Tax avoidance “not legal duty”, claims law firm

Tax avoidance “not legal duty”, claims law firm

There is no duty for companies to mitigate tax bills for shareholders' benefit, says law firm Farrer & Co

BRITAIN’S BUSINESSES cannot justify engaging in tax avoidance strategies by claiming they are seeking the best return for their shareholders, according to the advice of law firm Farrer & Co.

The firm is due to send its legal assessment to business leaders, warning they cannot claim it is their fiduciary duty to avoid tax for their benefit of shareholders, after it was commissioned to look into the issue by the Tax Justice Network.

“It is not possible to construe a director’s duty to promote the success of the company as constituting a positive duty to avoid tax,” the firm found, adding directors have discretion on the social impact of their decisions, and paying tax responsibly instead of putting in place complex structures, they would be protected by applicable law, rather than risk liability.

Many advisers and companies have argued that part of their responsibility to shareholders entails driving down costs, including tax.

The Tax Justice Network will dispatch a copy of the legal assessment to bosses of all FTSE 100 businesses.

Tax barrister David Quentin, who was involved in drawing up the opinion, said: “When companies talk about being under duty to shareholders to mitigate tax, they are not telling the whole story. Board-level executives often benefit from performance-related reward packages which are indirectly affected by the amount of tax the company pays.

He added: “Corporate tax avoidance is presented as a matter of high-minded fiduciary duty, but it is probably better understood as being about personal reward.”

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