Michelle Perry is a financial journalist who I have spoken to on and off for a decade. I note she's just taken up a new role as editor of CFO World and in that capacity has written an editorial I want to publicise, because I think it important. Issued in response to Action Aid's report on tax havens, using methodology I developed, she says:
There were numerous responses to ActionAid's report earlier this month that 98 of the FTSE 100 companies use tax havens located as far as the Cayman's to islands closer to home like Jersey. What wasn't surprising were the polarised views. Tax issues rarely produce indifference.
No public defence was made by the influential, but media-shy, group of 100 finance directors. But the group did respond to me by email (not in person) to say that the Hundred Group are “absolutely committed to acting with integrity and transparency in all tax matters”.
The statement went on to say that the UK's top companies continue “to make a substantial contribution to the UK public finances”. It quoted the annual study of total tax contribution - a survey set up six years ago to counter criticism of corporate tax avoidance. The survey shows that the Hundred Group member companies contributed £56.8 billion (or 11.9 percent of all government tax receipts) in the year to 31 March 2010.
The response to that is always, I suggest "So what? How do we know that's the right sum?". Perry seems to agree. She continued:
It's true, of course, business does contribute significant sums in taxes to government. However the taxes cited in this report tend to be a combination of those borne and those collected.
It's important not to blur the lines here. It's this very point that many companies dislike. They do not like to feel that they are working as an unpaid, unglorified tax collectors for a government whatever its colour.
But in reaction to ActionAid's research I do not feel this is a valid response. In fact it does not respond to the research, but redirects attention and shirks the issue.
We can not have a debate about tax or tax havens - their validity or not - until these companies and more to the point these finance chief acknowledge freely and publicly that they use them and why they use them. It may turn out that these reasons are wholly valid but until they state them, we cannot have a grown up debate about this burning issue.
We need to have this debate so that the companies can regain a value in the eyes of society and until we do large corporates will continue to be seen, wrongly, by a large majority of the British public, as a parasite of the taxpayer.
This is the perfect opportunity to speak openly and freely on these matters.
I should apologise for such a lengthy quote. But I think this a really significant argument and I applaud Michelle Perry for making it.
Might I suggest that the next step is to ask for country-by-country reporting?
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don’t the directors have a duty to maximise shareholder returns, what if they do not use Tax havens and their competitors do and gain an advantage,
There is no legal duty to maximise shareholder returns – only to act in shareholder interest
And since people are shareholders and are harmed by tax havens the activity is not consistent with the legal duty of a director
“And since people are shareholders and are harmed by tax havens the activity is not consistent with the legal duty of a director”
(One of) the (countless) problem(s) with this statement is that there is no generally accepted definition of what is a “tax haven” (or whether that concept even exists), and that there is no generally accepted evidence that alleged “tax havens” causes any harm, if such harm exists, what is is its amount.
And the other problem is that even if one assumes for a second that directors do not have a statutory duty to maximise returns, they will nevertheless do so to keep their jobs. Any director trying to explain that they paid more tax than legally necessary would have a very short career.
Candidly, that shows just how little you know about what directors know about profits and tax
Corporation tax is a residual of a residual and as such is so fra down the list of priorities moist directors never give it a thought
Richard – EPS (net income AFTER tax divided by fully diluted shares) is probably the single most important metric that equity markets are concerned with,and is very much affected by a company’s tax position. To suggest that EPS (and therefore corporation tax) is not one of all directors’ top priorities just shows how detached you are from reality.
As ever you are wrong
I know full well almost no one in the City understands tax and they do not analyse tax charges
They can’t – because the data to do it is not readily available but would be with country-by-country reporting
But you’re right – EPS is important – because it triggers executive bonuses
That’s the real reason for this activity. When large company bosses are clueless about how to make money they fiddle with offshore tax to increase their own pay, enormously
That’s the root cause of this
Why do they use tax havens? I know almost nothing about tax matters but aren’t public listed companies legally obliged to maximise the return to investors? Minimising tax isn’t a choice but an obligation.
I recently read ‘The Corporation’ by Joel Bakan. If his arguments are correct the relentless pursuit of profit (and hence reduction of tax) are inherent to the way corporations are configured. Only a change to the legal underpinnings will change their behaviour. I wonder what your views are on this?
Sorry “legally obligated to maximise returns”? My boy scout cap must have blown off some time ago. If what you say is correct, then there are a whole lot of law breakers out there, most recently the board of directors of OLYMPUS. The slush funds paid out (Siemens etc etc), the bribery (BAE etc etc) and other generally crooked acts perpetrated in the name of the market implicate huge swaths of companies and this shurely betrays the idea that those in positions of power in for-profit companies are carefully following a law that requires them to maximise returns. – When it suits them and their greed, they may cynically invoke this “imperative”, but the rest of the time, pockets are stuffed and (some) people are duped.
OK – fair comment. It must nevertheless be a useful justification for directors that shareholder return is what drives their focus on reducing tax liability…
Setting aside the more dubious goings-on in business, if “maximising return” was a strictly adhered to then much of the excess involved in large business would be stripped out – lavish company cars when a more modest model would suffice, private jets, plush offices, bespoke furniture…all the things that we don’t actually need, are rather nice to have, but simply add to the cost of doing business.
As Richard says, the duty of the Director is “to act in shareholder interests”.
It is actually v hard to know how the directors of our banks square the consistently falling prices of their shares with the extravagant bonuses they continue to pay themselves & their pet employees.
However, as they struggle to survive on their pensions, those shareholders can at least be confident that the banks will ensure no part of the surplus goes to HMRC.