2015: the year the tax worm turned?

Sensemaking / 2015: the year the tax worm turned?

Tax rates are roughly half what they were in the 80s, yet corporate avoidance is on the rise. Is this about to change?

By Paul Monaghan / 17 Apr 2015

Tax really is the corporate responsibility issue of our day. How a business responds to this issue now defines how it is viewed by a significant proportion of the public. In terms of reputation, it overrides the use of Fairtrade coffee beans by high-street retailers; it abrogates the use of renewable energy by tech giants. 

The world has seen a steady decline in corporation tax rates in recent decades. At 25% they are now roughly half of what they were in the early 1980s. One might expect this to lead to less aggressive corporate tax avoidance, but the opposite has been true. 

As a result, politicians the world over are initiating a meaningful crackdown, with a plethora of new initiatives in the first quarter of 2015.  Globally, the OECD has announced that it is ahead of schedule in securing international agreement on measures to tackle Base Erosion and Profit Shifting (BEPS), such as the introduction of country-by-country reporting. In the United States, President Obama wants to introduce a one-off transition tax on the $2 trillion of US profits stashed overseas. Following last year’s LuxLeaks scandal, the EU will look to force its 28 Member States to share details of any sugar-coated tax deals agreed with business. And the UK Government is promising everything from a novel tax on diverted profits (the so-called ‘Google Tax’) through to new penalties for those who advise on tax evasion. 

Early 2015 also marked the first birthday of the Fair Tax Mark: the world’s first independent accreditation scheme for businesses who want to demonstrate that they are open and transparent about their tax affairs and pay the right amount of corporation tax at the right time and in the right place. In February, the Mark secured both its first international retailer in Lush (which has stores in some 49 countries) and its first recertification in Midcounties Co-operative (the UK’s largest independent co-operative society). These businesses join pioneering social enterprises such as the Phone Coop and Unity Trust Bank, and FTSE-listed giants the Go Ahead Group and SSE plc

We are also seeing the emergence of similar accreditation schemes for ‘fair tax’ in other countries. At the end of 2014, the major parliamentary parties in Denmark called for the establishment such a mark in their country.

In one sense it’s quite astonishing that it’s taken so long for even one accreditation scheme to emerge, given the public’s heightened levels of concern. In the UK, the Institute for Business Ethics has found for the last two years that corporate tax avoidance is the number one concern of the public when it comes to business conduct. In the United States, Americans for Tax Fairness have detailed how poll after poll finds that a large majority of Americans want to see radical action to be taken on tax avoidance.

One reason for the ethical inertia has been the view that the subject is amazingly complex and needs to be left to accountants – which is nonsense, especially when one considers the complexity of Fairtrade supply chains, the diverse Forestry Stewardship Council (FSC) standards, and the intricate work needed for a fishery or fish-based product to be able to carry Marine Stewardship Council (MSC) certification. 

Another reason, in my experience, is the aversion of many corporate responsibility professionals – who would walk a mile to avoid discussion on the issue. But the horse has now bolted and one way or another business – and their advisers and accountants – are going to have to engage with their tax behaviour in a much more progressive way.

The time has come for responsible tax payers to differentiate themselves from the avoiders and evaders, and lead the next big development in corporate responsibility.

Paul Monaghan is a Founding Director at the Fair Tax Mark  @PaulJMonaghan

Image credit: Auntneecey / Flickr

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