Companies should be open about their tax arrangements. In short, they need to own the debate rather than become embroiled in it, writes Jonathan Riley.
Evasion, avoidance, mitigation; tax is the proverbial hot potato for many companies and an issue that’s never far from front page news. However, as a significant operating cost and burden on all businesses, lessening the load is essential. But to ensure companies tackle this within the spirit and letter of the law, and not fall foul of public opinion, they should be open about their tax arrangements. In short, companies need to own the debate rather than become embroiled in it.
To understand the furore over corporate tax practices, we must first consider why tax has become such a challenging issue for business. Part of the reason lies with the nature of the beast. The tax regime is complicated and porous. There are specific country-by-country policies and often complex systems governing how these national frameworks interact (in some cases there’s very little governing the interaction between regimes, which is how tax havens are established). This intricate set-up makes tax fertile ground for opportunistic practices and often why businesses face public rebuke.
The other contributing factor is that the tax regime has not kept pace with the changing nature of business. Technology has broken down borders and enabled companies to market their products worldwide – whether through a physical or digital presence. But, in this new environment, how should we define where profits are generated (and therefore, where taxes should be paid)?