Investment managers have realised they have a duty to stop tax avoidance

Posted on October 29 2016

The FT reported yesterday that:

For years, [company] executives have defended these tax arrangements on the basis that they are legal. Some have even argued that they have a responsibility to shareholders to minimise tax liabilities.

So far, investors have remained on the sidelines of the debate. But after the European Commission, the EU's executive body, handed Apple a €13bn bill for unpaid taxes this summer, some began to question whether aggressive tax planning could pose a risk to them in the future.

I am delighted that amongst the initiatives that they report is that of the The Local Authority Pension Fund Forum, with which I have been involved, saying:

Last year, the Local Authority Pension Fund Forum, whose member schemes have more than £175bn under management, contacted all FTSE 100 companies to inquire about their tax arrangements. Only 32 companies responded. Of these, only 15 provided substantive answers, according to the group. “The survey has concluded that, overall, the results have not been reassuring,” it said.

All this has been a long time coming. I first worked on this issue with Sustainability way back in 2006 (and the download seems to have disappeared) when almost no one took any notice. If they had we would be in a better position now. But at long last we're getting there and investment managers are realising that they have a duty to shareholders to beat tax avoidance.

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5 Responses

  1. PSR says:
    October 29 2016 at 10:13 am

    Great news but all I can say is that tax evasion seems to be endemic in our society from those firms that offer cash in hand payments (off the books) to middle class folk with a bit of money to the extremely rich and their OFC shenanigans.

    One observation I can make from experience is that I know that some people avoid tax because if they were to pay it, it would make their plans/projects less viable (they’d have less money to do what they wanted) so not paying tax is offset say against the interest rates they might be paying because they are over leveraged in the first place. So as you can imagine, there is active ‘tax planning’ going on. I have two relations who work in banking in London and the banks they work for actively promote ‘tax efficiency’ programmes through staff newsletters and the like as though it were perfectly normal.

    So the banks get their interest but the country does not get it legally expected tax. What is right about that? Nothing in my view. But that is how people actually work these days. And I find that these people all too often are the first to criticise the conditions of the infrastructure in the UK or even bemoan the growth of poverty without realising their own impact on those problems.

  2. Andrew Chitty says:
    October 29 2016 at 5:32 pm

    Richard, can I ask you what you preferred definition of ‘tax avoidance’ is?

    I assume that you would count contrived arrangements like Jimmy Carr’s K2 scheme as ‘tax avoidance’ but by contrast, but by contrast declaring genuine expenses when filing a tax return as something else (e.g. ‘legitimate tax reduction’), although both are – or were a the time of K2 – equally legal tax reduction strategies. But where would you draw the line between the two?

    I ask because I’ve seen quite a few different definitions of tax avoidance (leaving aside people who call any kind of tax reduction strategy that isn’t blatantly illegal ‘tax avoidance’).

    For example: ‘tax reduction strategies that are at odds with the intentions / plans / expectations of those who drafted / legislated the relevant tax laws’ (this is the core element of HMRC’s own rather convoluted definition); ‘tax reduction strategies in which legal form does not correspond to economic substance’; ‘tax reduction strategies that would have a more-than-zero chance of being found illegal if HMRC were to challenge them in the courts’; ‘strategies that are adopted purely for the sake of tax reduction’ etc. etc.

    I assume that a well-thought-out distinction between ‘tax avoidance’ and ‘legitimate tax reduction’ should coincide with the distinction between ethically objectionable and ethically innocent forms of legal tax reduction.

    You can probably just refer me to something you’ve already written on the subject.

  3. Stephen Struthers says:
    October 30 2016 at 3:55 pm

    I do find it astonishing that the Local Authority Pension Fund Forum, of all people, has only just waken up to this issue