How do we get big companies to pay their fair rate in tax? The UK’s freshly launched “fair tax mark” could let consumers know exactly which of the big companies are paying their fair share of tax, and which are not.
The Fair Tax Mark launched in February of this year. It is the brainchild of the not-for-profit group Ethical Consumer, which joined forces with Tax Research UK to further its†Tax Justice Campaign, an initiative that seeks to expose and get rid of unfair tax practices.
It comes as a reaction, in part, to revelations over the past few years that companies like†Amazon†are not paying equivalent tax on the massive profits they are earning in the UK. For example,†the Guardian reports that Amazon only payed £4.2m in the last tax year, despite selling goods worth £4.3bn. Another example is Starbucks who, to much press attention in 2012, was shown to have a net worth of £24bn but had reportedly paid just £8.6m in corporation tax in the UK over the past 14 years. Starbucks has since moved to make its tax paying practices more fair, but exactly how that will translate over the coming few years remains to be seen.
Technically, these companies are acting within the law. In Amazon’s case, it avoids paying the bulk of UK tax rates by collecting payments from European sales via an office in Luxembourg, where the taxation rate is much lower. But it is clear that by doing this, businesses like Amazon are effectively making good money out of the UK and European retail sectors without giving a proportionate share back to the government for reinvestment in the infrastructure of which they are taking advantage. In essence, they are undercutting the economy in order to maximize their own profits — and there’s strong evidence that the British public at least are incredibly annoyed about this. In fact, many would like to know which companies indulge in this kind of practice so they can avoid buying from them.
That’s where the Fair Tax Mark comes in. It rates companies with a score based on a set of criteria that add up to a total of 20 points. Companies who score above 13 points will be awarded the Fair Tax Mark, as well as being told where they can improve. The notion is that the mark will work in much the same way as the Fair Trade label, in that †in order to encourage fair tax practices and transparency, companies will ask to be independently audited and will wear the mark as a badge of honor, hoping that this will improve or cement good customer relations.
How are the points awarded? Well, the independent auditors assess a company’s accounts as well as other related material to investigate the company’s transparency in its tax dealings, the rate that it is paying and whether it is appropriate for the kind of business (be it a small Limited company or a multinational with subsidiaries in the UK), the accuracy of its profits and earnings disclosures, and whether it is engaging in any tax avoidance and whether that is by means of government allowances or something more suspect.
Critics of the tax mark have argued that assessing what is a “fair” amount of tax is difficult because there are all kinds of different metrics. However, the charity behind the fair tax mark suggests that for these purposes at least, it’s a relatively simple matter of “economic substance.” In essence, if a company employs thousands of people in a country, is posting substantial profits and yet is paying only a relatively small amount in tax because it deals with payments somewhere else, that probably is a tax avoidance scheme and as such might be unfair.
At the same time, the system is set up to recognize if a company’s investments have driven down its tax paying, so that they are not being unfairly penalized by the tax mark system.
As above, not all companies, accountants or business owners have welcomed the mark. Ken Olisa, corporate director of Thomas Reuters, is quoted as saying that because the tax system deals with so many different metrics and issues, by reducing it to something as simple as the tax mark we could see a problem where the media runs negative stories about companies for what are in reality legitimate tax practices that in turn could damage businesses.
However, several companies and even some banks have become early adopters of the mark. Unity Trust Bank, for instance, was one of the first businesses to be accredited by the new initiative, with managing director Richard Wilcox quoted as saying, “Established as a bank to promote the common good, we believe a fair tax system is vital for society to thrive. Businesses have a duty to pay a fair share and to invest in the UK economy and society as a whole.”
Whether ultimately the tax mark is adopted by a majority of businesses or remains something that only a few decide to take on, what this really speaks to is how the general public is increasingly angry that, in particular, foreign multi-nationals like the aforementioned Amazon, as well as Internet companies like Google and Facebook, are profiting from world economies without reinvesting to an equivalent degree in our marketplaces. Even if big businesses freeze out the fair tax mark, that anger will not go away.
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