I offer this from the Guardian diary, which seems an apt comment on Tesco’s CSR:
We thank reader John Hill for his sighting of a Tesco lorry that bore an adapted version of the company’s slogan. “Every little helps”
[T]has a very different meaning with the first and last letters obscured.
The December edition of Finance Magazine in Ireland, sponsored by KPMG had an article entitled ‘Is Tax on Your Board’s Agenda’ in it. Written by Liam Lynch, a tax partner at KPMG it includes this classic:
The ‘moral’ agenda
Alongside these developments, a worrying tendency seems to have emerged among external stakeholders to make ‘moral’ judgements about tax planning and to expect companies to manage their tax affairs in a ‘moral’ way. The ‘fairness’ of corporations’ tax policy is frequently questioned by tax authorities, pressure groups and media.
It continues:
Let’s be clear about this. Tax is a cost to business. As with any other cost, the board members owe their shareholders a duty to manage that cost by the legal means afforded to them. Where a company’s tax philosophy is heavily influenced by a duty to shareholders, the focus should be on responsible management of tax cost. Again the starting point should be board level decisions on how the risk needs to be managed.
It seems to have become fashionable to use terms such as ‘aggressive tax planning’ and ‘unacceptable tax minimisation’ synonymously with ‘tax avoidance’, whilst arguing that such practices demonstrate a lack of morality in tax matters. However there is no agreement on what constitutes morality either within or outside the sphere of tax. We cannot therefore have recourse to such a term in determining whether planning of tax affairs has crossed some illusory line. It is in the interests of some parties that lines are blurred in the perception of the difference between legal tax avoidance and illegal tax evasion. However, we must rely on the rule of law to protect the rights of both taxpayers and exchequers alike. Otherwise we will have to deal with such questions as to whether we should pay tax if it funds something we consider immoral. That is surely something we wish to avoid.
Ah, so there we have it. It’s an amoral world in which only the law gives us guidance on what we may or may not do.
What a bizarre logic. How utterly wrong.
How profoundly in conflict with the whole ethos of corporate social responsibility.
How, if I might say so, morally bankrupt.
At the end of the day, how profoundly unprofessional.
That’s KPMG for you.
John Christensen of the Tax Justice Network had this letter in the Guardian this morning:
Tesco claims in its corporate responsibility statement that it uses its size and success to be “a force for good” in the communities where it operates. Its aggressive tax planning (Tesco’s £1bn tax avoiding plan – move to the Cayman Islands, February 27) reveals the exact opposite. Tax avoidance harms communities by depriving them of the benefit of the wealth created by business. When Tesco talks about operating as “tax-efficiently as possible” it demonstrates a lack of corporate responsibility and commitment to the communities which sustain its profits.
Aggressive tax planning through offshore structures also provides the big supermarket groups with a financial advantage that is not available to their smaller competitors, further tilting the playing field away from fair and competitive markets. Public concern about the market dominance of major companies like Tesco needs urgently to take account of the astonishing subsidies they receive through their tax planning.
John Christensen
International secretariat director, Tax Justice Network
Precisely.
If you search Google blogs for Tescos tax tonight you’ll find this:
Tesco’s tax scheme: It’s not big and it’s not clever
29 Feb 2008
Tesco’s tax avoidance scheme dwarfs tax losses from income shifting, Simon Sweetman says “It’s not big and it’s not clever”. Which of course is counter-intuitive, because Tesco is very big and very clever. But recent revelations show …AccountingWEB.co.uk Tax Zone – http://www.accountingweb.co.uk/tax
But if you follow the link you’ll find this:
The page cannot be found – 404 error
Sorry, the page you are seeking may have been moved,removed, or is temporarily unavailable.
As usual, Simon had written a good story. And the problem is not that AccountingWEB is down; it is not. It says only one thing to me: I smell Tescos’ lawyers at work. Polly Toynbee has suggested as such in the Guardian.
I find that amazing: the point the Guardian made is of massive significance. This is that three British organisations, Tescos, British Land and the British Airways pension scheme entered into a complex tax planning scheme using Cayman Islands structures, the reason for which could only have been tax saving. In the process they ensured that the economic reality of the transaction they were undertaking was not reflected in the tax treatment that they have in combination sought to apply to it.
There is no other explanation for the structure used. I can put it as bluntly as that. It was designed to save tax. Tescos was an intended beneficiary of that fact.
And now they are seeking to hide that fact by muzzling the press. Even though they claim all they did was legal and it was their duty to do it.
I think that is even more sickening than the original abuse.
The Guardian has published some good old fashioned investigative reporting on Tescos today. As it says:
Tesco has created an elaborate corporate structure involving offshore tax havens which enables it to avoid paying what could be up to £1bn of tax on profits from the sale of its UK properties.
The complex new structures uncovered by a six-month Guardian investigation include a string of Cayman Island companies, each named after a different colour, from aqua to violet. These are being used by the supermarket giant as it proceeds with its announced programme to sell and lease back £6bn worth of its UK stores.
The stores are being sold to external investors providing Tesco with a big one-off gain which, ordinarily, would be liable to tax, while allowing it to remain in the stores and pay rent to the new owners.
Ian Griffiths and Felicity Lawrence who wrote this are two first rate journalists. I know how long they worked on this story. But what really gets me about this are the broader issues. In its CSR statements Tescos says:
One of our most important values is to treat people how we would like to be treated. We try to achieve this by being a good employer and by playing our part in local communities. People tell us that they want use to use our size and success to be a force for good.
Paying tax in the place where you make your profit is the best way any business can support its local community. Tescos is not doing that. It is seeking to avoid its corporate responsibility to the UK in this respect. That is the only justification for its use of a Cayman structure.
Tescos cannot argue, as it does in the Guardian, that it has:
a duty to organise its affairs in a tax-efficient manner.
That is not true. Section 172 of the Companies Act 2006 says:
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the
company for the benefit t of its members as a whole, and in doing so have regard (amongst other matters) to(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
Nothing in there says a company has a duty to be ‘tax efficient’ (which is simply a euphemism for tax avoiding). Indeed, since it is abundantly clear that this decision is:
a) Not taken in good faith, or Tescos would not have worked so hard and for so long to stop the Guardian publishing it story (as I believe they did);
b) not in the best interests of their employees, who would clearly benefit from the tax being paid in the UK;
c) Is not beneficial to having a good business reputation and is inconsistent with a high standard of conduct, especially in light of current opinion on the use of tax havens;
d) increases long term risk for shareholders who no longer have control of the prime assets the company uses, which are instead now controlled through opaque structures;
and as such it is easy to argue that the deal fails the tests in the Companies Act, let alone any CSR measure.
So let’s be clear what is really going on here: Tescos is using abusive structures to increase profits at the expense of the UK taxpayer who form the vast majority of their customers to enhance the well being of the senior management first of all and the wealthiest in society who own their shares second (pensioners included by the way: almost all with private pensions are by definition in that wealthiest grouping) at cost to the rest of society at large.
Nothing Tesco can do can redeem that and make them seem like a responsible company: they’re not. This is corporate fiddling. It cannot be described any other way.
Nick Cohen has responded to all those (and there were quite a lot of them mysteriously mainly from tax havens) who defended Liechtenstein in the pages of the FT last week. As he put it:
All missed the point that tax havens are inherently criminal and would go under without the proceeds of crime.
And, as he added:
As John Christensen, director of the Tax Justice Network, puts it, they are enemy states, pirate islands that have declared economic war on the rest of the world. It’s not just that they happen to be used by individual criminals – drug dealers, kleptomaniac African dictators – they are criminal entities themselves that survive by sucking potential revenues out of wealthy and destitute countries alike. If rich citizens obeyed the law, or tax havens ended their secrecy, offshore banking wouldn’t exist.
John’s words closely echo those I used on the BBC1 news on Friday night – and since John and I were in different countries with very little opportunity to speak to each other last week that might be coincidence.
Except it isn’t. No doubt John made other points to Nick, as I did to the BBC, but the message both the BBC and the Observer chose to deliver was the same, which is that tax havens are engaged in economic warfare, on us the ordinary, law-abiding citizens of the world
This is the reality at the core of this issue. An elite in our society are using the legislation of tiny states, which they have through their agents in the banks, accountants and lawyers of the world the means to influence, to secure secrecy for their transactions which are designed to ensure that they shift their tax burden onto the ordinary people of the world through the imposition of ever bigger taxes on labour. Those people who suffer this increased burden represent the vast majority of the electors in the democratic states in the world: states that represent them but from which the rich wish to float free, as we have seen the UK’s non-doms seek to do.
This is what Germany is signalling it’s fed up with. This is what the OECD says has to stop. This is what decent people the world over think is unethical.
The increase in the wealth gap, which this practice has fuelled, has reached the point where people are saying ‘enough’. If the rich have any sense they’ll start paying tax pretty quickly. It’s the only way they’ve got to preserve their position. Continuing to dodge has ceased to be acceptable.
The Guardian has reported that:
One of Northern Rock’s largest shareholders has challenged the bank’s board to a public fight over its future at a meeting of investors scheduled for next week.
RAB Capital, the hedge fund which owns almost 7.6% of the bank, said it would attend the extraordinary shareholder’s meeting on January 15 to persuade rank and file shareholders they should prevent the board selling its assets “on the cheap” or succumbing to “political pressure”.
Apparently RAB chief executive Philip Richards has said
People seem to have ignored the fact that the company remains owned by its shareholders.
I find this pretty offensive. RAB is working with Monaco based SRM Global. And their aim is simple: to exploit the current crisis at Northern Rock to make money at cost to the government, without whom Northern Rock would be bust.
There’s only one consolation in this: they are showing how flawed is the model of share ownership being at the core of corporate governance. When, and in this case I think it will be when and not if, people realise that it is the ordinary tax payer of the UK who is being held to ransom by a bunch or exploitative gamblers questions will increasingly be asked about why board representation and ownership status is reserved for control by only one source of finance and one provider of risk equity in business.
Lenders have rights to.
So too do employees.
And so to do long term business suppliers.
All three of these groups normally have much longer term, more constructive, risker and economically important relationships with our largest companies than do the shareholders (or more accurately, the investment managers who represent shareholders). In which case they too need to be represented on boards. They too need to be recognised as users of financial statements. They too need to have power over key decisions.
So thanks RAB and SRM: you’re proving the case for corporate reform.
War on Want issued the follwoing press release today:
Tax haven poverty alert
The City of London today came under fire for paying out million of pounds in Christmas bonuses while denying many of the world’s poorest countries the tax owed by British companies.
The anti-poverty charity War on Want attacked the City amid reports that dozens of London bankers at Goldman Sachs have been awarded bonuses of at least £5 million each in a record global bonus pool of £9 billion.
Leading earners included chairman Lloyd Blankfein, in line for £35 million, and Simon Dingemans, senior European mergers and acquisitions banker, who will get over £10 million in shares and cash. According to the reports, hundreds of top moneymakers at Goldman’s Fleet Street offices will receive £500,000-plus after the company had an outstanding year advising on massive takeover deals.
Other banks are expected to hand out large bonuses, including Barclays Capital, DresdnerKleinwort, Lehman Brothers, UBS and Morgan Stanley.
The International Monetary Fund has branded the City an onshore tax haven for its role in helping companies dodge tax.
War on Want claims tax dodging and capital flight costs Africa an estimated £75 billion each year – five times what the continent receives in aid.
It says taxes paid by companies and individuals play a crucial part in enabling governments to fund essential public services, including healthcare, education, clean water and electricity.
But developing countries lose an estimated £250 billion every year as a direct result of corporate tax dodging – money which could be used to reach the UN’s anti-poverty goals several times over. Among the goals is environmental sustainability, which engages UK environment secretary Hilary Benn this week at the Bali climate change talks.
Britain also loses an estimated £100 billion a year through tax dodges. This is enough to double funding for its health service, to cover the full state pension, end student fees and enable the UK to reach the UN aid target of 0.7 % of national income overnight.
War on Want says one popular way of dodging tax is to register companies in tax havens. Many of the world’s tax havens are British – the City of London, Crown dependencies such as Jersey, Guernsey and the Isle of Man, or overseas territories, including the Cayman Islands, Bermuda and the British Virgin Islands. Tax havens allow firms to get away with paying minimal tax – and in some cases none at all. They also place little or no reporting requirements on companies, allowing them to keep secret the true sums they should be paying in tax. This then denies vital revenue to the countries in which those companies have made their profits.
Trade mispricing represents another favourite method of dodging tax. This involves selling items between different parts of a multinational corporation and deliberately mispricing the sales so as to shift the company’s tax obligations to countries where the firm will pay less tax. In this way companies have “charged” themselves over £4,000 for a ballpoint pen and under £1 for a whole prefabricated building in order to dodge the tax they owe.
John Hilary, campaigns and policy director at War on Want, said:
It is a scandal that the City of London is handing out these bonuses while denying developing countries billions of pounds in tax owed. Executives on these bonuses can get to eye up luxury cars or second homes while millions of poor people struggle to survive. The government should make City firms pay their full taxes before dishing out these obscene Christmas bonuses.
I agree.
I’ve been giving the recent KPMG paper on tax and CSR a more thorough read. It’s made me think a lot, but as usual with KPMG publications my thoughts have flowed along two themes.
The first is what it does not say, on which there’s enough to write a small book. I might just get around to writing it sometime.
The second is just how crass much of what they say is. Nowhere is this more obvious than in section 6 on ‘Special features of tax in relation to CSR’. Here they make the claim that a special feature of tax and corporate social responsibility is that:
[F]or tax transactions there is normally only one counterparty in any jurisdiction. Many of the commercial decisions influenced by CSR relate to choice of supplier or of target markets. Tax, by contrast, is paid only to the state or to subdivisions of it; there is no choice as to whom the company deals with on tax matters, except insofar as decisions on location of activities and transfer pricing determine the state in which the liability arises.
In other words, as far as KPMG is concerned the only relationship of consequence in tax is between the tax payer and the state to whom they have liability. Nothing else apparently need be of concern when considering tax and CSR. As a quick response I noted the other relationships that I could immediately think of that might be of concern and came up with the follwoing list of relationships, all of which have a tax dimension that can be negotiated, that meet need to be thought about:
1. Between companies under different ownership;
2. Between companies under common ownership;
3. Between companies in the same country;
4. Between companies in different countries;
5. Between companies and tax administrations in more than one country;
6. Between companies under common ownership in different countries and tax administrations in multiple countries;
7. Between companies and their tax advisors;
8. The relationship between tax advisors in different countries advising companies under common ownership;
9. The relationship of tax advisers to companies under different ownership in one of more countries;
10. The relationship between governments (as opposed to tax administrations) and companies;
11. The relationship between governments and tax advisers, and vice versa;
12. The relationship between a company and:
a. Its customers;
b. Suppliers;
c. Staff;
d. Investors;
e. Civil Society
f. The media and others with enquiry to make of it.
13. The role of the company and advisers on legislation;
14. The duty of the adviser to other advisers;
15. The duty of a government to another government.
Now remember that this paper is produced for the “KPMG’s Tax Business School ¬Æ” (I think that registration so crass) so I have to presume it’s what they’re teaching their people. But that begs the question are they teaching these people or indoctrinating them? Either way, heaven help their clients who might end up paying for advice from those who have been subject to this process.
Perhaps they’d like to take a look at our Code of Conduct. It might broaden their imaginations.
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