Sir Martin Sorrell’s suggestion that corporation tax is a question of judgment for some multinationals has drawn attention to the ‘fundamental unfairness’ of a system that allows some large corporates to ‘set their own level of taxation’, according to the editor of a magazine for chartered accountants.
Comments made in a BBC interview by Sorrell, CEO at the advertising group WPP, drew criticism on Twitter from some tax professionals as well as campaigners, but were backed by the Conservative MP Steve Barclay, a member of the Commons Public Accounts Committee. MPs will debate corporate tax avoidance on Monday, 7 January.
The Independent and the Financial Times reported that Sorrell had ‘reignited’ controversy over corporate tax avoidance. ‘It's increasingly clear that some businesses see their obligations as an optional extra,’ TUC director-general Frances O'Grady told The Independent.
Richard Cree, editor of economia, a magazine for members of the Institute of Chartered Accountants in England and Wales, said Sorrell was ‘effectively suggesting that the payment of corporation tax is a “matter of judgement” and should be thought of in the same way we think of other aspects of corporate social responsibility’.
‘There is a growing sense from within the business community that it has been too defensive for too long and that by conceding to pressure groups on things like bonuses and acceptable tax behaviour, we are in danger of allowing anti-business sentiment to take hold,’ Cree wrote.
But he added: ‘And yet it is difficult to get away from the fundamental unfairness of a system in which some fortunate individuals and large corporates are allowed to set their own level of taxation, while those further down the scale have no option but to pay what they are told to pay and are routinely called to account for any error or omission in their tax return, even as the tax system gets more and more complex.’
Cree said Sorrell had raised some interesting questions about the impact of business and the contribution it makes through taxation: ‘Until these questions begin to be answered and until something significant changes, the perception will remain that big business is continuing to cheat the tax system.’
‘You make a contribution’
As Tax Journal reported on Wednesday, Simon Jack asked Sorrell on the BBC’s Today programme whether paying UK taxes was ‘in effect voluntary’, as some people had alleged.
Sorrell replied: ‘If you want to build long term brands you won’t do things that are wrong environmentally, you won’t do things that will upset consumers. What you do is you build over the long term things that people want.’
He added: ‘There are the rules. Let’s say the government left the rules as they were. If then companies choose – just as they choose to do environmentally sound projects, or sustainable projects, or socially responsible projects – if they choose, in terms of building their long term brands, to make a contribution to all the stakeholders on a long term basis, all credit to them.’
In a further exchange that was not broadcast on Today but was posted on the BBC News website, Jack suggested that Starbucks’ recent pledge to pay more corporation tax than required by law ‘can’t be the right way to decide how much tax a company should pay’.
Sorrell replied: ‘Let’s be quite clear, [Starbucks] did negotiate with HMRC, and agreed a royalty, and it was perfectly transparent. They didn’t do anything underhand at all. I think you have to be very careful. You can get into very dangerous territory. I think Starbucks decided they would make a minimum corporation tax payment – whatever it was, £20m a year. They have actually invested in apprenticeship schemes here …’
Jack: ‘What’s the right model? How do you make the rules better?’
Sorrell: ‘The right model is that you make a contribution. Your stakeholders include …’
Jack: ‘A voluntary one? It’s up to you? That’s like the plate going round in church.’
Sorrell: ‘No … I hate the phrase “corporate social responsibility”. All those contributions that you make to your stakeholders are a question of judgment.’
Richard Murphy, director of Tax Research, suggested that Sorrell was saying that ‘the moral judgement is to get round the rules’. But Steve Barclay warned that as the public becomes increasingly aware of how much tax companies are paying, chief executives should be asking: ‘What impact will our tax affairs have on our brand?’
Writing on the City AM website, Barclay added: ‘Sir Martin Sorrell is right to acknowledge that Starbucks’ decision to pay £20m extra in corporation tax was motivated by the idea that “doing good is good business”.’
Taxation must be simplified in response to increasing international and online business, and HMRC must be properly resourced to tackle avoidance, Barclay said. ‘Britain must be fair to all businesses, including small firms. The current position distorts competition and ultimately leaves individual taxpayers to make up the shortfall.’
‘Loopholes’
Jonathan Guthrie, City editor of the Financial Times, noted that ‘you can always rely on Sir Martin Sorrell to say something off-message’. Writing in the FT’s Lombard column, he said: ‘Sir Martin was referring to the tax structures companies adopt. Nevertheless, his comment made corporation tax sound curiously discretionary, as if paying it were on a par with buying a goat for a needy African. Indeed, Sir Martin elided tax with corporate social responsibility.’
He added: ‘That may be no more than a recognition of reality – supposedly watertight transfer pricing rules turn out to be riddled with loopholes. However, it is undiplomatic for such a prominent spokesman for business to point out that tax rates are partly elective for multinationals, albeit as WPP underscores the point by relocating its headquarters from Dublin to London.’
Chris Morgan, head of tax policy at KPMG, noted last month that Starbucks had undertaken to pay tax ‘even if it has losses’. No one seems to be happy, he said, with the situation where a company makes a voluntary payment.
Writing in Tax Journal, Morgan said: ‘On the one hand, we cannot have a situation where a tax liability is decided according to public opinion and not according to law. But on the other, tax is complicated and often there is no one answer, but rather a range, especially in applying transfer pricing rules. I think companies will need to take more account of the views of all their stakeholders in setting their tax strategies.’
But Andy White, a tax partner with accountants Carter Backer Winter, said in response to the government’s autumn statement earlier last month: ‘Law abiding companies have been getting the flak for not paying an “acceptable” amount of tax when the blame should be laid at the door of the UK’s incompetent tax legislation and HMRC.’
Sir Martin Sorrell’s suggestion that corporation tax is a question of judgment for some multinationals has drawn attention to the ‘fundamental unfairness’ of a system that allows some large corporates to ‘set their own level of taxation’, according to the editor of a magazine for chartered accountants.
Comments made in a BBC interview by Sorrell, CEO at the advertising group WPP, drew criticism on Twitter from some tax professionals as well as campaigners, but were backed by the Conservative MP Steve Barclay, a member of the Commons Public Accounts Committee. MPs will debate corporate tax avoidance on Monday, 7 January.
The Independent and the Financial Times reported that Sorrell had ‘reignited’ controversy over corporate tax avoidance. ‘It's increasingly clear that some businesses see their obligations as an optional extra,’ TUC director-general Frances O'Grady told The Independent.
Richard Cree, editor of economia, a magazine for members of the Institute of Chartered Accountants in England and Wales, said Sorrell was ‘effectively suggesting that the payment of corporation tax is a “matter of judgement” and should be thought of in the same way we think of other aspects of corporate social responsibility’.
‘There is a growing sense from within the business community that it has been too defensive for too long and that by conceding to pressure groups on things like bonuses and acceptable tax behaviour, we are in danger of allowing anti-business sentiment to take hold,’ Cree wrote.
But he added: ‘And yet it is difficult to get away from the fundamental unfairness of a system in which some fortunate individuals and large corporates are allowed to set their own level of taxation, while those further down the scale have no option but to pay what they are told to pay and are routinely called to account for any error or omission in their tax return, even as the tax system gets more and more complex.’
Cree said Sorrell had raised some interesting questions about the impact of business and the contribution it makes through taxation: ‘Until these questions begin to be answered and until something significant changes, the perception will remain that big business is continuing to cheat the tax system.’
‘You make a contribution’
As Tax Journal reported on Wednesday, Simon Jack asked Sorrell on the BBC’s Today programme whether paying UK taxes was ‘in effect voluntary’, as some people had alleged.
Sorrell replied: ‘If you want to build long term brands you won’t do things that are wrong environmentally, you won’t do things that will upset consumers. What you do is you build over the long term things that people want.’
He added: ‘There are the rules. Let’s say the government left the rules as they were. If then companies choose – just as they choose to do environmentally sound projects, or sustainable projects, or socially responsible projects – if they choose, in terms of building their long term brands, to make a contribution to all the stakeholders on a long term basis, all credit to them.’
In a further exchange that was not broadcast on Today but was posted on the BBC News website, Jack suggested that Starbucks’ recent pledge to pay more corporation tax than required by law ‘can’t be the right way to decide how much tax a company should pay’.
Sorrell replied: ‘Let’s be quite clear, [Starbucks] did negotiate with HMRC, and agreed a royalty, and it was perfectly transparent. They didn’t do anything underhand at all. I think you have to be very careful. You can get into very dangerous territory. I think Starbucks decided they would make a minimum corporation tax payment – whatever it was, £20m a year. They have actually invested in apprenticeship schemes here …’
Jack: ‘What’s the right model? How do you make the rules better?’
Sorrell: ‘The right model is that you make a contribution. Your stakeholders include …’
Jack: ‘A voluntary one? It’s up to you? That’s like the plate going round in church.’
Sorrell: ‘No … I hate the phrase “corporate social responsibility”. All those contributions that you make to your stakeholders are a question of judgment.’
Richard Murphy, director of Tax Research, suggested that Sorrell was saying that ‘the moral judgement is to get round the rules’. But Steve Barclay warned that as the public becomes increasingly aware of how much tax companies are paying, chief executives should be asking: ‘What impact will our tax affairs have on our brand?’
Writing on the City AM website, Barclay added: ‘Sir Martin Sorrell is right to acknowledge that Starbucks’ decision to pay £20m extra in corporation tax was motivated by the idea that “doing good is good business”.’
Taxation must be simplified in response to increasing international and online business, and HMRC must be properly resourced to tackle avoidance, Barclay said. ‘Britain must be fair to all businesses, including small firms. The current position distorts competition and ultimately leaves individual taxpayers to make up the shortfall.’
‘Loopholes’
Jonathan Guthrie, City editor of the Financial Times, noted that ‘you can always rely on Sir Martin Sorrell to say something off-message’. Writing in the FT’s Lombard column, he said: ‘Sir Martin was referring to the tax structures companies adopt. Nevertheless, his comment made corporation tax sound curiously discretionary, as if paying it were on a par with buying a goat for a needy African. Indeed, Sir Martin elided tax with corporate social responsibility.’
He added: ‘That may be no more than a recognition of reality – supposedly watertight transfer pricing rules turn out to be riddled with loopholes. However, it is undiplomatic for such a prominent spokesman for business to point out that tax rates are partly elective for multinationals, albeit as WPP underscores the point by relocating its headquarters from Dublin to London.’
Chris Morgan, head of tax policy at KPMG, noted last month that Starbucks had undertaken to pay tax ‘even if it has losses’. No one seems to be happy, he said, with the situation where a company makes a voluntary payment.
Writing in Tax Journal, Morgan said: ‘On the one hand, we cannot have a situation where a tax liability is decided according to public opinion and not according to law. But on the other, tax is complicated and often there is no one answer, but rather a range, especially in applying transfer pricing rules. I think companies will need to take more account of the views of all their stakeholders in setting their tax strategies.’
But Andy White, a tax partner with accountants Carter Backer Winter, said in response to the government’s autumn statement earlier last month: ‘Law abiding companies have been getting the flak for not paying an “acceptable” amount of tax when the blame should be laid at the door of the UK’s incompetent tax legislation and HMRC.’
