Investment analysts and quoted company directors are sometimes minded to stake out the ethical high ground when justifying tax avoidance, arguing that they have a ‘fiduciary duty’ to maximise shareholder value. That ground is extremely shaky, according to a landmark legal opinion from Farrer & Co, prepared for anti-avoidance activist body the Tax Justice Network.
One should not expect corporate behaviour (or tax advisory strategy) to change much however. Tax avoidance is perfectly legal after all – it is tax evasion that is not – and appealing to board-level directors’ social conscience will struggle to gain much traction when their rewards are indirectly affected by the amount of tax their company pays. One must be realistic.
Or is that too cynical a reading? Where the opinion may well resonate is in the realm of corporate social responsibility (CSR). In the absence of a positive duty to avoid tax, Farrer notes, a board might opt to insulate itself from criticism by adopting a formal policy document regarding its approach to ‘responsible corporate taxpayer conduct’. This might see a multinational explicitly favouring a ‘corporate tax footprint’ in the jurisdictions where its staff actually work, for example.
At all events, given the impact on reputation of legitimate avoidance – never mind evasion – it is surely plain that CSR statements that are silent on how and where a company pays its tax will increasingly be called into question.
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