Tax and the Reputation Impact

Steps Companies Should Be Taking to Prepare for the Tax Media Storm

Corporate Finance & Restructuring

July 5, 2016

Panama Papers Tax Reputation

“In this world nothing can be certain, except death and taxes” and being viewed as not paying those taxes could put you in bother with more than just the tax authorities. What started more than 10 years ago at the height of the financial crisis with media attacks on private equity funds and “non-doms” has morphed into one of the biggest reputational challenges of our time.

The world of offshore assets and tax havens is nothing new and many a well-known figure has come unstuck by signing up to complicated tax arrangements that look as if they have got something to hide. The shift in attitudes started in the UK in 2008 with the then Labour Government proposed new anti-avoidance rules which sought to prevent companies saving tax by shifting profits out of the UK through a worldwide tax on “passive” income. The rules caused a huge backlash from companies, with some threatening to move their tax residence out of the UK. Though the rules were ultimately dropped, they marked the start of a shift in attitudes to aggressive tax planning. And just as things were changing in Britain, so it was in the US. President Obama launched a crackdown on tax loopholes used by multinationals amid hugely negative sentiment from household business names.

Four years later in 2012, companies started to hit the headlines for their tax practices. Starbucks was reported to have paid just £8.6m of tax in the previous 14 years despite at the time being worth £25 billion and having generated £3 billion of sales in the UK since it opened in 1998. More stories followed in rapid fire with names such as Vodafone, eBay, and Microsoft all hitting the headlines over their apparently small payments to the UK Exchequer.

Organisation for Economic Coordination and Development (OECD) formalised this changing view of tax avoidance through the Base Erosion and Profit Shifting (BEPS) Action Plan released in 2013. The ability to make changes to international tax law with multiple countries in agreement seemed impossible and many thought the project would quietly fade away as with previous tax initiatives. Finalising and publishing the reports a mere two years later likely came as a surprise to many.

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