Managing the message of fairness
The old mindset that paying less tax is just good business may be about to change believes Jonathan Flint, Chairman of Citigate Dewe Rogerson’s Corporate and Financial Services team
American sci-fi author F J Raymond is widely quoted as saying that ‘next to being shot at and missed, nothing is really quite as satisfying as an income tax rebate’.
In the UK, some 11 million people fill out HMRC self-assessment forms every year and I imagine most of us aren’t anticipating a rebate windfall any time soon. Individual taxpayers have far less wriggle room when it comes to paying tax than corporates, especially multinational businesses, who have become masters at minimising their tax exposure.
Over the past 50 years, corporate taxation has accounted for around 10% of revenues in OECD countries but while domestic companies enjoy little flexibility in the tax they contribute, the multinationals who have made a science of avoiding tax may become a more attractive target for finance ministers as a result of Covid-19.
Across the globe, governments have responded to the pandemic with colossal levels of borrowing. In the UK alone the Office for Budgetary Responsibility estimates that public debt could be £394bn for the current financial year equivalent to 19% of GDP, the highest level since 1944/45. At some point there will be a fiscal repair job on an heroic scale.
The ESG revolution, which is seeing shareholders demand far higher standards of corporate behaviour across issues ranging from climate, diversity/social inclusion and executive remuneration to better reporting and transparency, will soon focus on companies and their tax contributions to the public purses of the countries where they operate and generate profits.
This in itself is a thorny corporate communications challenge. Very few companies in the past have made a song and dance of their tax contribution. The old mindset that paying less tax is just good business may be about to change.
In the UK we have seen many household-name companies, triggered by Tesco’s lead, making a virtue of returning the emergency government business rate support and it would have become reputationally untenable for those companies making strong profits as a result of recent lockdowns to retain the state handouts.
Tax is set to become an enduring corporate theme of the great reset. Board rooms of the world’s most recognised companies may well have to think very clearly around their own definitions of fairness when it comes to tax.
Pot-shots from the public demanding a new social contract may, this year, turn into far heavier fire from institutional shareholders demanding higher standards of behaviour, especially from those companies who have received windfall profits from the global pandemic. And some of that institutional board room fire won’t miss its mark.