Very interesting article in the Observer yesterday about tax avoidance and the UK Uncut campaign who maintain that the current UK austerity package would be unnecessary if there was a crackdown on tax avoidance. Sir Philip Green, boss of the Arcadia Group which owns Topshop, is attracting particular ire as Arcadia is actually owned by his wife who is resident in Monaco. And, of course, Topshop is a tall poppy – a sit-in in a depot in Basingstoke won’t attract much publicity compared to one in an Oxford Street megastore.
While Green is an obvious case of stretching the rules, it’s never clear where canny accounting becomes tax avoidance. Like all businesses I employ an accountant who has two main roles – getting all the paperwork together and making sure I’m paying the correct amount of tax. ‘Correct’ could be interpreted as ‘not a penny more than I have to within reason’. And therein, I suppose, lies the rub – the definition of ‘within reason’. I wouldn’t offshore my business or transferring ownership to minimise tax – easy to say when the issue doesn’t arise – but for Green that’s clearly OK in his mind.
Similar shades-of-grey arguments lie in a range of corporate social responsibility (CSR) issues. If we offshore functions to, say, Bangalore where salaries are lower, what does that do to the economy of our ‘home’ country? If we exclude Bangalore, what does that do to the career prospects of burgeoning middle classes of India? Do we want those people to give up software engineering and call centre operations and go back to subsistence farming? But by getting nations to compete against each other for big business, are we encouraging a ‘race to the bottom’ where the lowest labour and environmental standards win? And, where is ‘home’ for an transnational corporation anyway?
These are extremely difficult issues. The important thing for a company which trades on its CSR is to have a framework within which decisions relating to such issues can be made. A company with a geographic tradition (dare I suggest Cadbury? or U2?) should consider carefully where they are registered or they will lay themselves wide open to attack. A company whose business model depends on low manufacturing costs (eg high street fashion) should have a strict policy on pay and other working conditions within their supply chain.
If you don’t have such a framework, you will be measured against other people’s yardstick which will inevitably be tougher than your own. If you are targeted you won’t get off the back foot. So set the standard and enforce it. If it works, then raise the bar. Make it work for you and be proud of it.