By Jason Piper, technical manager, tax and business law, ACCA
To listen to some commentators, you’d think that the news agenda was about to burst from an oversaturation of tax stories. The tax affairs of politicians and filmstars are making domestic headlines around the world, while the activities of multinational companies have prompted consumer action from New York to New Zealand. It seems that internet and technology companies are as likely to hit the headlines for their tax policies as for the latest product or design breakthrough. Buying a cup of coffee can be as much a political statement as an expression of tastes, and the agenda for global conferences of heads of government is as likely to address tax policy as it is trade agreements or human rights.
Some tax practitioners are perhaps a little bemused by all the attention. After all, tax has always been important hasn’t it? Whether the state’s tax take is 8% or 48% of GDP, some things must be done centrally. It’s inevitable in any kind of organised economy that an element of surplus will need to be appropriated and redistributed for the common good so surely the approach of taxpayers to their relationship with the state and society has always been important?
There are some key factors which have brought things to a head. Firstly, there’s the economic pressure brought to bear on governments by the post-GFC world. Politicians need to be seen to be doing something if they are to command public support, and vilification of tax scofflaws ticks a lot of the right boxes. It’s not necessarily the most cost-effective way of improving public finances, but it’s certainly a popular one. If governments want to spend money, first they must collect it, and the determined abusive avoidance of their legal responsibilities by a minority of taxpayers and advisers gets in the way of that. It’s a fair target for responsible and measured action by the authorities.
Secondly, there’s a wider recognition that outside of any single tax system sits the web of global trade inhabited by multinational corporations. Unlike tax systems, which stick to rigidly defined legal and territorial boundaries, businesses can have the choice of where to operate, which rules to put themselves under, and how to account for themselves. The set of rules which the nations agreed on to try to govern the taxation of international trade were mostly set out in the 1920s, a world before containerisation, the executive jet and the internet. Goods, people and information are mobile in a way that the creators of the old system could never have envisaged, and that brings challenges for tax systems and their designers, resolution of which have been brought to a head by the pressures of the GFC.
Everyone involved in the operation of taxes has a role to play in the reform and rehabilitation of the system. Tax is more than just a bill to pay, it’s an integral part of how society works. And the same can be said of business – re-allocation of the productive surplus of society and aggregation of capital is what takes us beyond a subsistence society and gives us the scope to do things together that we could never do as individuals. But still every company is ultimately influenced by, and influences, individuals and the choices they make. The contribution that a business’s activities make to the tax system and society as a whole cannot be disentangled, and as the mantra of corporate social responsibility sweeps the world, so a responsible attitude to tax is a fundamental part of good corporate behaviour.
Carrying those good intentions into practice relies upon buy-in from management, advisers and stakeholders. Owners and employees are affected alike by corporate attitudes to tax, and can influence them for good or ill. ACCA thinks its members should approach tax responsibly, setting out clearly the rules of the system, highlighting the key features and opportunities, the main risks and downsides. And system designers have a part to play. Trust and good faith are a two-way process, and if taxpayers resent the system or the way it is applied then they are less likely to engage positively with it. Different countries have different needs from their tax systems, and different capacities to operate them .But the principles should be the same the world over, for taxpayers, for their advisers, and for the authorities charged with designing and operating the systems. By working together for a common cause, on common grounds, we can build a far better regime.
Read ACCA’s Global policy on taxation of companies: principles and practices for more insight.