There has been much discussion following the launch of the Fair Tax Mark about just what ‘fair tax' might be.
I, unsurprisingly, take the view that there is such a thing as ‘fair tax'. The almost universal condemnation of Chris Moyles' tax avoidance, which hit the headlines this weekend, clearly proves that a very large number of people in the media and public share that view. At an instinctive level, whatever the legalities, people can and do form moral judgments on tax and believe it appropriate to do so. This then is my first point about ‘fair tax': it is not a purely objective view of what is legally due, or not. There is much more to it than that.
For example, it is impossible to say that there's a right amount of tax that every company must pay. Very obviously that sum depends on its profits or losses. But even that is not enough to explain its tax charge. It also depends upon the government's decisions on tax rates and tax allowances. Currently the UK government has corporation tax rate at 21% but that does not mean that companies need pay this rate. The rate may be reduced, for example, if a company invests in new equipment and gets up front tax relief for doing so. It is a combination of the tax rate and the tax rules, therefore, that set the parameters within which tax might be paid.
But even these considerations are often not enough to produce a final figure of the tax the government actually receives. The actual sum due also depends upon the company's own attitude towards tax avoidance (which is taking risk with regard to the claims made for tax reliefs and allowances when they may, or may not, really be appropriate or due) and even tax evasion, which is illegally making claims or failing to declare income. Some companies undoubtedly take both kinds of risk.
The government's attitude also matters. If it is aggressive in tackling abuse then this has an impact on the amount of tax paid by changing the risk assessment of those who might want to mitigate their tax bills. If it is lax, whatever the law says, then clearly the incentive to avoid tax (in particular) increases considerably.
But even then there are areas where government attitude towards compliance has no impact on the outcomes because there are choices made available to the taxpayer which will, either deliberately or inadvertently, but always entirely legitimately and without risk of challenge from any tax authority, change the amount of tax owing. These options might be reflected in the choices a company makes on such things as its corporate and business structure; payment arrangements, especially when it comes to rewarding senior staff; choice of business location, the way in which it invests and where, and so on.
What should already be apparent then is that tax is not the black and white issue that some make it out to be. Some factors affecting tax paid are broadly factual e.g. profit and loss (although when companies trade across borders even this is open to doubt). Others, on the other hand, are very much matters of choice e.g. corporate structuring to take advantage of tax reliefs, attitudes to tax avoidance and even evasion, and perceptions of the likeliness of being caught.
In that case it is not possible to suggest that ‘fair tax' can be appraised solely objectively. It cannot be. The tax a company pays is, inevitably, based on a subjective process. There is, however, nothing surprising in that. Almost all issues of any consequence in life where opinion has to be formed are subjective; indeed, that is precisely why opinion is necessary. But for opinions to be effective, they need to be informed.
As a result the Fair Tax Mark's assessment of ‘fair tax' is about appraising the choices a taxpayer makes based on the best possible information available. That's the first important point to note about our approach.
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This seems entirely reasonable: “fairness” is subjective.
In order to address the commments from Adrian on your previous post about an acceptable kitemark needing to have clear and objective criteria which can be applied by outside assessors, presumably you are going to need to come up with a clear, simple and measurable definition of “fair” in relation to tax.
I’ll be very interested to see what you come up with – I assume it’ll be based on the “right amount of tax” concept that is touched on in the criteria?
Fair is “comply or explain”
I’ve already made that clear
Or as in accounting, it means “appropriate” which is what “true and fair” means where that implies sufficient data to properly appraise
It’s not a quantum
What’s so hard about that?
As a simple example what’s hard about that: you and I disagree about whether the reduction in current tax which arises from claiming AIA leads to a fair tax rate or not. I think claiming AIA is fair, so a company should not be marked down for it; you say that the company should be marked down, implying that you think the company’s tax position is unfair.
Again, “comply or explain” leads to egregious tax avoidance being classed as “fair” so long as it is disclosed. I think it is unfair.
There is clearly disagreement over how “fair” should be defined, and in the interests of transparency a clear definition of the term would be very helpful.
To illustrate: if the Fair Tax Mark were based on a subjective assessment of fairness, with no set definition, then I might give the AIA company the mark where you would not, and I would deny the mark to the egregious company where you might grant it. The granting of the mark would then depend on the assessor, not on objective criteria, and so the mark would be devalued (as Adrian says, it would become useless for things like assessing tenders in procurement).
I have not said the company’s position is unfair
It can have a Fair Tax Mark
It just has more explaining to do
That is why it cannot be fully compensated
As for fair – we really cannot be more explicit about what we mean – I have said it so many times I am not sure what else to say
The criteria define what we mean by fair
Of course, if the definition of “fair” you are using for your Fair Tax Mark is simply “comply or explain” then that is an objective definition (though it could perhaps do with fleshing out slightly, and making more obvious in the criteria) which is what I’m after.
I suppose the fact that I’d not really registered that it was your definition might be partly due to it not seeming to be fair, by my standards. But it’s yuor mark, you can define the terms.
I really do not think there is any way on earth company and explain can be considered objective
I am sorry: but I am utterly baffled by your thinking it is
And re the latter; yes it is. And no one has to buy it
“Comply and explain” may not be objective in itself, but the equation of “fair” with “comply and explain” is an objective definition of “fair”.
“The criteria define what we mean by fair”
In my opinion, then, you have this slightly backwards. I think it would be clearer and more useful to define “fair” first, and then use the criteria as detailed ways to measure a company’s performance against that standard.
The approach you’re taking is very similar to that in tax legislation (especially the old style) where you have to deduce Parliament’s intention from the detailed wording; in my view that leads to uncertainty, which makes for complexity and disagreement, and ultimately avoidance. Far better is the new style of saying what the legislation is intended to achieve, and then setting out how it does so – though I don’t think the draughtsman does that nearly enough.
I’m interested that you talk of companies “buying” the mark, rather than achieving it. It makes the Fair Tax Mark sound more like a commercial enterprise, rather than a social one.
Well without revenue we don’t survive
So like all social enterprises we have to sell
I will deal with the other issue, again
OK, fair enough. I’m amazed you can do the assessment for £100 a pop, though, if you’re relying on that income to pay the bills. That’s what, a couple of hours of a junior’s time and a quick glance at the result by someone senior, and hope no issues come up? Though I suppose the larger customers will subsidise the smaller ones, with any luck.
How long does it take to read some tax notes and look at an annual return?
Well if that;s all you’re doing, then fine. I suppose I started looking at the mark assuming that there was some level of assessment and testing to it, and I’m having trouble adjusting to the fact that it appears to be something else altogether.
Andrew
I’m beginning to doubt your good intent
To suggest there is no event of testing or assessment in here us, to be kind, a seriously disingenuous comment on your part
If you wish to be considered credibly you need to make credible comments
Richard
I have nothing but good intentions, I’m just confused. I had assumed there is a load of testing involved, which is why I was surprised at how cheaply you can do it; but you’re the one who said it’s just a case of “read some tax notes and look at an annual return”, which implies there isn’t any. Or not much, anyway.
What we will do is glaringly obvious
We are very transparent
For a small SME this will not take long
For a larger company the time is in discussing the changes required
There will,inevitably,be changes required
Am very supportive of this – great idea.
A couple of questions if I may please:
I assume there is nothing stopping others from issuing rival fair tax marks. Whilst rivals couldn’t copy your logo or colouring (assuming it is a trade mark), I’d imagine the words ‘fair’ ‘tax’ and ‘mark’ are so generic that you couldn’t stop someone else using it. How will members of the public know which one is to be relied upon?
You’ve said the judgement of what is ‘fair’ is subjective, but I suspect most people (me included, until I read this) would think (if they saw the fair tax mark on a company’s sign) that there was an objective process it has gone through. If this is not the case (as you suggest), then members of the public would be seriously misled. I assume you are not in the business of misleading ordinary people. So what would you do to overcome this?
Thanks in advance.
There’s a test it has to pass
But judgement is always used – and always is in all marking systems and, for example, when auditing accounts. Indeed, an audit report says ‘In our opinion….” Others might disagree. That’s because it is subjective
We have a trade mark on the logo
We will publish all who get it so people can check whether a claim is real or not
¨
Off topic …
Private Eye today carries an interesting report about Guernsey …
As the PSG has always suspected and written (although you have refused to publish) this is a nasty little place that covers up its “secret activities” by pretending to be stupid.
Not that stupid it would appear!
Or perhaps not ….
Indeed
Richard, I know little about tax and enjoy educating myself on this site (for which, continuing thanks). This blog got me musing on the concept of fairness which, I agree is very tricky. I thought you might have been a little ‘unfair’ to Andrew in his attempt to dig a little further for something more ‘tangible.’
Can we link’fairness’ to the the the social USES of Taxation, to its moral intent or purpose e.g-health care, training for unemployed, housing etc. fairness can often be knee jerk as in the case of Bedroom tax (we’re paying more for housing why shouldn’t THEY!) or more reasoned (why tax payer’s bail outs to banks who caused the crisis!). Clearly this Government has manipulated the concept of fairness by depriving the populace of adequate information to work out what really is fair. The must be a link between fairness and social justice-at present people use this concept like a child who say’s that’s not fair because it can’t get what it wants and isn’t able to see further – the so-called elite are exactly like this, in my view.
We could, but not in the situation I am describing
I think we should look at the Fair Tax Mark as a Mark 1 attempt, a beta version as it were. You are not going to get it spot on first time. But it will be a hell of a lot better than the current situation. As in auditing one does not have to define to the nth degree what is True and Fair, one has to trust the skill and experience of those making the judgement, and crucially their independence. That is why I would like to see the Professional Institutes running Fair Tax Marks. I am not saying the current
Auditing situation is perfect, (although theUK is better than many countries)but the judgements made on results in Accounts are for far higher figures than the tax charges contained therein.
If the Institutes wanted to take over the Mark I am sure we would be happy to discuss it
We are a not for profit organisation
Ho would you expect them to change / improve it?
Anything can always be improved with experience. But the judgement has to by those regarded as independent and with integrity . Now I know the Institutes have their many faults but they still retain (just) the public perception that they can carry out this role. As I said before,Accountants are entrusted to (Audit) opinions on figures well in excess of the tax charge in Accounts, so this task would not be beyond their capabilities.
If they wanted to take this over we’d have to consider it
Clearly fair is subjective.
Perhaps others could offer a Good Tax Mark or a Taxed Fair Mark etc and taxpayers could look for a mark issued by somebody who’s view of fairness reflects their own.
Maybe they will
That’s fine: I’d still take some small satisfaction from getting the ball rolling
But what would you want? Can you share?
My thoughts about a possible alternative are on my blog, if you’re interested: http://andrewjjackson.wordpress.com/2014/02/28/the-fair-share-star/
I wish you well with your scheme
But I also note that it relates to multinational corporations in the main: we have not addressed that issue as yet
And I also note that it tackles none of the issues the CBI, EY and others note about transparency at all
And you make an entirely false claim that a company that tax avoids can have the Fair Tax Mark when I explicitly told you otherwise
When are you launching the scheme?
I’m not launching the scheme – it’s explicit in there that it’s just a suggestion. It would be a major project to set up, and I’m quite busy enough with the day job. You’re welcome to adopt the principles if you;d like, though.
The system would work as well for a small sole-trader as a multinational – deliberately so. There are references in there to transfer pricing and to group assessments, but those would be irrelevant to a sole-trader, so the assessmemtn would be a lot simpler.
As for tax avoidance, you told me that if a company met the criteria you’d give them your mark; and the criteria at present say nothing about avoidance beyond the bits in the tax policy. So far as I can tell, the mark is awarded if enough points are garnered, and there is no sudden-death system like the ones that my scheme has. The worst you can do is deny a few marks.
You’ve said you’ll amend the criteria, but until you do I can only go on the information available to me.
I may be missing something, of course: if so, what is the mechanism for denying the mark to a tax-avoiding company that gets 13/20?
Andrew
Like so many others on this issue, you are proving very adept at setting up straw men.
And somewhat less able to make useful suggestions that might meet with what businesses and the public might want at a cost that might be affordable.
So thank you for your suggestions, but given that they are quite clearly for something quite different from anything for which there is need or any prospect of demand I hope you don’t mind if I give them relatively limited attention.
Best regards
Richard
It’s not at all meant as a straw man. It’s pretty much what I would expect a Fair Tax Mark to do. I’m still baffled that yours has such limited elements of fairness rather than transparency.
Can you point out the areas that you think could be improved?
Cost is of course an issue, and I haven’t really addressed it – but one could almost entirely eliminate the cost if accountants could issue the mark to their own clients. I think that wouldn’t be ideal from an independence perspective, but rigorous accreditation could be a decent substitute.
Respectfully:try it and you’ll see why we’re doing what we are
Despite that it has apparently created a furore
And that’s despite it being largely consistent with the key issue many agree upon: transparency and better communication
I think the problem is that your mark isn’t really hitting what people think of about “fair tax”. No-one I’ve spoken to equates fairness and transparency the way you do. Transparency may be a necessary condition for fairness, but it certainly isn’t sufficient.
I’m still wondering about your mechanism for denying your mark to a clearly tax-avoiding company that gets 13/20…
But you live in the tax world
So of course you don’t hear that
And you’re right: the condition may not be sufficient. We’ve never denied the criteria will change