Putting a price on the reputation risk from tax avoidance

What are the reputational consequences of perceived corporate tax avoidance? That’s the question that introduces today’s “Tax and Reputation Forum,” organised by the Oxford Centre for Business Taxation and friends. (It’s at King’s College London, so after the High Court the other week, I’m beginning to think that Aldwych is the centre of tax news!)

The event could not be better timed, and I’m hoping to see the tax profession’s criticisms of the UK parliament’s Public Accounts Committee debated directly with its Chair, Margaret Hodge. It will also be interested to observe where Treasury minister David Gauke positions himself: in front of a mostly business audience, will he be closer to his pre-Starbucks “government and business have to work together to combat the public’s misunderstanding about tax avoidance” messaging, or his bosses’ more recent “this is outrageous and we won’t stand for it” tone?

The conference blurb talks about “perceived tax avoidance”, which is understandable. You’d expect that a risk assessment for potential media coverage would be based on how people might interpret the information in the public domain, not on the underlying tax structure, which may be obscured in the accounts. But what if companies also had to contend with private information from within the tax function coming into the public domain?

Last week the Public Accounts Committee talked about evidence from “whistleblowers”, people from outside the tax function who felt that their day to day experience contradicted how the company’s affairs were described for tax purposes. That doesn’t move us beyond the issue of “perceived” versus “actual” tax avoidance.

But what about a whistleblower from inside the tax function? That appears to be what’s happened in today’s Guardian story about Marks & Spencer. The quote below, form a leaked email, is interesting in two regards. First, because it shows correspondence in a company about the value of a tax saving versus the potential cost of reputational damage from it. Second, because the email appears to have been leaked by someone within M&S:

Given that it was developed as a means to avoid UK corporation tax when it stood at 26% it now seems appropriate to reassess this. Corporation tax will be 21% by next year. Does this not render many of the advantages of having an Irish company obsolete?

From a tax management perspective there may have been advantages in avoiding the UK 26% tax rate but the process and IT overhead with the additional VAT complexity may negate these advantages. Needless to say there is also the reputational damage to M&S should it be seen to be avoiding UK tax in the current climate, as seen with recent examples such as Starbucks [and] Amazon.

I wonder if this phenomenon could really narrow the gap between the public debate on “perceived” tax avoidance, and the internal discussions about “real” avoidance.

The recent ActionAid survey [pdf] gives a nod to G4S for its “explicit reference to [internal] whistle-blowing over tax concerns.” Maybe more companies will choose to put in place a safety valve like this for employees, to try to prevent information spilling out into the public domain.

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