CSR » Tax Research UK

IASB nominated for corporate irresponsibility award

Accounting, CSR, Ethics, IFRS 8 2 Responses »

Sep 192007

Each year the Berne Declaration presents the “Public Eye” awards during the Davos economic summit.

One award made each year is for Corporate Irresponsibility. The usual criteria for selection is choosing to do the wrong thing when knowing what the right thing was.

The Tax Justice Network and the Association for Accountancy & Business Affairs have nominated the International Accounting Standards Board for this award this year for pursuing the adoption of IFRS 8 when it knew that our alternative proposal would tackle transfer pricing abuse and world poverty whilst enhancing shareholder value, reducing shareholder risk and massively increasing stakeholder accountability.

The nomination can be found here.

Ten reasons for country by country reporting of the type we requested from the IASB, and as rejected by them, can be found here.

If accepted for shortlisting the nomination has to be backed up by a detailed submission. The award will be presented in January 2008.

SEE Compnaies – ethical screening for companies that asks the questions people want answered

Accounting, CSR, Ethics 5 Responses »

Sep 162007

Just launched is the SEE Companies ethical accreditation scheme for companies that identifies companies taking social, environmental and ethical (SEE) issues seriously.

I welcome this: most CSR investment screening is simple greenwash. Take the tax questions as an example (into which I’ll disclose I had an input) which require a company to answer the question:

Has your company paid appropriate levels of tax over the last two financial years?

Guidance notes add:

ANSWERING YES
Companies must, for the last two financial years:
- state the date of publication;
- state the tax bracket that applies to their business; and
- state the percentage of tax they have paid.
Companies may provide any other relevant information.

ANSWERING NO
Companies must, for the last two financial years:
- state the exact amount of profits generated;
- state the tax rate that applies;
- state the amount of tax paid and the percentage this represents; and
- explain why they paid taxes at a different rate.
Companies may provide any other relevant information.

ANSWERING NOT APPLICABLE
Companies must:
- confirm that they have not made profits in both of the last two financial years; OR
- explain why they are not subject to taxation.

DON’T KNOW is not a permissible answer to this question.

NO ANSWER YET is only permissible under extraordinary circumstances and then for only a limited period.

It’s about time ethical screening included such issues.

As it should also cover this one:

Is your company’s average employee salary at least 5% of the total remuneration of its highest paid executive?

I can see this type of screening becoming very popular, quite soon when it becomes clear by just how much high paid fools have abused UK companies during the last few years.

Tax and Corporate Responsibility

Code of Conduct, CSR Comments Off

Jul 112007

The UK’s Chartered Institute of Tax ran a conference on the above theme on Tuesday. I was one of the speakers. My slides are here for those interested. They give a reasonable overview of what I said.

What was interesting was the convergence of ideas. Dave Hartnett, Director General of HMRC stole some of my themes in the first presentation of the day, and was kind enough to give this blog the first plug of the day. John Whiting of PWC, despite his claims to the contrary, is slowly revising the Total Tax Contribution framework to reflect many of my concerns. He went as far as to endorse country-by-country reporting and the need for the reconciliation of the tax charge in accounts with the tax actually paid by companies, both of them themes that have come out of my work. It’s a just a shame he can’t yet agree that this reporting should be mandatory and audited and be backed by the key indicators from country-by-country profit and loss accounts that prove the credibility of the tax data he recognises is needed.

Ian Brimicombe of AstraZeneca (who I have to say is, i always think, one of the good guys in the FTSE 100) agreed on aligning the economic substance with tax reporting, but this has been AstraZeneca policy for some time so that it not surprising, And Michael Conlon QC was happy to suggest that the EU has put paid to accounting through “diddlysquit” special purpose vehicles as a result of the Halifax tax case.

I’m not saying that there was harmony on all issues, but the degree of unity was striking. Even holding this conference would have been unthinkable three years ago. The possibility of even some convergence of view would have been unimaginable. That it happened and that this was the result is good news and a sign of how things have changed.

So where are we going next? There was considerable agreement that we were heading towards Codes of Conducts. The Tax Justice Network has its version out this autumn. It’s going to be a fascinating debate.

Tax Justice Focus – The Accountability Issue

Code of Conduct, Corruption, CSR, Development, Tax Justice Network 1 Response »

Jul 102007

The second quarter 2007 edition of Tax Justice Focus (TJF) is a special edition on accountability, co-edited by Nicholas Shaxson and John Christensen. A central theme of this issue is that taxation helps foster political accountability – and that this outcome has been all but forgotten, especially in poor countries.

In the editorial, “Wake Up, Donors”, we consider why aid donors have been so reticent about engaging on tax. By and large this is a field that has been left to technical specialists, who frequently treat the issue in isolation from its political dimension and therefore seldom pay attention to the vital role that taxation plays in maintaining lines of accountability between governments and the citizens they rule. We argue that donor agencies need to wake up to this issue, not just because good taxation fosters better governance, but also because the endgame for the donor community should be to reduce reliance on external funding and increase the ability of poorer countries to finance their public services from tax revenues.

Alex Cobham discusses why an international consensus that has grown up around taxation has failed to meet the Four-R tests of good taxation policy: raising Revenue for public expenditure; Redistributing wealth and income; Re-pricing goods and services to adjust consumption behaviour; and fostering better political Representation. Alex concludes that the Tax Consensus needs to be overthrown and replaced by tax systems geared to achieve genuinely sustainable development.

Corporate taxes are a political issue – not an economic one

CSR, Ethics, Tax management Comments Off

Jun 282007

Down here in Oxford an academic took me aside to discuss my comments on Mike Devereux’s work, published hereon Monday. His argument was that a company can pay tax, but can’t bear it. In other words, he argued in support of Mike that the tax charge on a corporation can be passed on to labour, customers, or whatever. As such it is an economically neutral issue.

I responded by saying that this is not true. Companies can decide within quite wide parameters where they will pay tax. And they can decide when they will pay tax. And as a result they can decide how much tax they might pay. All of these issues have been agreed upon here at Oxford today. That means companies decide who benefits from the tax they pay. If that is the case then they are doing two things. First they are acting as principals in their own right, and not as agents for anyone, be it for the shareholders or someone else. Second, they are pursuing a political activity when making these decisions.

This is far removed from the neutral economic claim that is usually made for corporation taxes. Second it shatters the myth that corporations have no social responsibility in this matter. They have. If you undertake political activity, even by proxy, then you have responsibility in the exercise of that action. This is why tax is at the core of social responsibility – and why every multinational company should recognise it as such.

I have to say that I was surprised by the reaction to my comments. The academic said he had changed his mind.

UK government fails corporate responsibility test

CSR, Ethics 2 Responses »

May 132007

According to the Ethical Corporation the UK government’s commitment to corporate responsibility has been downgraded somewhat.

The DTI has a minister whose portfolio includes corporate responsibility. She is now supported by just one half time official. Impressive, isn’t it? This makes something of a mockery of their web site which claims:

Welcome to the Government’s website on CSR. We have an ambitious vision for UK businesses to consider the economic, social and environmental impacts of their activities, wherever they operate in the world. This website connects you to information about what we are doing to help make that vision a reality.

Sorry, but I don’t see it happening. Nor do I think the CSR brief can be covered by saying the Foreign Office has people responsible for the Extractive Industries Transport Initiative, Kimberley Process and the Voluntary Principles. They’re all valuable. But they’re a tiny part of CSR.

Put simply, the rhetoric is failing on this one. The government has to put its cash where its mouth and its web pages are or action will not happen.

What do you do with $2 billion a year?

CSR, Economics, Tax Havens 1 Response »

Apr 132007

Reports have been made of the highest earning hedge fund managers in the US in 2006. You don’t get into the list unless you’re earning US$700 million a year. You top it with US$2 billion.

I readily admit, I don’t know the people named in the report. Nothing I’m going to write here is personal. But, the following questions have to be asked:

1. How come anyone is ‘worth’ this much?
2. If it’s true that they are, where does that worth come from?
3. If tax plays a part in creating that ‘worth’, what is that role?
4. What sort of contribution does a person of such ‘worth’ owe to the society that gave them the chance to earn such sums?
5. And which society was that, anyway?

These questions can be tackled at all sorts of levels. Given that non one will want to read thesis here, let’s tackle them directly and straightforwardly.

1. No one is ‘worth’ this much. That is apparent. No one can personally make a contribution of this size to any company that undertakes a proper trade that justifies such pay in accordance with the theory of economics. I’ll be blunt about that. This level of return is what is called ‘supernormal’ in economics. The results from a monopoly position, imperfect information in the market, or the exploitation of a short term ‘rent’ that the market should eliminate by the attraction of additional resources. In this case the first and third aren’t true. Hedge funds are not in a monopoly position, and wages aren’t being reduced by new market entrants. So option 2 must explain what’s going on. It’s the every secrecy that surrounds hedge funds that let’s them exploit the market and make returns of this sort. I stress: pay of this level is a sign the market is not working, not a sign that it is.

2. So secrecy feeds this. Secrecy that is even inherent, albeit I am sure unconsciously, in the link to which I refer above. These people are all ‘located’ in the US according to the report I’ve used. You can be sure that their hedge funds are not. They will be offshore. They will be there for two reasons. First they’ll pay a lot less tax; second they won’t disclose as much about what they’re doing. All of these people might manage funds that are solid and reliable: I hope so. But as Long Term Capital Management proved that secrecy can leave the world’s financial system horribly close to financial disaster, and none of these people will pick up the cost if that happens. Ordinary people will. That’s the truth of these returns: they’re only possible because governments the world over bear the risk that these funds will fail. So why are we paying these managers such an extraordinary rent return for the risks they don’t take without requiring a substantial premium in tax by requiring they locate onshore in exchange? I’m baffled by this because put simply the return is a risk free payment which overstates worth, considerably. And that worth is overstated anyway: all hedge funds do is gamble (let’s be candid) even if they give it fancy names. And no one ever creating worth out of gambling, whilst in the financial markets it’s known that the volatility they create is harmful to the underlying prospects of the companies in whose securities they trade (usually with considerable indifference) and that the mergers they promote rarely add value. So, put nicely, this just adds to the parasitical nature of these returns.

3. What’s worse is that tax does contribute significantly to this return. Hedge funds pay little or no tax offshore. That’s why they’re there. So these people are sitting in the US (or London, or wherever) running operations that they claim are elsewhere to avoid paying tax, which tax free yield is almost certainly fundamental to the exceptional market performance they’ll probably claim to offer. But I have a simple question? How are you offshore when you’re managed onshore? The whole management structure of the hedge fund industry needs to be subject to concerted, co-ordinated attack by the world’s tax authorities. Now there is a job for the OECD if ever I saw one.

4. I guess it’s obvious as a result that I think those who earn these ‘results’ deserve to be paying substantial sums in tax to those societies that provide them with the means to earn these returns. 80% would be fine in such cases. Let’s start it on income above 5 million ($, £ or Euro, I don’t mind which). No one would complain. But again, cooperation is needed. And this might provide some return for the risk these people create for the rest of us.

5. And where is that due? Well, not offshore. I am honest. I don’t really believe hedge funds are run off-shore. Of course, the legal arrangements to make it seem that way exist. But the reality is they are run in the major financial centres. So this tax is due in the US, or London and the few other places where this stuff can really happen.

None of which would stop the harm I think hedge funds are causing. I believe in real entrepreneurial activity. I like seeing wealth created. Gambling does not constitute either activity. So I’d also want hedge funds to be subject to the maximum glare of disclosure and scrutiny too. But paying tax on all dimensions of the business, at high rates to reflect the risk they impose, would help me tolerate their existence. Not much else does.

Thanks to Dennis Howlett for the original link

Why CSR does not work

Accounting, CSR, Ethics Comments Off

Mar 272007

The CORE Coalition and Save the Children have published a report on why CSR does not work. I recommend reading the press release, even if you don’t get to the whole thing. The report says that:

“voluntary initiatives alone are wholly inadequate as a means of improving the lives of children. This is because they fail to be enforced and because they attract only a small sub-section of companies in each sector.”

Whilst corporations believe they have a legal duty to maximise profit that will be true. The fact that they don’t have such a duty is neither here nor there. They say they do, and papers like the Daily Mail reproduce that claim as a result (I saw such a reference today in that rag, giving Burberry an excuse for closing its plant in South Wales). It’s a convenient cover for exploitation, however you look at it, and children are amongst the many groups who suffer as a result of the greed promoted under the guise of that excuse.

It’s why mandatory Codes are needed – a like an IFRS for the Extractive Industries. And it’s why the UK government failed all UK subjects when it allowed profit to remain at the core of the legal duty of a director’s responsibilities in the Companies Act 2006. The reality is profit is not the core objective of a company, never is, and never can be. But it’s a fantastic way of denying your responsibility to society. So abuse will continue for the time being at least.

Private equity – just a way of avoiding corporate responsibility?

Accounting, CSR, Ethics Comments Off

Mar 142007

Nils Pratley is a Guardian columnist to whose opinion I usually pay little attention. But he caught my eye today. Writing on the raid on Cadbury Schweppes by the US hedge fund led by Nelson Peltz, infamous for his tussle with Heinz which cost 2,700 of its employees their jobs, he says:

He will be in it to make money, and won’t mind at all if he is portrayed as a throwback to the rapacious 1980s.

In which case he says Peltz may argue that:

Cadbury’s ambition of living up to its Quaker inheritance is a cost, not a benefit, to shareholders. If so, a collision with Cadbury’s board is inevitable. Two years ago, Cadbury was voted “Britain’s most admired company” in Management Today’s annual poll based on the views of competitors. Todd Stitzer, Cadbury’s chief executive, said much of the credit lay with the group’s “progressive” principles and that there was no conflict with the task of enriching shareholders.

As Nils Pratley says:

The trade unions are right to be on red alert because this story could rapidly become a debate over how Cadbury, and public companies in general, should be managed. Already, voices can be heard arguing that public markets are failing, that the public company model has passed its sell-by date, compromised by demands for good corporate governance, greater disclosure and a sense of citizenship.

That might sound alarmist, but it’s hard to deny that something is happening. Sainsbury’s, Boots and Cadbury all have paternalistic corporate traditions. All now find themselves under scrutiny. Coincidence? It doesn’t feel like it.

Transparency and accountability aren’t Peltz’s forte. Look at the Triarc hedge fund web site and you’ll see what I mean. It doesn’t gush disclosure. Is this what private equity is all about? Is it really just another secrecy space where, like offshore and the hidden activity within group accounts, secrets can be hidden away from those who need (I stress need) to know? It may be. In which case its more than an attack on the tax system. It’s an attack on society itself.