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Responsible Tax RE- BUILDING A SOCIAL COMPACT ON Responsible tax www.responsibletax.org.uk CoVi (Common Vision UK) is the first visual think tank. We explore and share ideas for the common good. C L I C K T O V I E W A N D SHARE A VISUAL EXECUTIVE SUMMARY: www.responsibletax.org.uk @covithinktank /covithinktank Foreword Contents 7. Moving forward p.4 p.42 Preface p.6 8. Recognising tax purpose p.43 10. Leading a common process Author’s note 1. Introduction p.12 p.8 2. The 9. Shaping tax principles p.61 issues 4. From 3. From regulation competition to to obligation p.53 collaboration p.19 p.21 p.25 11. Next steps and summary of 5. From transparency 6. From risk to recommendations to accountability reciprocity p.34 p.39 p.68 Foreword Margaret Hodge MP CHAIR, PUBLIC ACCOUNTS COMMITTEE ( 2 0 1 0 – 2015) Who pays tax and who avoids tax has become an issue which regularly hits the headlines. For most people who unquestioningly pay their tax through PAYE, Council Tax or VAT, to learn that others are deliberately avoiding paying their fair share is simply offensive. This is not an anti-business or anti-wealth agenda. Indeed our concerns are in part about ensuring fair competition between British owned businesses employing British workers, and some multi-national companies who can cut their prices because they avoid tax. IS CONSENSUS ON TAX POSSIBLE? Paying a fair share based on the profits you earn from the activity you undertake in a particular jurisdiction is morally right and sound common Margaret Hodge MP sense. I am critical of the role of tax advisers, accountants, lawyers and bankers 85% of British adults say in creating new schemes and finding new loopholes where the sole or main purpose is to avoid tax. But it is important to engage in an open that tax avoidance by discussion with all the stakeholders as we try to find common ground on large companies is what makes for a responsible, sustainable and just system for collecting money for the public purse to be used for public good. It is in this spirit “morally wrong”1 that I welcome this publication. 5 Preface Jane McCormick SENIOR TAX PARTNER, KPMG IN THE UK At KPMG in the UK we have been going through a long and important internal conversation about our tax advice and how to try to provide a service that meets the needs of our clients, recognising that they must balance the interests of their stakeholders and the needs of wider society. We see tax as the entry fee we all pay to be part of a civilized society. If we don’t pay up front, we pay through social and environmental problems later. This means not just meeting the regulatory standards – but developing the processes and more importantly the culture of tax for the common good. Our focus has to be on our work on compliance and advice – but at KPMG we are lucky to have the resources to facilitate a broader conversation about the purpose of tax, tax policy and administration, as deficiencies in these areas also lead to sub-optimal results for society. ADAPTING TO A NEW TAX ENVIRONMENT Jane McCormick, KPMG in the UK In mid-2014 a KPMG working group met to discuss our purpose in giving tax advice. We summarised this as “responsible tax for the common Why are we doing this? In part, it’s because the context has changed. The good.” It was clear that that this is an issue which extends beyond the financial crisis has put pressure on tax revenues, government policy has role of individual advisers, and that the views of other stakeholders moved to focus on a more competitive tax regime, business is able to including taxpayers, tax authorities, NGOs and government, would be have a more open dialogue with HMRC and high profile public campaigns fundamental. Therefore we decided to work with CoVi to curate a have put the spotlight on tax. And over and above that, we recognise that discussion around this project to hear the views of as many different we – and our clients – need to adapt to a changing tax environment. This stakeholders as possible. The consultation to date has been encouraging is about KPMG developing our thinking and our place in the world. We so far in recognising the significant progress that business, HMRC and want to strive to do the right thing. We believe we have a purpose and NGOs can make together in forging a constructive dialogue. voice in society which can work for the common good. 7 Therefore discussions must account for the economic complexities and Author’s note political sensitivities in which tax systems operate. Otherwise the debate risks becoming arbitrarily black-and-white, hijacked by reactive and partisan viewpoints from all sides. Beyond the watchful but volatile eye of the media Caroline Macfarland we need a debate which can delve deeper than soundbites and rise above finger-pointing at one sector or company. FOUNDER AND DIRECTOR, COVI It was with this in mind that we decided to curate a genuine discussion on tax that would look at the “first principles” of tax, and in doing so would revisit the concepts and ethics which underpin modern markets. This was Nine months ago we commenced an ambitious new project on the basis for our consultation around how tax purpose and principles can “responsible tax for the common good”. The project was timely for many reflect the common good. reasons. Once exclusively a technical issue cloaked in the jargon of accountants, tax is now a “hot” topic, firmly in the public realm. The support from KPMG for this project has allowed us to consult with tax professionals - not media or PR spokespeople – who would not usually be The public scrutiny of their tax behaviour has caused leading consumer seen speaking out on concepts such as responsibility and fairness brands and public figures alike to become the subject of many a dinner- alongside NGOs and campaigning groups. table conversation. These debates have positioned celebrities and corporations on a very similar footing because both strive to exist as Clearly, the concept of responsible tax behaviour has implications for the popular personalities embedded in public consciousness. Many large advice given to taxpayers by accountants, lawyers and other tax multinational groups have actively sought to be trusted household names, professionals, who are increasingly relied upon to use their technical rooted in the local and associated with personal lifestyle values. Aspiring expertise to navigate the expectations of wider society – and this has to be seen as a “human company" is redefining the way in which business potential to be a force for good in the future. KPMG have also contributed a interacts with their stakeholders, whose expectations and standards of number of case studies which demonstrate how the concept of responsible privacy lead to calls for more information on practice. tax behaviour translates to tax advice on a practical level. Tax is one of the fundamental ways in which a company contributes to the This paper summarises the key topics and themes we have covered over societies in which they operate. Being perceived as choosing not to make the last nine months. It does not try to synthesise all perspectives in order to a full contribution on this basis – even if their behaviour has not been fabricate a consensus. What it does seek to do is demonstrate that moving unlawful – has undermined the corporate image projected by these beyond “mountains and megaphones” is possible and there is potential for a companies and been seen as a serious breach of public trust. “coalition of the willing” to work together on practical solutions in future. Tax is by its very nature a social compact. The responsibility for preserving it In this sense, good behaviour is no longer simply adhering to the rules - or falls to everyone. an interpretation of the rules. It is about connecting with the social context in which those rules operate and the spirit in which they originated. The author takes sole responsibility for the content of this paper. July2015 9 MOVING BEYOND MOUNTAINS AND MEGAPHONES 11 “People saw too many situations where some taxpayers’ affairs Introduction were hard or impossible to justify, especially when recession and cuts were hitting so many. This is an incredibly technical, fast changing and complex world. But eventually we all live and 3 CHANGING THE DEBATE ON TAX die in the court of public opinion.” JANE MCCORMICK SENIOR TAX PARTNER, KPMG IN THE UK Tax has sailed up the public agenda in recent years. What was once seen as strictly within the realms of “business efficiency” is now open to scrutiny Recent debates often demonstrate a lack of understanding about the from politicians – most notably the G8, the G20, the OECD and the UK’s complexity of tax systems and why businesses are behaving in the way House of Commons Public Accounts Committee – public leaders, and the that they do in relation to tax. The result is a series of polarised debates, media. ostensibly talking about the same thing. But now, driven by a number of campaigning groups such as the Tax Corporation tax in particular has been the subject of the most heated and Justice Network, Action Aid, Christian Aid and others, and further enabled divisive debates, but it is also subject to technicalities that serve to “price- by the media spotlight, the tax behaviour of companies and individuals is out” those who are not tax experts. Understanding the complexities subject to frequent public debate.
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