I've long argued that companies do not have a duty to avoid tax, or maximise profit come to that so it's good to note that the Queen's lawyers agree. The Guardian has noted this morning that:
Britain's business leaders will be sent advice on Monday from a top law firm warning them they cannot claim it is their fiduciary duty to shareholders to avoid tax.
The legal assessment from Farrer & Co, which numbers the Queen among its clients, states: "It is not possible to construe a director's duty to promote the success of the company as constituting a positive duty to avoid tax."
Farrer says company directors have a wide discretion when calculating the social impact of their decisions. If they choose to pay tax responsibly, they would in fact be protected by the applicable law rather than at risk of liability, it explains.
I'm pleased that they agree with my assessment - something that David Quentin, a tax barrister who was involved in drafting the legal opinion has confirmed to me.
He also agrees with me on the motive for much corporate tax avoidance, when suggesting that many companies were sometimes pursuing self-interest when tax avoiding:
Board-level executives often benefit from performance-related reward packages which are indirectly affected by the amount of tax the company pays. Corporate tax avoidance is presented as a matter of high-minded 'fiduciary' duty, but it is probably better understood as being about personal reward.
This is a line of argument I have put forward for a long time.
The Tax Justice Network is sending the opinion to all FTSE 100 companies today. I hope they take note.
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Does this legal opinion also cover tax avoiding organisations such as Unite?
http://www.telegraph.co.uk/news/politics/10294973/Unite-the-union-paid-no-tax-in-2011-and-2012.html
Please tell me what tax they have avoided
The look tax compliant to me
5.8m in investment income yet 0 paid in tax. Is Unite using dodgy offsets?
Not as far as I can see
Tell me why you disagree – precisely
Isn’t the point that Unite are using the legal framework to offset their tax bill just like any other person or business is entitled to do yet you criticise other individuals and businesses that do so but aren’t criticising Unite.
If it were any other organisation with a £50+ million portfolio of stcks and shares paying no tax, I doubt you’d be so relaxed about it.
What tax did Vodafone avoid when selling Verizon? They look tax compliant to me.
I know of many in exactly that situation
They’re called charities
Unite owes its own existence and purpose to similar motives
You entirely miss the point
And I have not said Vodafone avoided tax. I said the law should be changed
An organisation (or an individual) rakes in millions of (unearned) investment income, pays zero tax and this is considered fair/socially just?!
It really does depend on what the organisation is doing, doesn’t it?
Charities are exempt from paying tax on investment income.
Trade Unions are companies for CT purposes and so their investment income is taxable without them doing something about it.
You cannot equate the two from a tax perspective.
You seem to be saying that if you like an organisation it’s OK for them to minimise their tax bill and if you don’t, it isn’t.
But you are ignoring the fact that there are also rules on deductible costs…
It’s you who is being selective
So as long as someone is tax compliant, they aren’t avoiding tax?
Rather means there’s tax evasion or tax compliance and nothing else.
As you well know – and is now legally recognised – that claim is utter nonsense
If you want to contribute here say something useful or I will start deleting
Stephen, Are you trying to compare “Apples and Oranges”.
Complying with legislation originally introduced by Parliament more than twenty years ago isn’t quite the same as parachuting your agents into HMRC/Treasury to create/legitimise loopholes for you.
Of course the Treasury is overflowing, not, with current and ex-Trade Union advisers!
Don’t you think this “game” is in the tiniest bit “rigged”?
Trade union advisers?
Who are they?????
agree – but isnt “complying with legislation” the same as paying no tax on a gain or receiving an exempt dividend?
it undermines your credibility when you cry foul over vodafone but defend Unite for “complying with the legislation”
I did not cry foul over Vodafone
I said the law needed changing
Sorry rubbish editing ….there are exactly ZERO trade union advisers in the Treasury! If only there were some, then the Treasury outpourings might be more balanced.
RM- my comment was aimed at “theremusbeanotherway” rather than you
Is it possible to get a copy? I don’t work for a FTSE 100 anymore, so won’t automatically get one.
Now published
http://www.taxjustice.net/cms/upload/pdf/Farrer_and_Co_Opinion_on_Fiduciary_Duties_and_Tax_Avoidance.pdf
Bit surprising the TJN instructed Farrers. Not particularly respected for company law questions, and deeply implicated in tax avoidance for the wealthy…
I can’t answer that
Ask TJN
But I think it had a lot to do with the person rather than the firm
Thanks
Actually now I’ve read it, it’s very good. I can see some of this going into my soon to be updated tax policies 🙂 A rationale for our stance on tax planning was something that was a bit wishy washy, this will help beef it up.
I actually/personally think s.172 (1) (e) and perhaps (d) too, are the ones that will be highest on board agendas – i.e. reputational risk. I strongly believe that the more tax and tax avoidance are highlighted in the media, the more likely it is that companies (i.e. the board of directors) will realise that undertaking tax avoidance will affect their reputations and hence potentially breach s.172(1)(e).
If I were to play devil’s advocate, there is potentially an instance where this opinion gives me to advocate tax avoidance, but it would be in extremis. e.g. it mentions that a company selling a property at an undervalue to protect its employees was OK. I could envisage a situation where if a company was down on its knees and there was a tax avoidance scheme that would help dig it out of the hole (sorry that’s an awful mix up of metaphors), then they could potentially justify it — I think they’d have to show that was their only option left. As I say, that is an extreme example, and a highly unlikely situation but something to consider further maybe.
If I were in that situation, I would want to take an opinion on whether the avoidance route was really justifiable — I wouldn’t want to rely on my own analysis above.
Verth,
I hate to be a cynic about this but TJN paid for advice and got the advice it wanted.
A company or TU looking to different things when it comes to minimising tax ‘costs’ pays for a different set of very expensive M’Learned Friends and ends up with a completely different opinion.
I did not commission this
I think the opinion right
I’ve never seen a UK lawyer dispute it
I don’t know how they could
Tell me how
Mr M.,
You wrote “I’ve never seen a UK lawyer dispute it, I don’t know how they could”.
Excuse my cynicism but are you suggesting that no other of M’Learned Friends would offer an opinion – if paid for and asked – that would dissent from the one offered by M’Learned Friends instructed by the TJN?
Please go ahead and buy one
And publish it
That’s your right
This is a start…but much more is needed to push back against US libertarian propaganda!
Mr Murphy,
This is an opinion under UK law.
Google, Amazon, Starbucks and countless others are US companies. Their directors could not care less what the UK law says. Their interest, and that of the US government, is clearly to minimize overseas tax leakage to maximize returns for their US shareholders.
If the TJN is somehow successful in curbing tax mitigation strategies of UK-based companies, all it will achieve is to put British firms at a competitive disadvantage against their American competitors by forcing them to either raise their prices, lower their wages or pay a premium for capital form equity and debt investors.
Regards.
I can’t see it says otherwise
What is the straw man you’re fighting?