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Responsible Tax - Latest Updates

26 November 2012


Much has happened since we reported on the issue of responsible tax in our Spring 2012 newsletter.

November alone has seen representatives of Google, Amazon and Starbucks defending their companies’ tax practices in front of the UK government’s Public Accounts Committee, while the Occupy movement and UK Uncut have been ranked joint seventh in International Tax Review’s annual list of the top 50 most influential people and organisations in global tax. In the same period, the Tax Justice Network celebrated its tenth anniversary, having grown from modest roots into an influential global movement.

Each of the above has served to highlight the extent to which the issue of tax planning and avoidance, previously the preserve of accountants and tax lawyers, has entered the public consciousness. Those in favour of a fairer tax system argue that governments use tax revenues to fund public services such as education, policing and transport networks which directly or indirectly benefit individuals and businesses. It can therefore be argued that companies have an obligation to pay a responsible level of tax in order to support this societal infrastructure. The backdrop of austerity has further fuelled the argument that individuals and businesses have a moral responsibility to pay a fair amount of tax.

This view was mirrored in the comments of Margaret Hodge MP, chair of the Public Accounts Committee, when she stated, "We're not accusing you of being illegal; we are accusing you of being immoral."

The concept of a ‘fair’ level of taxation is tne which is difficult to define. It is possible to think of instances of tax planning which, whilst legal, are clearly aggressive and opportunistic; and equally of instances where a company has legitimately reduced its tax liabilities. It is in the grey area in between that difficulties arise.

Rathbone Greenbank believes that effective international tax regulation is vital in tackling aggressive tax avoidance as it would help to eliminate this ambiguity. HM Revenue and Customs has faced substantial criticism over its perceived ‘soft touch’ approach towards large business. Whilst in some cases this criticism appears justified, it is important to remember that HMRC can only assess tax arrangements on the basis of legality, not on perceived fairness.

We therefore welcome moves by the government towards the introduction of a ‘General Anti-Abuse Rule’ (GAAR) into UK tax legislation. This new legislation stems from a 2011 study which found that a moderate anti-abuse rule would deter aggressive tax avoidance schemes whilst maintaining UK’s attractiveness to business. Whilst the proposed GAAR is seen by some NGOs as too narrow in its potential application it is interesting to note that it does recognise the existence of tax strategies which, whilst legal, are morally dubious.

We also note the progress of the broader General Anti Tax-Avoidance Principle Bill through the House of Commons. Though still at an early stage, this Bill has gained wider support amongst tax campaigners and NGOs.

We will continue to raise these important issues with companies, ensuring that companies have considered the need to balance their financial responsibilities to shareholders with the social responsibility to pay a fair level of tax.

 

 

For more information on how we can help you develop an investment portfolio that meets your requirements, please call 0117 930 3000 or email john.david@rathbones.com

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