Back in January I called for businesses to take steps to improve their corporate governance around tax. Here’s what I wrote:
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, I said, was “to leave a gap that politicians have no choice but to occupy.”
In an article published in the Tax Journal last week, on where Labour goes next on tax, I repeated the call:
Happily, Labour won’t need to take these steps because the Conservatives have, sensibly, picked up the baton:
This will be the third piece of Labour’s tax clothing the Chancellor has donned in a single budget. And this, of course, is cause for applause.