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Self's assessment: tax and the media

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This month’s column is more of a ‘Self’s reflection’ than a ‘Self’s assessment’. The CTA Address (the annual event hosted by the incoming president of the CIOT) in May was given by Vanessa Houlder, who was the Financial Times’ tax reporter for 13 years until she moved to the FT’s Lex column last year. Many of the comments she made chimed strongly with my own experience, and I certainly agree with her conclusion that ‘the tax debate has changed from being boring and poorly understood … to impassioned and poorly understood.’

When Vanessa started writing about tax in 2004, she wrote a piece about tax dodging – was it a moral issue and might it risk damaging a company’s image? I was in-house at the time, and it was certainly the case that we did not use structures that we thought were artificial, and could damage our reputation. But it is also true that the definition of ‘artificial’ has become wider over the years, and structures which the business community perceived as reasonable in 2004 would probably be viewed differently now.

It’s fair to say that the Public Accounts Committee (PAC), and particularly its chair, Margaret Hodge, had a huge impact. As Vanessa pointed out, the PAC probes into Starbucks, Google and Amazon led to extensive media coverage, although not all of it met the high standards of accuracy set by the FT. In my view, the tax profession found itself on the back foot: nobody wanted to hear our explanation that ‘the tax system doesn’t work like that’, and for understandable reasons the biggest advisers and companies preferred to keep a low profile. To a great extent, the story ran away from us and we have struggled to get sensible voices heard ever since. Some of us do keep trying though!

Other influences which Vanessa pointed to include the impact of the financial crisis, as well as the way in which politicians have found that tapping into people’s anger is seen as an effective way of campaigning. She also highlighted the way in which technology, and social media in particular, have made it easier both to investigate and to communicate tax issues – although I am not convinced that 280 character tweets are the best way to get across some of the nuances of complex issues. As has been said before, a lie can be halfway round the world before the truth has got its boots on – and a soundbite often gets much more traction than a careful explanation.

As Vanessa said, much of the media focus is on corporate tax, but corporate tax is a relatively small part of the total tax take (just under 10% of UK tax receipts), and economists are generally of the view that high corporate tax rates are economically inefficient. Yet there is a widespread perception that US tech companies, in particular, do not pay their ‘fair share’. It is easy to point to the fact that these companies have huge sales but pay very little tax, but the underlying issues are more complex. A large part of the value chain is in intangible assets, which are often held in tax havens – and it is not surprising that this is seen as tax dodging. But a wider issue is that the international tax system was designed for a very different world, and has not kept pace with the way that global business operates now. The OECD is beginning to address this, but it is unlikely that the solutions will be simple or even perceived as fairer than the current system.

What can we, the tax profession, do about all this? In my view, we need to accept that the public has genuine concerns about whether companies, and individuals, are paying their ‘fair share’ of tax, and we need to take a share of responsibility for helping them understand the issues. It is not enough, and indeed risks being patronising, for us just to say that the tax system is complicated. The first step is to increase the level of understanding of how the system actually does work – so that people can decide whether they want to complain about the law (a matter for politicians) or the way the system is being used. I’d like to commend HMRC’s ‘tax facts’ videos for schools on YouTube, as well as public lectures by speakers such as Helen Miller of IFS. Communicating the basics in an understandable way is really important.

The second step is for tax professionals to engage with the media, and the general public, and help them to get it right. Sometimes, our frustration is understandable (see, for example, my January column), but we need to be prepared to share our knowledge in ways which are accessible and, importantly, are not seen as lobbying for our own point of view. Twitter, in my view, can be useful here: a brief explanation, with a link to a more detailed article, can help to get a point across. We need to build trust, and that won’t happen overnight – but it’s worth trying, in my view.

Finally, never miss an opportunity. I even spent time on the train last Friday evening, explaining to fellow-passengers (yes, we speak to each other sometimes, outside London) why a decorated gingerbread person was subject to 20% VAT but a plain one was not. Would anyone like a Jaffa Cake?