Taxing Times 2 – The Lore

The law behind us, let’s turn our attention to the lore and explore those changes afoot that are being driven largely by a growing global sense of fairness and the notion of good corporate citizenship.

Generally speaking, modern society holds the view that as a company benefits from the people and places where it operates, it should give something back.

Today, there’s very much a social contract to trade in a fair and community-minded manner in every jurisdiction where you happen to operate. And if you don’t, you run a very serious and potentially devastating risk to your reputation.

Conversely, you can build enormous shareholder value on the back of being a good corporate citizen.

Take the case of Amazon. With its European operations headquartered in London, the multinational decided to manage its procurement and shipping functions from Luxembourg on continental Europe.

But as soon as it sensed an impending hue and cry from the United Kingdom – driven almost solely by the fact that this set-up would significantly reduce the tax paid in the UK – the board took the decision to move these undertakings back to Britain.

Yes, it meant Amazon had to pay more tax but it was an expedient and pragmatic decision as the tax bill paled when compared with the likely cost had its reputation been damaged.

Then there are the results of a survey conducted at a recent ‘Principles for Responsible Investment’ conference that highlighted how the younger generation investor in particular has a strong aversion to anyone seen to be exploiting tax loopholes.

For the record, when some 10,000 young investors from seven countries were asked what factors they’d take into account when arriving at an investment decision, the overwhelming majority said a squeaky clean tax record.

Some 78 per cent of those in South Africa and 76 per cent in both Australia and Brazil led the way, indicating that they simply would not invest in companies guilty of benefitting from tax ambiguities.

So what does all of this mean for the boards of these international organisations?

At the very least, the risk profile the board sets for the organisation and the level of risk appetite it feels comfortable with should have tax and tax implications as a key component.

And this makes it incumbent upon the board to be sufficiently engaged with tax so as to understand its tax profile.

There need to be systems and processes in place to support the company position if a ‘red flag’ did arise, and I guess the best advice I can give is simply this…

Because of the importance of being a good corporate citizen and the not insignificant negatives should we be seen to come up short, a good question to ask yourself is:
If our tax information was made public, how would we look…and how would the general public view us?

If we can comfortably and confidently explain our tax position and answer in the affirmative, we’re in what is commonly regarded in today’s jargon as ‘a good space’.

Until next time,

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