the reasons why it reassigned its valuable Johnnie Walker brand to a low-tax regime in the Netherlands, and subsequently fell out with Revenue & Customs about tax avoidance.

The most recent manifestation of this trend has been inversion transactions, in which US-based corporations nominally move their headquarters to a tax haven like Bermuda. Of course, this begs the question of how to distinguish abusive tax evasion from legitimate tax avoidance. But while this is a hard question to answer from the government’s perspective, or in a court of law, it is less unclear from the corporation’s perspective. Most corporate tax managers know very well when a transaction is tax motivated as opposed to having a non-tax business reason. Thus, a corporation can be legitimately expected to police its own behavior in this regard, without worrying too much about where the line should be drawn.

“The majority view remains, especially among multinationals, that tax is a cost to be minimised, and that tax avoidance is a legitimate activity,” says John Christensen, economist and director of the campaign group Tax Justice Network.

Christensen added that when he examined the corporate social responsibility policies within the statements of some of the biggest companies several years ago, “none of their statements mentioned tax”.

Dave Hartnett, the Revenue’s top civil servant, has banged the drum in parliamentary evidence for companies to link tax with CSR.

However, research by Oxford academics shows that businesses “believed that shareholders, analysts, the media and the public do not seem to pay attention to corporation tax, whether due to a lack of comprehension or a lack of concern. Respondents were unanimous in saying that the payment of corporation tax is not at present a social issue relevant to CSR,” said the report from a team headed by Professor Judith Freedman at the Centre for Business Taxation.

On the other hand, things may be beginning to change. Research also shows that nearly 60% of financial directors in the UK now regard tax as an ethical issue.

Certainly, there are a significant minority of companies who agree that paying tax is a key part of corporate responsibility, if not the core corporate responsibility, to society. For them, tax is where CSR begins.