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Share via Email Protesters marching down Regent Street in London protesting against Starbucks' corporate tax policies. Tax planning is tax compliant behaviour but there is a grey area between this and "tax avoidance". Tax avoidance, while legitimate, can be seen as aggressive when it involves using financial instruments and arrangements not intended as, or anticipated by, governments as a vehicle for tax advantage.
For example, the use of overseas tax havens. Avoiding tax and bending the rules of the tax arguments for and against business planning is not illegal unlike tax evasion; it is operating within the letter, but perhaps not the spirit, of the law.
Businesses may therefore be complying with the law — but is it ethical? Tax as a social responsibility At a time when government spending cuts are having a real impact on the everyday lives of people, how can multinational corporations be avoiding paying their fair share of taxes?
As Vince Cable said: Avoiding tax is avoiding a social obligation. Tax avoidance can make a company vulnerable to accusations of greed and selfishness, damaging its reputation and destroying the public's trust.
Starbucks and Amazon, for example, were vilified and boycotted as a result of their tax policies.
Will Google face a similar backlash after their chairman's comments? Paying a fair amount of tax in the countries where they operate is seen as the socially responsible thing for companies to do: These are public services which companies benefit from either directly or indirectly.
Tax avoidance has been branded by some as an immoral and unethical practice that undermines the very integrity of the tax system. Company directors argue, however, that their responsibility is to maximise the value that they deliver for their shareholders and that includes keeping tax costs to a minimum within the realms of what is legal.
Aside from corporation tax, businesses should be acknowledged as contributing to the economy in other ways. In the UK they pay PAYE, national insurance contributions and business rates, while in other countries they can contribute through agreements to pay infrastructure costs.
Paying a fair share Many multinational companies, apparently operating very successfully in the UK, are paying little or no local corporation tax. Corporation tax is a tax on profits, so if a company makes no profits, it should not have to pay corporation tax. The issue is whether the profits are calculated correctly and there is much confusion between the two.
It is plausible that a company that has high sales but pays no tax may be making no profit, although it would be wise to question how those profits were calculated.
The public expects businesses to pay their fair share of tax, but what constitutes a fair amount is subjective. InHMRC declared that "we want to make sure that the burden of tax does not fall unfairly on taxpayers who play by the rules and pay their fair share", but it gives no definition of what is to be regarded as fair.
But legislation that centres on ideas of what is "reasonable" behaviour is still too subjective and difficult to define. What businesses most want out of a tax system is certainty — they want to know what their tax bills will be so they can plan their strategy and investments accordingly.
In Australia, the tax planning industry needs to get clearance for any new tax avoidance scheme in advance. This would help to give clarification of what is fair.
Tax policies should be underpinned by the guiding ethical principles of accountability, transparency and consistency. Tax planning arrangements that go beyond the policy intent of the law and involve deliberate approaches to exploit the tax system are not ethical, it's as simple as that.
But it could be argued that the corporations are piggy in the middle here. If companies consider it to be their fiduciary duty to maximise profits for shareholders, institutional investors which include our pension funds and savings accounts benefit.
Is this not a benefit to society? Ensuring businesses pay a fair return It is perhaps time to start paying more attention to where our money is invested. Many investment firms with a socially responsible mandate say they do take account of companies' tax practices when deciding where to invest but few actually screen out companies over tax issues.
No timings have been confirmed on this move, but the FTSE's stance may reflect a future trend. Arguments for and against tax avoidance are missing the point. It is perhaps politically too complex to argue that companies pay more tax, but government and business should ensure that corporate tax contributions are a demonstrably fair return to society.
Rather than hiding behind the business case for tax avoidance, businesses need to be transparent about their tax planning. Both companies and government need to pay more attention to communicating their position on this issue and their interpretation of the law — and above all they need to be open about it.
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