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Is there a tax adviser in the house?

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I can’t be the only one who has recently, when at a dinner party or meeting someone new, faced the dilemma of being asked what I do for a living. I have been tempted to pretend that I am still doing a job from years ago (in my case, working as a bus conductor), rather than being met by a look of disdain upon saying what I really do. Worse still, I have been met by accusations of assisting large scale multinational tax avoidance, by advising those who have recently had the spotlight directed upon them.
So should we be bashful; or should we speak out fairly and without fear about what we do?
There has been much talk about morality in the corporate tax arena in recent years, and also a suggestion that ‘fair share’ is a clearly determined amount or notion.
I have said in the past that morality is not a thing that you can ascribe to corporates. As an individual, I can (and hope that I do) have a sense of morality; but when I am deciding what to do, I am taking action or committing funds on my own behalf. I have my conscience to guide me and that should be all.
(I’m not, by the way, straying into the area of individual tax avoidance or aggressive tax planning, where completely different issues arise. This article is confined to the business tax arena.)
In the days before peace broke out in the UK corporate tax world, when business and government seemed to be at constant loggerheads, with tit for tat driving tax planning and legislation alike, eminent tax advisers (me included, I am afraid) could talk about ‘tax being no more than legalised confiscation of someone else’s money’. No one would use that phrase now. Things have changed – on both sides – and for the better.

The UK perspective

The UK is a very open economy, where historically our mercantile tradition means that borders have always been permeable; and EU membership has reinforced that. Particularly in such an environment, it is now widely accepted that the government has a responsibility to create the right infrastructure and business environment, so that people want to do business (and create employment) in the UK. However, it must also strike a balance with having a competitive tax system which does not undo all that hard work, thereby giving other jurisdictions the edge when competing for investment in an increasing global economy. 
This cannot become a race to the bottom, because that will prejudice individual taxpayers who vote – and who may not immediately appreciate that long term benefit often comes at a short term cost. Such an approach will also usually undervalue the price that any country should charge for the facilities it offers when a business decides to locate there.
As in all things, a balance needs to be struck, and that is what good governments do.
Both government and business alike now appreciate that the success of a competitive tax policy needs to be measured not only in terms of corporate tax yield, but also through investment generation and job creation. Increased business activity can thus result in the growth in personal tax yield and benefits savings.
From 2008, the Labour government started the UK down the road towards the territorial tax system and CFC reform; and the coalition government had its 2010 Corporate tax roadmap. Both these governments realised that UK MNCs should, as far as possible, be given a level international playing field. Otherwise, they would be vulnerable to foreign takeover, following which investment loyalties can change to the detriment of the previous home jurisdiction. Countries should strive to keep their national champions.
Generally, there has been much more consultation with the business community about the possible impact of tax changes. Sensible tax administration has, at the same time, enabled HMRC and MNCs to have a mutually respectful relationship based on openness and transparency. That has all been to the good in my view.
There has been a blaze of recent publicity about multinationals. First, came the allegations of sweetheart deals, which were comprehensively rebutted by the NAO enquiry (sadly, with less publicity than the original PAC histrionics were given). Later, came the recent controversy about the digital economy and MNC tax planning, largely driven by the US’s benign rules as regards the taxation of offshore profits. With these developments, tax rights and wrongs have again been questioned.

Government approach

In an environment where the court of public opinion is quick to find people guilty as charged, yet without properly being able to assess the evidence, the government has faced a dilemma. 
Does it accept that HMRC has not been doing a proper job? No, and it is right to have defended HMRC, which has done a good job in the business tax area in difficult times.
Does the government agree that its policy has been too generous to MNCs? Again, no, because – faced with the increasingly mobile business world – the last two governments have both set a correct course in that area. It is better to encourage people to stay here (and also to come here, of course) than to try and lock them in, as the US has done. 
Does the government engage in a debate with lobby groups and the public? It could, but that would surely be futile. This is not a debate that lends itself to a public airing, as prejudice abounds and the underlying facts and issues are so complicated.
Therefore, the government rightly plays a dead bat to the criticism of both itself and HMRC. It continues with a competitive tax policy and participates enthusiastically, but with a strong element of realism, in the BEPS programme – hoping that the outcome will be neutral or positive for the UK.

The dilemma for advisers

So how should we tax advisers be behaving in such circumstances? Do we keep our heads low, hold them high or come out fighting? 
The starting point should be to look at our corporate clients and ask how they are facing such a challenging environment.

Multinational focus

There are, of course, many conflicting pressures – and some have suggested that the public perception of ‘paying your fair share’ and ‘complying with the rules’ is what should be first and forefront in guiding corporates. Given the febrile nature of much of the press and, sadly, of parliamentary comment, I’m afraid I do not agree with that. There are rarely ‘good news’ stories on tax. Therefore, the focus of the press, which shapes public opinion, tends to be on things that are – or, more likely, might have been, if the facts were right – food for scandal.
Most corporates accept, however, that hostile publicity is not good for them or their businesses and will try to manage that appropriately if it arises. Yet running your whole business by trying to satisfy the shifting sands of public opinion in this environment is surely going to get you into trouble.
UK MNCs will, instead, usually regard their primary focus areas as:
  • Having a good relationship with government and HMRC (and other regulators): That can only happen, of course, if there is honesty and openness on both sides. If HMRC is satisfied that a company is generally complying both with the letter and the spirit of the law, questions of whether or not the appropriate ‘fair share’ is being paid should really go away (or at least be regarded as uninformed speculation).
  • How investors regard them: Companies operating in the same markets around the world will know only too well that a very high effective tax rate can lead either to investors taking their money elsewhere or to a takeover. Companies are not spending their own money. They are spending money on behalf of their investor community, so they need to make sure that constituency’s position is respected. (This is largely a matter of return, but also partly a matter of reputation.)
  • How employees perceive them and their tax policy: This is an often overlooked area, but it is really important. No one wants to work for a business when its ethics are not respected. If employees working within a business fear that their employer is not being entirely honest in handling its tax affairs, no good will come of that. 
  • The impact on customers and its business from possible adverse publicity: There are, however, signs that customers have not particularly reacted to adverse tax commentary.
This is all, therefore, nothing to do with morality. It is all about what makes good business sense and about operating carefully and efficiently in the environment in which you are located. No one wants to be regarded as someone operating on the edge of the rules or misbehaving. Once you have decided to locate yourself in a particular jurisdiction, you want to be seen as a socially responsible member of that community.
Corporate social responsibility is the mantra – a more balanced concept than morality. Spending all your time fighting with authorities (tax or otherwise) will not win prizes and will likely generate a lot of uncertainty. If you go too far in the other direction, however, there will be no prizes from investors (or, in fact, from tax authorities) for volunteering to pay more than you should.

Supporting business

As tax advisers, we should feel pleased if we can help our corporate clients to achieve their aims in term of their tax strategy or policy, and also prevent unexpected or unreasonable tax charges from interfering with their commercial aims. We can then feel that we have done a good job for our own country in supporting increased investment and employment and can indeed hold our heads up high.
Thus, our advice will usually have to be tempered, by a sense of political realism as we help our clients not only to understand the law, but also to appreciate the climate in which they are operating. (For tax lawyers, this will often chime with reasons why they chose to practice law in the first place – which is to help people faced with legal issues that they are perhaps not best placed to understand.)
This week's print edition of Tax Journal contains a feature for the Bridge the Gap campaign led by TaxAid and Tax Help for Older People, both charities which help people who have fallen on hard times to cope with the tax issues that are increasing their current difficulties. It might be thought that this is a long way away from the issue that I have been dealing with in this article but it is not really.
One consequence of a failed business will often be unpaid liabilities from previous years to HMRC; and whether you are self-employed or an employee, you can never completely escape tax difficulties if you get into financial problems. 
In order to continue to provide the excellent services that they do, these two charities need continuing support from the tax profession. And if we can do that whilst going about our daily jobs, then we will have one more thing to feel proud about.