Tax justice, Quakers and corporate responsibility

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I have this article in The Friend, the Quaker magazine, this week. I am a member of the Quakers:

Tax justice

Richard Murphy corrects some widely held misapprehensions

The subject of tax justice is receiving a lot of attention at the moment within Quakerism and the wider society. However, some recent correspondence on the subject, which I have read with interest and disappointment, reveals a common misapprehension.

This misapprehension suggests that any company is entitled to use any legal arrangement that is available to it to reduce its tax bill. It also infers that the responsibility for whatever loopholes exist, and which are exploited for this purpose, rests firmly with the government.

I fundamentally disagree because tax law, like law on so many issues, exists not to prescribe behaviour but to lay down the acceptable parameters within which behaviour may take place. So, to use a simple example, just because the law prescribes a maximum speed limit on some roads of seventy miles per hour that does not mean motorists have to drive at that speed. Judgement on what is appropriate is, within the boundaries laid down by law, left to the motorist.

In my opinion, the same is also true with regard to tax. The fact that tax law is undoubtedly complex does not take away from anyone the need for the exercise of sound judgment. Indeed, it demands that better judgements be made. That is precisely because tax law is complex for a very good reason, which is to allow taxpayers, and most especially businesses, the opportunity to exercise choice in the way that they undertake their business activities. I think that appropriate: a tax system should not, within reason, prescribe how we behave but should instead tax the way we want to behave.

But that, then, puts the full onus for complying with the law back onto the taxpayer. It is an inevitable fact that when the law is used to provide choices over a wide range of activities then the result will be legal complexity, and some inevitable loopholes will appear that no legal draftsmen could ever have anticipated.

The problem is simply compounded when, as will be the case with many of the companies in which Friends will invest, their activities are spread across a number of tax jurisdictions. The problem in this case arises because, whilst law is local, the economic activity that gives rise to profit on which tax might be due is not.

In this situation companies have, in addition to any loopholes they might make use of in local law, the opportunity to trade off the law of one state against another and so exploit the gaps between them. In addition, they might also use the secrecy that tax haven locations, in particular, make available to deny their investors access to a full account of their activities.

Our government has not created these tax avoidance opportunities. Whilst tax haven governments are undoubtedly responsible for the secrecy they provide, even they cannot always anticipate the uses made of their laws.

In that case it is quite wrong to suggest that companies making use of such opportunities are only acting within the law. They aren’t. They are exploiting the limitations inherent in all legal systems to secure an unintended advantage and that is a matter of choice on their part, and so of ethics.

There are, of course, political solutions required to some of these issues, and Quakers should work for them. But companies are wholly responsible for whether or not they seek to pay the right amount of tax in the right place at the right time and there is no excuse for them not doing so.

Whilst we should demand change from government to tackle tax avoidance, this is not the only solution needed. Only active shareholder engagement, which demands that companies act ethically and not simply within the limits of the law, can do that.

Attempts to blame the government are really not helpful. Companies are responsible for their own actions and it is our job to tell them that we know this, and that we expect them to act accordingly.