Corporate Tax: Why organisations should pay their dues

Improving organisational performance often requires companies to look at various operational processes – and part of that includes structuring their tax affairs in the most efficient way possible. As part of this, corporations can take advantage of allowances, rebates, deductions and exceptions to minimise their tax liabilities while abiding by the legal requirements of government rules.

However, the tax planning tactics employed by a number of major US and UK multinationals has led to the introduction of the OECD’s Pillar Two global minimum Effective Tax Rate (ETR). This will prohibit multinational groups with consolidated earnings of over €750 million from being able to make use of tax havens to minimise their overall tax burden.

While the debate around what constitutes a ‘fair share’ of tax isn’t a straightforward one, few could argue against the fact that playing by the tax compliance rules is central to CSR performance. Added to which, companies perceived as underpaying taxes may also find themselves facing a significant customer backlash.

Consumers have their say

Public attitudes around corporate tax planning are hardening. A recent YouGov survey found that almost half (47%) of British consumers would be less prepared to engage brands that are known to be minimising their tax payments.

In much the same way as awareness around sustainability is motivating consumers to become more selective about who they transact with, the decision to boycott brands that don’t pay their fair share of tax is becoming a growing focus for many.

This is particularly the case for those who find themselves paying taxes as a result of life events such as house purchases, probate, and career progression. According to the YouGov research, 45% & 52% of Gen X and Baby Boomers respectively say they are much less likely to engage with firms that seek to ‘creatively’ minimise their tax returns and will switch brands if they are made aware of this practice.

By contrast, Gen Z appears less concerned about the issue of fair taxation with just 30% of this age group saying they would be less likely to engage with organisations that pursue aggressive tax planning strategies. For this consumer cohort, the link between loss of tax revenue to the public purse and cuts in budgets for hospitals, public transport, and education and leisure appears to be less tangible. Or perhaps they feel there is a better way to affect a change in corporates’ behaviour. Regardless of the reasons, business leaders should keep in mind that Gen Z is highly sensitised where ethical and social issues are concerned, and the likelihood is that they are certainly not blind to this activity.

Reframing tax decisions – why it pays to pay

The annual global corporate tax gap is estimated to cost countries £80-195 billion, and with the UK corporation tax gap standing at around £10.6 billion in the 2021-2022 tax year, we are talking significant sums of money that would arguably be well spent on funding essential public services and ongoing investments in national infrastructure.

As governments around the globe put the spotlight on tax-related business decisions, pressure is growing for business leaders to demonstrate a commitment to abide by the spirit and intent of the law. In other words, paying a fair amount of tax in line with all legal requirements as a matter of course.

The recently introduced Pillar Two regulatory measure enshrines the principle that paying tax is a legal duty that contributes to the building of more equitable societies where services are properly funded and maintained. It also underlines the broader concept of tax fairness, highlighting how tax rates overall could be lower if every organisation pays its share. Something that should provide a call to action for business leaders to reevaluate their tax strategies and consider the broader implications of their organisation’s tax practices.

With the rise of movements like the Fair Tax Mark accreditation for responsible tax conduct, opportunities for firms to enhance and promote their CSR and ESG credentials, and boost consumer confidence, are there for the taking.

It’s time to draw an ethical line

Moves are in motion to prevent businesses from interpreting tax laws in a way that benefits them, and not the societies within which they operate. In parallel, public perceptions of corporate tax planning are evolving as consumers gain a deeper insight of how it impacts them, society as a whole, and the public services they depend upon.

With tax increasingly being viewed by the media and governments as a primary CSR responsibility, business reputations and brand values now depend on getting corporate tax right. Indeed, there’s never been a better time to engage responsibly with the issue of corporate tax responsibility.