Taxing questions

When does a company's tax strategy damage its reputation? Tax evasion is clearly illegal, but most people willingly grab an opportunity to save tax by legitimate means. People in their millions deliberately avoid tax by using tax-free savings shelters such as the UK's 'Individual Savings Accounts' (“ISAs”) and by sharing assets and income between partners.

But increasingly, there are outcries against large companies (and occasionally wealthy individuals) who exploit tax loopholes sometimes deliberately left for them by governments. This manifestation of tax competition between states can lead to large tax savings.

The problem for companies is that their tax decisions are gaining a moral or ethical dimension. It is no longer just about whether companies are meeting their strict legal obligations. Increasingly there is a question whether tax avoidance, though legally permissible, is morally dubious. 

The question used simply to be: ‘Is it legal?’ Nowadays companies also need to ask: ‘Is it right?'  This is typically about scale, corporate ethos and citizenship, though other factors have a place in the discussion.  

There is no universal answer: it is a question of degree. But as Sir Philip Green, Vodafone and many others know, tax avoidance and mangement have become a significant reputational issue for consumer facing companies.

The question bites hardest where consumers have real choice. Michael Skapinker has argued that consumer boycotts rarely inflict real damage. But is that the right question? Probably not. The real reason for many boycotts is to influence. That tactic sometimes works even for commercial behemoths.  Shell's about turn on sinking the Brent Spar was partly caused by a consumer boycott, as were HSBC's change of policy on charges to graduates and Nestlé's policy change on its use of palm oil. And some will remember Sir Philip Green's 2003 apology to the Irish. 

Anthony Fitzsimmons

www.reputability.co.uk