Responsible tax, when is something legal, unethical?

If you are in the UK and reading the papers, you can’t miss the current round of tax protests.

The group, UK Uncut, has become something of a social media phenomenon in recent days.

Protests have hit Arcadia group companies, Boots, Vodafone and others.

Other, more established NGOs and activists are taking a pop at UK listed firms such as SAB Miller on tax avoidance. SAB responds here.

The BBC’s File on Four programme recently painted a pretty damning picture of UK corporate tax avoidance at this link.

The UK Government has to be seen to be taking some action.

But the File on Four documentary shows just how far ahead of the regulatory/enforcement curve many firms are. A transcript of it is here.

Back in about 2003 I remember publishing articles on this topic. We hosted some conference debates about the same issue: When is something that is legal, unethical?

There is of course, no easy answer here.

If only so much money was not at stake.

Some firms don’t mind being disliked if being so is very profitable.

There may be a parallel here with labour standards.

What many people refer to as “sweatshops” are often not illegal, or breaking the law.

But workers being paid a national minimum wage that has not risen in decades to keep in line with basic inflation is regarded as increasingly unethical (whilst technically being legal in countries such as Bangladesh).

That’s one reason why the better brands are instituting ‘living wage’ programmes in parts of the supply chain. Over time, these will spread, I predict, to many ‘Tier one’ supplier factories. Second tier suppliers are a more complex challenge.

When it comes to responsible tax, however, the stakes are really much higher.

CFO’s and accountants hold much sway in modern business. Shareholders, some of whom have been starved of dividends in the downturn, are demanding their return. Think BP.

Companies that are saving millions of pounds in tax are not just going to turn around and start paying the UK Government just because a few protesters shut some shops for an hour.

Last time this debate rose up, continued rising economic growth meant it fell away to a low rumble until recently.

This time it’s different. It’s here to stay on the activist agenda, along with demands for a Tobin tax.

But I am less than sanguine that it will make much difference to how companies treat tax within the confines of national law and international tax regimes.

Tax avoidance may be as distasteful to the general public as textile supply chains, but my prediction is the campaigners will be a lot less successful in encouraging large companies to change practices.

Tax is a red-line issue that most head of corporate responsibility will likely stay well away from. Unless their company has nothing to hide of course.

Something legal becomes unethical when malleable society sentiment decides that it is so. The question is, how long does that sentiment last? Tax, as something of an intangible compared to the clothes we wear, is a more difficult issue to sustain a public campaign on.

But if your firm has a ‘good’ record on the topic, 2011 would not be a bad time to shout about it.

1 Comment

  1. Deborah Seamark

    Everyone will have a different scale of what is acceptable and unacceptable when it comes to tax avoidance (or 'tax optimisation' as it is more tactfully referred to)

    We all open ISAs and feel clever for reducing the amount of income tax we pay. What difference is there between this and corporations using legal ways to reduce their tax bills? It is a question of scale.

    When I worked in a commercial role, I used to ask myself whether I would feel comfortable explaining to my friends how I made money for the company. If the answer was no, I knew I had crossed my personal threshold of morality versus profits.

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