Tax professionals have long considered strategies within the letter of the law unimpeachable – but times are changing
As with many business leaders and tax professionals, the president of the CBI clearly feels a growing sense of frustration at the direction of the public debate over multinationals and their tax bills.
“Tax avoidance cannot be about morality, there are no absolutes …” Sir Roger Carr protested at an Oxford Business School event on Monday, before heading off to deliver a similar message to the prime minister. “Tax payments are not, and should not, be a down payment on social acceptability.” Ahead of next month’s G8 meeting on tax reform, he urged David Cameron: “Avoid the moral debate – it’s all about the rules”.
This is a common refrain from tax professionals, some of whom can get agitated at the suggestion there might be an ethical dimension to a company’s tax policy choices. It has long been held as an article of faith in such circles that tax strategies within the letter of the law are unimpeachable, even if they abuse the spirit.
The case most frequently cited in precedent is that of the 2nd Duke of Westminster, who in the 1930s successfully defended an innovative – and tax deductible – way he had found of paying his gardener. In judgment, Lord Tomlin backed his fellow peer: “Every man is entitled to order his affairs so that the tax attaching under the appropriate acts is less than it otherwise would be.”
For good measure, the judge added: “If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”
For decades these words have set the parameters for disputes, the Queensbury rules for tax litigation. Moral indignation – cries that clever tax strategies abuse parliament’s intent – have been cast out as irrelevant distractions.
Such a disciplined approach appeals to lawyers, tax advisers and accountants, professionals who instinctively like rules and clarity. But that status quo is changing.
Against the backdrop of austerity, there has been a belated awakening to the creep of tax avoidance by multinationals, particularly over the last decade or so. Cash-strapped consumers are not amused when they learn of the avoidance structures deployed by the likes of Starbucks, Google and Amazon. Corporate reputations have taken a drubbing as a result.
Yes, we now need bold tax reforms at an international level to give businesses and citizens clarity about what it means to pay a fair share of tax. But there will always be a biting point, where large, complex organisations butt up against the boundaries of international treaties and rules.
Carr suggests companies must make “responsible judgments” about how aggressive they are on tax, “finding a balance between fiduciary duty and [questions of] social awareness and corporate reputation”. If these aren’t moral considerations, what are they?
And surely there is no better moral watchdog to ensure good behaviour than Lord Tomlin’s potentially “unappreciative taxpayer”.