Investors and public sector suppliers are increasingly more aware of the benefits of increased transparency around tax strategy, governance and internal controls. Businesses who take their responsibility in this area seriously say it enhances their employer branding. As CSR Europe will soon launch a Blueprint on Tax Transparency & Responsibility, Paul Monaghan, CEO of Fair Tax Mark provides us with some of the latest trends.
What are the best enablers to get more companies to become responsible tax payers?
At the Fair Tax Mark, we are finding that different types of corporation have different key motivators.
Investors are increasingly pressing listed companies to explain their management of tax risk, and so we are seeing a big increase in transparency around tax strategy, governance and internal controls.
Coops and social enterprises see this area as the next big thing in corporate responsibility and want to be ahead of the curve and demonstrate their social mission.
Public sector suppliers are finding that demonstrable fair tax credentials help win and maintain Government and municipality contracts.
High-street retailers, who have regular contact with personal customers. view good tax conduct as a customer priority and strong brand differentiator.
The common factor with them all is the desire to evidence a tax policy that provides clarity on key matters such as shunning an undue presence in tax havens and a lack of appetite for tax avoidance schemes and profit-shifting. Together with enhanced transparency in the tax notes detailed in financial statements (especially when it comes to clarity on current tax and deferred tax payments, as well as total tax). There will be many legitimate instances when a business does not pay corporation tax at the headline rate, such as when they post losses, or utilise tax reliefs in connection with topping up their staff pension pots or capital investments. Therefore, it is vital that enhanced transparency provides a clear narrative explanation alongside a numerical reconciliation – it is astonishing how often this particular aspect is absent among businesses who are looking to seriously build trust with stakeholders.
How can you explain the lack of narrative? Just perhaps paying tax seems such a straightforward thing to do?
Unfortunately, in many business sectors there is a culture of saying as little as possible when it comes to what corporation tax is paid where, and why – especially when it comes to looking at things on a country-by-country basis. This is partly driven by a desire not to create hostages to fortune, which may lead to challenges around tax avoidance and evasion further down the line. It is also a symptom of the disconnect that often exists between a corporation’s tax department and their CSR and communications experts. The latter are then strongly encouraged not to ‘meddle’ in matters that are far ‘too complex’ for their consideration and involvement. Thankfully, things are starting to change. Progressive tax professionals recognise that they need to better engage with the debate and develop a means to communicate clearly what they pay and why. The need to engage and explain is probably a decade (at least) behind what has been happening in the area of climate change and human rights. It’s now starting to improve – with some real tax superstars emerging at everywhere from the Co-op to Marshalls plc.
Did you get any specific feedback from companies which have gone through the Fair Tax Mark certification scheme? Did they observe different behaviour from customers or other stakeholders?
Each organisation that has secured a Fair Tax Mark (which is now close on fifty businesses) has needed to make changes in order to realise accreditation. We are not in the business of rewarding standard practice. As part of our assessment we score policy, reporting and current tax payments (over four years) and provide suggestions for improvement. Organisations that are paying lower rates of current tax need to engage in extra transparency in order to secure certification. The feedback from accredited business is that the process of accreditation is a valuable means to benchmark performance and move towards best practice. They appreciate that we set the bar high and see this as an asset in an area where trust is low. Larger businesses routinely utilise the Fair Tax Mark in their engagements with investors, tax authorities and national regulators as evidence that they take their responsibilities in this area seriously. Businesses who proudly attest to paying a living wage to staff and through their supply chain often see the Mark as a natural accompaniment. One that attests to them paying their way in the societies and countries in which they generate economic value. They also say it generates real pride among employees. In the UK, the Mark is increasingly recognised and sought out by customers.
Polling undertaken in the summer of 2018 found that:
-69% of the UK public would rather shop with a business which can prove it's paying its fair share of tax
- 70% would work for a business which can prove it's paying its fair share of tax;
- 61% would trust a business with the Fair Tax Mark more than one without it.
- 51% say that they would switch the businesses they use in favour of one that has the Fair Tax Mark with just 7% disagreeing.
We are also now receiving an increasing number of enquiries from organisations head-quartered outside of the UK, and so we plan to develop and launch a new international standard for such businesses in 2019.
Any sectors which are more prone to be tax responsible?
Unfortunately, there really does seem to be a general divide between the approach of established bricks and mortar business and newer high-tech digital enterprises. Many of the latter have tax avoidance and profit-shifting baked into their corporate structure and culture. There are of course many exceptions to this rule, but the tax conduct of the likes of Facebook, Apple, Amazon, Netflix and Google really is poor. This is a crying shame as they are so very good on other issues, such as support for renewable energy. One would hope that their core Millennial and Generation Z customers will in time similarly help the likes of the FAANG companies recognise that they have broader responsibilities. Corporation Tax is not a burden to be avoided, but a fair and valuable contribution to the communities that enable their businesses to thrive.
As recognised by the likes of SSE, a FTSE100 listed UK company that is not only Fair Tax Mark certified, but the UK's leading generator of electricity from renewable sources. Their Director of Sustainability, Rachel McEwen, recently commented: “What I find frustrating is that a few bad apples can tarnish the reputation of so many. Profitable companies like SSE create hundreds of thousands of direct and indirect jobs, build and upgrade essential infrastructure to keep the lights on. Its tax contributions help support the services we all need to thrive. Tax pays for the schools we learned in, the hospitals that treat us, the roads that get our goods to market and the security we get from emergency services. Tax is a social contract with society and it goes without saying it is businesses’ duty to pay their fair share.” Many private businesses, especially those where the founder is still involved, take a similar view. James Timpson, Chief Executive, Timpson Group has said that: “We are happy and proud to pay our taxes and have always strived to pay tax in the spirit of the law, rather than pursue tax avoidance schemes, which albeit legal, hardly promote a level playing field or a fair contribution to the communities in which we trade.”
In your conversations with business leaders, are you starting to see a shift in the way that they talk and engage with you over the issue of corporation tax?
Yes, it’s not just the public that are concerned about tax dodging. Numerous business leaders are proud to work for companies that pay the right amount of tax in the right place at the right time. They find it distasteful that less scrupulous competitors are trying to steal a march by not paying their due taxes. As with any relatively new certification scheme, initially many business leaders were a little wary of engaging with us. But as we have grown, and its plain to see that accredited businesses return to us year after year for their re-certification, we are finding that business leaders are emboldened and newly motivated to take a positive public stance on this issue.
CSR Europe is currently preparing, together with PwC, a new Blueprint on Tax Transparency and Responsibility that will be released in March 2019.
See more info: From Tax Transparency to responsible Tax behaviour