Prospects: Tesco goes on the attack over avoidance claim
Ten years ago not much attention was paid to how large corporations arranged
their tax affairs. Corporate tax was an esoteric issue best left to the few
experts who understood it.
But more recently business tax affairs have garnered interest outside tax
adviser circles. Corporate tax has suddenly become a boardroom matter that can
have a serious impact on a corporate reputation.
Tax has been thrust out of the geeky finance backwaters and onto the
corporate social responsibility frontline. No-one knows this better at the
moment than Tesco finance director Andrew Higginson.
Last week Tesco issued a High Court writ to The Guardian newspaper, launching
a libel suit over the publication of a series of articles alleging that the
supermarket had avoided as much as £1billion pounds in tax by using an off-shore
structure located in the Cayman Islands.
The case is believed to be one of the first ever libel actions related to tax
avoidance, and will thrust the tax affairs of Tesco, for which Higginson is
ultimately responsible, firmly into the public spotlight.
Tesco is adamant that the type and sum of tax referred to in The Guardian
articles are incorrect figure and has said that all the structures referred to
in the paper have or will be fully disclosed in Tesco’s tax returns to HM
Revenue & Customs.
The supermarket said the structures, used for sale-and-leaseback deals, were
widely used and perfectly legitimate.
What’s going to happen?
The fascinating thing about Tesco’s action is that it has done nothing
illegal in setting up the structures, but has still felt compelled to defend its
ground over the claims made by The Guardian. This demonstrates just how
important tax issues have become to corporate reputation.
The attention the Tesco writ has attracted will almost certainly mean that
Higginson will have to spend more time than ever explaining how the structures
work, why they were used and exactly how much tax was or wasn’t avoided.
The whole issue will also place Tesco and Higginson under pressure to explain
why they have taken on the issue. The newspaper and other commentators have
already said Tesco is attempting to shut down debate on the public issue of tax.
Tax is a complex and difficult subject. For Higginson, explaining Tesco’s
structures and its reasons for the planning to a layman is a challenge perhaps
he didn’t expect.