Tax and Reputation Conference – London 20 May 2013

I attended the Tax and Reputation conference on Monday in London which I thought was a very good event so thanks to Oxford University for organising it. David Gauke was , as usual clear and concise. He identified three key issues:

The reputation of business
The reputation of the tax system
and the impact of the current debate on the UK being “open for business”

He articulated that the issue of Tax and spending was why the government has to act on avoidance.
There has been a crackdown on domestic avoidance,  international avoidance has to be tackled and International transparency is a key issue for the G8 meetings. He does not see a  a conflict between a competitive tax system and  tackling avoidance. Gauke wants companies to use reliefs – he drew the distinction between the patent box not being  tax avoidance –  (and advising on tax reliefs is not promoting avoidance). In contrast, advising on beyond what the intention of the law is, is avoidance. Business should engage in prudent tax planning.
He recommended that business make their case – they shouldn’t keep their heads down and he welcomed the CBI initiative.

Roger Carr from the CBI  said that taxes, banks and energy prices are the current top 3 issues.
Tax Evasion is unacceptable, it is a legal not an ethical issue. He thought the G8 should focus on the rules and fix them internationally not domestically. He cautioned – Don’t rush to judgement and consult with business.

His comments on the CBI statement were interesting.

Align planning with business models
Use incentives in rules as intended by rules
Interpret rules in reasonable way
Play by international rules
Be open & transparent with hmrc on disputes
Trust, simplicity, transparent and explain
Don’t support schemes only for tax purpose
His general rule on corporate behaviour was “What is the reaction to any management practice published in a paper including tax?”

There was some discussion in the break as to whether the Irish or Dutch sandwich planning in US outbound passes these rules and I think that corporates are going to have to retest what they do against this standard together with the one man and a dog intellectual property company amongst other things. It is clear that agreeing the statement was a protracted and difficult process which is not surprising but the CBI can’t just represent the interests of large multinationals.

Philippa Foster Back of the Institute of Business Ethics made some interesting points. She contrasted Doing ethical things with ethical business practices. She queried how does tax fit in with the company’s ethical standard? She drew attention to Rolls Royce’s statement that they will abide by intention of law.
Margaret Hodge said that fair share has always mattered, its now more public. There was a need for engagement, and the pro fairness debate wouldn’t go away. She said it was anti- competitive if you don’t pay your fair share of tax. She focused on CSR policy and its interaction with tax, tax shouldn’t be a voluntary part of CSR but a central consistent part.

I’m going to comment separately on the discussion of changing the tax system to give more weight to the market in the allocation of taxing rights. I thought the conference showed that the debate is still moving which is not surprising given the stream of news coverage and revelation. I agree with David Gauke that business needs to make its case, hiding below parapet gives the suspicion that you’re one of the bad guys, if you have a good case you should make it. Its going to be interesting to see what comes about as a result of the CBI principles.

3 Responses to Tax and Reputation Conference – London 20 May 2013

  1. Marc Z May 29, 2013 at 1:50 pm #

    Although I agree with Mr Gauke that business needs to make its case, I would also expect hrmc/government to stand with business once they have agreed to the dealings made by business. It cannot be that hrmc agrees to, let’s say, an arm’s length royalty fee and government sets a thin cap ratio to which business complies, and then turn around and scream bloody murder once the end result is not what they expected. As we all know, business contributes a lot more than just corporate income tax.

    Furthermore, we are now in the situation where we seem to accept a higher ethic/moral than laid down in the law (the spirit of the law). As a tax director, I would be happy to comply with the spirit of the law if law makers would take it up on themselves to make it clear what this exactly means. It puts a heavy burden on lawmakers in my view and I am not sure whether the level of the current political debate is such that we can rely on this.

    By the way, I still need to find someone who can point out what this “fair share” exactly entails. The weighted average statutory rate? If yes, what about exemptions and other incentives? An effective tax rate at the level of the headquarter location? Even for Swiss headquartered companies? And what if business pays more than its fair share, we get money back?

    I blame ourselves in the sense that our language is too arcane and we need to explain things better. But face it, international taxation is a rather complicated subject to explain in the pub……

  2. Corporate Tax Planning June 2, 2013 at 5:08 am #

    I have gone through your post and it was helpful. But still I could not understand, what does it mean by “fair share”. After all it was good for the tax payers of the United Kingdom.

    Steven Davis

    • Chris Lenon June 18, 2013 at 1:13 pm #

      Fair share is more difficult to define than to see where it might be an issue. HMT has defined it as meaning that tax should arise where activity takes place. I think where we can see that fair share isn’t being taxed is in cases of double non taxation. I don’t think that business can defend double non taxation if it seeks remedies for double taxation (which should be its priority).Business should seek to be taxed once on its profits and reform of the global tax system should focus on this. I’m pleased that ICC is looking at this issue from this perspective.

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