The next green thing: tax

ENVIRONMENTAL AND social issues have traditionally been the focus of social responsibility within companies. But with economic hardship growing for both the general public and governments, there is a new ethical issue on the block: tax.

 

Foodservice Footprint iStock_000003548076Medium-300x199 The next green thing: tax Features Features Foodservice News Analysis  The Guardian SAB Miller Ken Livingstone John Cridland George Osborne G20 Fairfood International Fair Pensions Confederaion of British Industry Chris Jordan CBI Boris Johnson Amazon Action Aid

 

 

 

 

 

 

 

 

 

And the media love it. The Guardian’s recent story on Amazon is a recent case in point: the paper revealed that the online giant “generated sales of more than £3.3bn in the UK last year but paid no corporation tax on any of the profits from that income – and is under investigation by the UK tax authorities.

 

Sometimes it is ‘the authority’ itself under the spotlight. Labour has accused the Chancellor George Osborne of being “less than transparent” when challenged as to whether he stands to benefit when the top rate of income tax is cut from 50p to 45p. Tax has also been the subject of some unsavoury mud-slinging between Boris Johnson and Ken Livingstone in the run-up the London Mayoral elections.

 

Like any other aspect of responsibility, it all boils down to transparency. Politicians will no doubt have learned from the ‘expenses affair’, but businesses should certainly be aware that campaigners are gunning for them.

 

The issue of tax avoidance was first highlighted in 2004, and attention grew due to the global economic crisis and the G20 meeting in London in 2009. Action Aid and other non-government organisations (NGOs) have taken the opportunity to keep the issue on the political agenda for the last three years, with some high-profile media success.

 

Action Aid raised the alarm over London-based global brewing and bottling company SABMiller which is said is “dodging its taxes around the world”. The tax authorities in five African countries launched an investigation into the company’s transfer pricing strategies last year. SAB isn’t the only one either, with poorer countries losing “three times more money to tax havens than they receive in aid every year”, according to the NGO.

 

Action Aid says multinationals are allegedly arranging their business affairs across the countries where they operate, attempting to minimise the company’s overall tax payments. Amazon, for instance, is reported to have avoided UK corporation tax because Amazon.co.uk is regarded as a ‘service company’ rather than a retailer. This means the British company provides services to a parent company based in Luxembourg where the tax rate is lower, according to The Guardian. The Amazon case might also prove it isn’t only developing countries that are losing out.

 

Of course, it’s a fine legal line between managing taxes and tax evasion (the latter obviously being illegal), which makes it hard to determine when a company is purposely doing wrong. In a report released in April this year, the Confederation of British Industry (CBI) said businesses in Britain do pay their fair share in taxes. Tax management, performed by many companies, is an important function in the business world and should be perceived differently to the tax arrangements that are wholly designed to avoid tax. Don’t forget, says CBI director-general John Cridland, that British businesses also depend on a healthy, educated workforce – and that’s why we need effective, properly funded public services.

 

The likes of Action Aid are not convinced, suggesting that the Government is losing billions in tax revenues. And it could lose even more. The UK Budget for 2012 included proposals for amendments to tax legislation for multinational companies. The aim? To increase competitiveness for UK businesses internationally. By 2014, the UK’s headline rate of corporation tax will be the fourth lowest in the G20, according to the CBI.

 

Chris Jordan, economic justice campaigns officer at Action Aid disagrees with the amendments. “At the moment the UK has quite a strong set of anti-tax haven rules, which discourage companies from shifting money and profits into tax havens. They protect the UK and also developing countries. But that is the main bit the Government is trying to get rid of. Global accounting standards allow businesses to do the right thing.”

 

Last year, Action Aid, Fairfood International and Fair Pensions came together to put forward the business case for why companies should not avoid paying taxes in the countries and markets where they operate. They claim businesses should take responsibility towards their investors and shareholders, by being open and transparent about their tax affairs. Action Aid’s Jordan says it is “a cat and mouse game between the companies and tax authorities that is often very costly to challenge”.

 

But that doesn’t mean it won’t be. Those that fall foul of campaigners, the media or the regulators, like SAB and perhaps now Amazon, can face severe reputational damage. Indeed, one thing the CBI and NGOs undoubtedly agree on is the need for transparency. When businesses open up their accounts, the amount of corporation tax subject to tax management will be revealed, leaving the tax officers to decide their fate.

 


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