Editors view: Martin Sorrell, tax and ethics

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When it comes to communication, there’s not much that Sir Martin Sorrell, CEO of WPP, the world’s biggest marketing services group, shouldn’t know.

From reputation management to above-the-line advertising, across media channels from the most traditional to the newest digital outlet, Sir Martin’s empire covers it all. And undoubtedly it owns some of the best agencies in each area. So it’s always a little surprising to hear him say something that on the face of it seems to be a little clumsy, out of step with the rest of the business world, or potentially damaging to his business interests.

And yet he keeps popping up with punchy soundbites that appear to do just that. Last year, at a time when CEO remuneration was a political hot potato, he (not for the first time) spoke robustly in defence of multi-million pound pay arrangements for CEOs. Naturally he defended his own pay deal (reportedly £6.8m) but he also took on a shareholder rebellion, and in an open letter to the Financial Times he declared himself worth the money as a “founder and entrepreneur, not a bureaucrat”, and he claimed the company was “rewarding performance, not failure”.

It is difficult to get away from the fundamental unfairness of a system in which some fortunate individuals and large corporates are allowed to set their own level of taxation

Now he has spoken out again, this time defending coffee giant Starbucks’s approach to corporation tax, effectively suggesting that the payment of corporation tax is a “matter of judgement” and should be thought of in the same way we think of other aspects of corporate social responsibility.

In some respects it is easier for Sir Martin to take such a robust line on these issues. His comments partly reflect the fact that his company is not directly consumer facing. Whereas UK Uncut and other direct action groups have a clear and obvious set of targets with Starbucks or the banks, it’s a little harder to know which ad agencies to barricade, or which direct marketing campaigns to boycott.

But, as is often the case, there might be more to Sir Martin’s utterances than there appears to be. It isn’t exactly co-ordinated, but there is a growing sense from within the business community that it has been too defensive for too long and that by conceding to pressure groups on things like bonuses and acceptable tax behavior, we are in danger of allowing anti-business sentiment to take hold.

Sir Martin’s point on corporation tax raises interesting – and much wider – issues about the purpose and role of taxation and also about the role that business plays in wealth creation and economic recovery.

And yet it is difficult to get away from the fundamental unfairness of a system in which some fortunate individuals and large corporates are allowed to set their own level of taxation, while those further down the scale have no option but to pay what they are told to pay and are routinely called to account for any error or omission in their tax return, even as the tax system gets more and more complex.

Calls for greater simplicity in the tax system are often met with derision or the counterintuitive argument that simplicity is just too complicated to get right. Indeed government attempts at simplifying things often lead to greater confusion and hidden complexities elsewhere.

But Sir Martin may be on to something with his argument around the social benefits of taxation. His idea that successful companies recognise the value of doing good is correct. The challenge this throws up is that for it to work we would need to create a tax system so transparently simple that consumers (and business customers, as well) could select a supplier based on their tax rating.

In the same way that we select electrical goods based on an energy efficiency rating, we would need to be able to rate companies on the level of tax they pay.

There are ways of calculating a company’s total tax contribution. The complexities and distortions of such an approach are immediately obvious. Partly because of these complexities, but mostly because politicians rely on the support of the business community and are naturally wary of being accused of creating red tape, nothing like this will be introduced. He may have been being playing the contrarian, but Sir Martin raised some interesting questions about the social role and impact of business and the contribution it makes through taxation.

Until these questions begin to be answered and until something significant changes, the perception will remain that big business is continuing to cheat the tax system.

 


 

Richard CreeRichard Cree is editor of economia


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  • Comment by Philippa Whittaker

    Double taxation treaties have clauses saying that transactions should be on an arm's length basis to qualify. Companies that manipulate purchasing agreements or management charges such that there is little or no profit left in the UK are clearly not acting on an arm's length basis. They would not pay such excessive charges to third party suppliers thus eliminating their own profit. This is NOT clever tax avoidance - it is tax evasion, as they are certifying that such arrangements are on an arm's length basis when clearly they are not. HMRC should spend more on investigating such arrangements. The European Commission estimates that such enforcement spending generates FIFTEEN times the level of incremental tax revenues. Politicians of all the main parties have connived with such artificial arrangements for too long, presumably to attract multinationals to the UK, meaning that the parts of the business sector fails to pay its fair share towards the cost of public services.

  • Comment by Colin G

    The media is perpetually confused about this man. He is an investment banker with absolutely no media credentials. He borrows money and acquires media companies. He has never started or managed a company, never pitched an account, managed a creative team or done anything but borrow money and buy companies. His one attempt to start a company, Infatigo, failed miserably despite the fact that it was started with millions of pounds of Dell business already sold.

  • Comment by Anonymous

    Martin Sorrell's comments make it appear that payment of tax is optional. What would happen if we all decided that we should not pay tax? Does the situation that Greece has got itself into spring to mind? Whilst it is true that tax avoidance is not illegal it is definitely immoral. What sort of society do we really want?