How business should respond to concerns around tax

Today the so-called Google Tax becomes law. It is, in cash terms, a bauble. In steady state, it will yield £350m a year; far less than half the cost of the reforms to stamp duty also introduced in last December’s Autumn Statement.

Yet its political importance is huge. Despite the Coalition’s radical programme to combat avoidance – which has changed the landscape beyond recognition – the Conservatives have remained vulnerable to the allegation that they are the friends of tax avoiders.

The Google Tax was their response.

Business was furious. The measure tore up the Coalition’s Corporate Tax Roadmap. The tax profession was no more enthusiastic. The ACCA, ICAEW, CIOT and others lined up to slam it: radical, introduced without proper consultation and pre-empting international measures to tackle avoidance. Nevertheless, and unopposed by Labour, it became law.

How did we get here? And where do we now go?

Business leaders recognise that the world has changed. Survey after survey places tax first amongst CSR concerns. Tax structured transactions are in near mortal decline. And litigating even vanilla transactions is perceived to carry prohibitive reputational risks. Yet a route to take matters forward remains elusive.

But here’s a prescription. Business needs to take the initiative. The defensive formulation – “we comply with all relevant tax laws” – will no longer do for a public dyspeptic on a diet of double Irish and Dutch sandwiches.

Boards need to take ownership of the tax issue. They should publish, with their annual reports, statements of tax policy. What strategy should the tax department pursue? What is the target rate of tax on corporate gains? Will the Group transact purely for tax advantages?

For meaningful buy in, statements should be developed internally. And, to remain relevant, there should be annual compliance audits. For laggards, a new Government will want to consider changes to the Companies Act.

Business has been on this journey before. The transparency and management of the supply chain is critical to such B2C businesses as Apple and Nike. Environmental concerns influence investment behaviour beyond pure ethical plays. Why should tax be any different?

It is, of course, a particularly significant cost. Perhaps it is this that has caused Boards to be slow to engage. But, although we have yet to experience a fiscal Deepwater Horizon, the EU State Aid probe should shake from complacency those businesses benefitting from sweetheart deals in Luxembourg, Ireland or the Netherlands.

Tax transparency, of course, brings risks and rewards. XCo, which chases post-tax gains, will be closely scrutinised by the revenue authorities. YCo, which adopts a principles based approach, may suffer a higher effective tax rate. But openness will draw the sting of the charge – beloved of campaigners and the media – of hypocrisy. And through the mechanic of statements of tax policy Boards will be able to set the strategic direction of this crucial, but ill-understood, function.

The alternative, of remaining on the side-lines, leaves a gap that politicians have no choice but to occupy. In the final analysis, it is the work of our own stayed hand we curse. To regain the moral authority to participate in the debate around what tax should look like, business must throw open the doors.