Tax: The last corporate taboo?

21^st March 2014

ollowing the launch of the innovative Fair Tax Mark in February, Peter Kelly, Business Development and Marketing Director at Unity Trust Bank, reflects on the increasing financial and reputational risk that companies are likely to face regarding their tax arrangements

A day in the life of a corporate social responsibility professional would unearth a whole gambit of complex and disparate issues they must work through. Human rights, ecological degradation, fair trade, child labour, charity fundraising, sweatshops, supplier relations and anti-bribery strategies are to name but a few.

But while the internal influence of “CSR leaders” may have grown over the last two decades or so, there appears to be one area of big business that no proponent of open and transparent business is allowed to tread: tax.

For all the good work being done to create a new era of socially responsible business, big corporations are putting their reputations back on the line by turning tax into the last corporate taboo. Avoiding the issue of tax, or rather avoiding the issue of how to communicate decisions made about tax, is fast becoming a financial and reputational risk.

Like it or not, a company’s tax arrangements, just like the environment or human rights, have become an issue of corporate responsibility. Indeed, according to the Institute of Business Ethics (IBE, 2013), corporate tax avoidance was ranked by the British public as their biggest ethical concern in need of addressing by corporations. To press the point about the rapid growth of this concern further, the question about corporate tax avoidance was not even deemed worthy of asking by the IBE prior to 2012.

It was in this context that a new initiative was launched earlier this year to help companies give the assurances their customers increasingly want. The Fair Tax Mark is the world’s first independent accreditation scheme to address the issue of responsible tax.

Developed by a team of tax experts, campaigners and specialists in corporate social responsibility, the Mark certifies that a company is making concerted efforts to be transparent about its tax affairs and pay the right amount of corporation tax at the right time and in the right place.

Initially, the Mark will be focussing on recruiting small and medium sized businesses into its ranks, but is due to open eligibility for multinational companies later this year. The likes of the Phone Coop, Midcounties Co-operative and the company I work for, Unity Trust Bank, have all signed up as pioneers because not only do we believe that taking an ethical approach to taxation is the right thing to do, but we also see the business advantages of doing so. Indeed our customers expect us to be transparent about our tax arrangements and we strongly believe that we have made a step in the right direction.

It would seem not everyone feels this way. This recent and rapid shift in public consciousness represents a huge challenge for big businesses, which must simultaneously balance the demands of consumers, shareholders and regulators.

What may pose an even greater problem is to tackle prevailing attitudes in corporate cultures that ensure conversations about “tax planning” (not intended as a euphemism for anything else) remain the preserve of a select few. It is perhaps not surprising to see some of the fiercest criticism of the Mark to date comes from the ranks of the accountancy industry, many of whom were angry at one of their own professional institutes, the ICAEW, signing up to support the Mark.

However, what is interesting about the Mark campaign is that it is not calling for higher rates of tax. Instead, the Mark certifies that a company is making a concerted effort to be transparent about its tax affairs and pays the right amount of corporation tax at the right time and in the right place. If a company is confident that its tax planning strategy is not venturing into the field of tax avoidance, then surely it has nothing to hide?

Indeed, one could argue that it is the lack of transparency, rather than the final amount of tax paid, that constitutes the greatest reputational risk to business. Corporates need to communicate externally, telling the story behind the business decisions that have led to where and how much tax has been paid. This transparency would help restore trust with the public.

My own industry, the financial services sector, which is currently in the midst of arguably the biggest corporate charm offensive in history, could do well from heeding the mood of the times. While the major banks have come clean on such misdemeanours as miss selling products, fixing markets and generally perpetuating a culture of short-termism , the boardrooms and CSR professionals have, thus far, remained silent on the issue of responsible tax.

Since the banking crisis of 2008, not a set of trading results can be published without a statement from the very the highest echelons of the corporate structure first apologising for past mistakes and, second, outlining an ambitious strategy designed to rebuild trust with customers, the public and society at large.

But if this rebuild is to be a success the banks need to start answering questions about their tax arrangements. Why is it that HMRC figures, reported by the Huffington Post, seem to show that since the 2008 banking crisis banks have paid twice as much in bonuses to their staff (£67.6bn) than in corporation tax (£32.4bn)? How would banks refute the analysis made by the Robin Hood Tax Campaign that suggests while the core profits of the UK’s five biggest banks increased by 45% in 2012 to £31.5bn, they paid just £1.3bn in corporation tax in 2011-12?

There may well be some very good reasons for this. But most people in the UK today would just like to know. Wouldn’t it be wonderful if one of the big banks recognised the opportunity that this creates for competitive advantage and voluntarily engaged with the team at the Fair Tax Mark. And just think of all the good things they could say in that next annual report?