8 Feb 2018 09:10am

Debate: is legal tax avoidance worth it?

We asked a number of experts, professors, business groups and firms if the reputational costs of legal tax avoidance outweigh the financial benefits

Caption: Image: Ricardo Gomez Angel

David Wehner

Facebook’s CFO, announcing the overhaul of its Irish tax scheme

“We believe that moving to a local selling structure will provide more transparency to governments and policymakers around the world.”

Richard Murphy

Professor of practice in international political economy at City University and founder of Tax Research UK blog

“Very few people now suggest that multinational corporations take part in what are commonly called ‘tax avoidance schemes’. What many still, however, do is use tax havens and use (and maybe abuse) transfer pricing rules to relocate profits to those places. That is despite the fact that the economic substance of those profits does not arise there. This then imposes cost to the societies that, in my opinion rightfully, think they should enjoy the tax revenues due on those profits. That is the grievance most people have.

“Public country-by-country reporting, which most now see as inevitable, and which has been demanded by both the European Commission and EU Parliament because, to its shame, the IFRS Foundation will not address the issue, will reveal such abuses if they exist.”

Ben Lloyd

Director of reputation research at Populus, writing at CorpComms

“With stagnating wages, rising living costs, rising interest rates, and public services demanding more funding, the outrage is understandable. But those at the sharp end of the accusations
can all point to one fact: what they are doing is legal.”

Margaret Hodge

Labour MP and chair of Tax in Parliament, on Twitter

“Making the advisers accountable for the schemes they invent and market is central to destroy tax avoidance.”

Daniel Pryor

Head of programmes and research economist at the Adam Smith Institute

“Those operating in less competitive markets or selling directly to businesses are likely to be less vulnerable to media scrutiny, but customer-facing businesses are probably more susceptible. But it’s hard to find examples of even the latter type of firm capitulating to public pressure.

“According to one recent estimate, companies legally claw back £1.7bn per year from the UK taxman; tax avoidance clearly remains the most profitable option for many large corporations. Firms accused of engaging in tax shelter activities do not change their behaviour in light of public scrutiny. Reputational costs disappear as the news cycle moves on.

“If we want to tackle legal tax avoidance, simplifying the tax code is a more effective solution. Taxing businesses on their cash flow rather than their profits would be economically beneficial and make tax avoidance more difficult.”

Naomi Hirst

Senior campaigner at Global Witness

“The creation of a new ministerial post to tackle economic crime is a recognition of the threat it poses to the UK... Top priorities should be to reform corporate liability law so companies can be held accountable and to create transparency with public registers of beneficial ownership”

Glyn Fullelove

Group corporate services director, Informa

“The more interesting question for a multinational is whether using differences in national tax systems to reduce their worldwide tax bill is harmful to their reputation. Many of these differences arise from incentives deliberately introduced by governments, and using them can hardly be regarded as tax avoidance. However, if exploiting such differences gives rise to ‘non-taxation’ of income, in ways an ordinary citizen cannot access, this can cause resentment towards large companies.

“The digitalisation of the economy leads to some business models which the current international tax system finds hard to tax; the large business community can help its reputation by co-operating with governments in designing a tax system fit for the 21st century. Many large companies are already involved in this endeavour.”

Jeremy Corbyn

Labour Party leader, speaking at the UN

“Multinational companies must be required to undertake country-by-country reporting, while countries in the global south need support now to keep hold of the billions being stolen from their people.”

Chloe Westley

Campaign manager at The TaxPayers’ Alliance

“I’m not aware of an international corporation that has gone bankrupt because of public pressure to pay more tax. That’s because the overwhelming majority of people who buy the goods and services they provide would rather get those goods and services than protest in the vague hope of getting some theoretical benefit from politicians funded by higher corporation tax at some point in the future.

“Companies aren’t there to serve the interests of politicians. Any taxes that they notionally pay are a small fraction of the benefits they provide, in many cases for free.

“Much of the anger about tax ‘avoidance’ is as a result of the UK’s, and indeed the world’s, obsolete tax systems which are hopelessly unsuitable for the modern, global economy. Quite understandably, the complexity of the system leads many, including some tax commentators, to vastly overestimate the amount of tax that is actually ‘avoided’.

“The most comprehensive research in this area suggests multinationals are able to reallocate around 2% of their profits from high- to low-tax jurisdictions.”

Reshma Patel

Corporate tax director at UHY Hacker Young

“Reputational risk is a risk that a business can influence. Although product and service faults are the more common sources of reputational risk, recent times have seen a growing trend in the risk from the public’s perception of the appropriateness or fairness of a company’s tax practices.

“A negative spotlight on tax practices, even when proven incorrect, could be harmful to the company’s image and brand. Once tarnished, the company could see visible effects on share price and earnings as well less measurable impact of brand degradation and even perhaps decreased patronage.”

Matthew Elliott and James Kanagasooriam

The Legatum Institute, Public opinion in the post-Brexit era report

“The public want businesses to be more socially responsible. They favour CEO wage caps, workers at board level and government to rein in big business. The capitalism ‘brand’ is in crisis. It is seen
as greedy, selfish and corrupt.”