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Politicians should avoid the moral debate on tax and fix the rules
At a time when business tax is becoming an increasingly topical area of public discussion, CBI President, Sir Roger Carr, has called on politicians to avoid the moral debate and work together to fix the rules internationally. In a speech on tax and reputation to Oxford Business School, he said that business leaders must be confident that their tax affairs can stand the test of public opinion.
Sir Roger said:
“Tax avoidance cannot be about morality – there are no absolutes. It is about responsible judgement, finding the balance between shareholder fiduciary duty, stakeholder responsibility, social awareness, and corporate reputation for acceptable behaviours.
“As politicians pursue fairness it is important that any criticisms are grounded in fact and hasty solutions or political point-scoring do not trigger long term unintended consequences.
“Tax payments are not and should not be optional. Tax should not be viewed as a down payment on social acceptability.
“Tax should be calculated in keeping with the law of the land and interpreted by management in the course of normal accounting practice. It should be neither aggressive nor lax and respectful of corporate obligations to the society in which the company operates and serves.
“The tax test is simple for all businesses - if management practice was revealed on the front page of a daily tabloid, would we be ashamed, concerned, regretful, would our brand be damaged?
“And management must be sensitive to change in public mood and opinion when applying this test, recognising that ‘what good looks like’ is a moving target.
“So, as leading politicians come together at the G8 with tax firmly on the agenda what does the CBI recommend they should consider?
“First, avoid the moral debate - it’s all about the rules.
“Second, fix the rules internationally, not unilaterally - independent action can cost competitiveness and cause confusion.
“Third, don’t rush to judgement – consultation with the business world is a critical part of the design process and ultimately the business buy-in.
“Most importantly, focus on simplicity and demand transparency. The requirement to explain tax strategy, reporting incentives used and benefits claimed will at the very least enable the responsible to show the way forward and give the less responsible pause for thought.
“In my own view it is corporate reputational risk that seems to be the best weapon in the armoury in fighting the tax battle.
“Rules are often said to be for the obedience of fools and the guidance of wise men.
“Reputation, on the other hand, once lost, is difficult, sometimes impossible to recover.”
On UK businesses’ tax contribution, he said:
“Business plays a huge part in the nation’s finances.
“Let’s look at some of the facts – the tax contribution from business last year was £161 billion – 30 per cent of all tax receipts – including corporation tax £40 billion, employer national insurance £56 billion, business rates £26 billion and fuel duty £13 billion.
“For every £1 paid in corporation tax another £3 is paid in other taxes.”
On tax avoidance and tax management, he said:
“The CBI does not condone abusive tax avoidance.
“We reject schemes which serve no commercial purpose other than the minimisation of tax, even though such schemes may be legal.
“We regard non abusive tax management however as a perfectly normal and legitimate business practice – it means making decisions in accordance with the law and judgements in keeping with all corporate stakeholder interests in mind.”
The CBI recently published a statement of tax principles which it recommends all companies should follow in conducting their tax affairs.