There has been an interesting set of exchanges about whether NGOs need to have a code of conduct for their publications about tax. I certainly think that a voluntary code would make sense. In discussing this I’ll run through a post on this subject by Martin Hearson.
Martin wrote (I’ve not included the discussion about ABF) :
“There are two things that I think campaigners, and occasionally the media, tend to do which perhaps undermine their case a little.
The first is to jump on every case that suits their argument – or in some cases, that is consistent with how they know companies tend to behave – without checking the facts….it’s important to be clear about the limits of the evidence in each case.
The second mistake that I think campaigners make is not to clarify terms well enough. In particular, ‘tax avoidance’ has a very specific meaning to tax professionals, which is different to how it’s understood by the lay person. For most people, the important distinction is between illegal tax evasion and legal tax avoidance; to them, any tax practice that ‘smells bad’ fits into one of those two categories. But technically, to qualify as ‘tax avoidance’ a practice generally has to fall into a space bounded on one side by the letter of the law, and on the other side by the intention of parliament.
What about this code of conduct?
In a week when the OECD published a report that criticised NGOs for blaming all tax avoidance on transfer pricing, ActionAid published a report (on ABF) in which most – possibly all – of the allegations are about treaty shopping and tax incentive, not “profit shifting”. That’s a welcome departure. But then it shot itself in the foot by leading with a topline that wasn’t really correct. ABF came out with a very well put-together denial that called ActionAid out on this one point but was mostly downright misleading. Journalists printed that unquestioningly.
If I were drafting a ‘code of conduct’, I might include:
- being clear about the limits of your evidence;
- ensuring that your campaign communications and media releases, not just your report, reflect this;
- being clear when your allegation is of tax avoidance and when it’s of something else, such as pursuing a tax incentive in this case;
- giving the company a right of reply, and publishing the correspondence;
- have an independent tax professional look over the report and the company’s response, and comment on it before publication;
- publish that independent commentary, including the commentary on the company response.
So maybe now I am suggesting that a code of conduct for NGOs would need to be supplemented by a) a code of conduct for companies responding to avoidance allegations (why not have these independently verified too?), and b) a code of conduct for tax professionals assisting NGOs and companies as part of their code of conduct.”
I think this is a very interesting development. I think its fair to say that many in business are frustrated by the approach of some NGOs in seeking to run a story rather than find a way to take issues forward – this is understandable as they are campaigning organisations but its still frustrating. There is a very good scene in the recent film “No” about the Pinochet referendum in 1988 where one of the No coalition is asked whether they want to win the referendum (and get rid of President Pinochet). Their answer is that they can’t win the referendum (because it will be fixed ) and that the campaign should focus on the crimes of the Pinochet regime not making the future better. The campaign focuses (mainly) on making the future better and wins and Chile becomes a strong democracy and a model for how to move from developing to developed country over the last 25 years.
I think NGOs need to focus on what their strategy is and what they think is wrong with the tax system. As a result of the dialogue over the last three years, I think that there is the possibility of a common language between business and civil society and even a common agenda. But that will only flourish if there is trust and a concensus about what we are talking about. Martin is right that the ABF report doesn’t focus on profit shifting through transfer pricing, but on withholding tax and tax incentives. I thought the AA report on SAB Miller was really about withholding taxes and tax incentives as well (even though thats not what it said). We need to have a discussion about each of these pillars of the tax system:
Which types of tax incentives are acceptable and which not? (As an example, I manage the charitable giving claims for my daughter’s state school and reclaim the tax for them (pro bono). Now I think this is a good tax incentive. I could list plenty of other “good” tax incentives.) Business feels hard done by to be criticised for using tax incentives introduced by governments.
Is structuring to minimise withholding tax when there is substance in the structure acceptable?
How do the two issues above affect behaviour in transfer pricing?
Without that discussion, we cannot have a dialogue about the international tax system. So I think we do need to have a code of conduct within which that dialogue takes place.