RegulationCorporate GovernanceTaxing questions for Google

Taxing questions for Google

The risks of tax arbitrage lay beyond mere legality, says Steve Fowler

EVERYONE HAS THE OPPORTUNITY at least once in their lifetime to take more than their fair share, or avoid paying their fair share.

Whether you are dining out with a group of friends, divvying up money or filling out your tax return, there is often the temptation to benefit – and quite often the lines between legality and illegality become blurred in the minds of the perpetrator.

But as the size and scale of such unscrupulousness grows, so do the risks and the repercussions.

So where does that leave corporates managing their tax affairs? We’ve seen Google branded ‘evil’ and ‘immoral’ by the Public Accounts Committee for legally minimising the tax it pays.

Google’s predictable retort was that it ‘plays by the rules’. But now the rules are changing. The Lough Erne declaration on tax, recently signed by the G8 brigade, pledges to expose any subterfuge and crack down on ‘complicated and fake [tax] structures’.

While it remains to be seen whether this pledge will translate into action, organisations must be aware that the risk of tax arbitrage runs deeper than strict legal compliance. While companies might be able to circumnavigate tax laws, they cannot escape the threat of a besmirched reputation.

Organisations should be conscious that manipulative tax minimisation will be increasingly subject to public scrutiny and reputational damage will follow if the organisation’s actions are at odds with the values they espouse. Our forthcoming Risk Leaders event will focus on these issues of values and integrity and ask risk-related professionals, “How can we ensure we are doing the right thing?”

Tax avoidance and adroit accounting are a broad risk management issue. And as with all risks, there is a potential upside and a potential downside. While you might be able to avoid your fair share of the bill at the dinner, it can only be a matter of time before you are no longer welcome at the table.

Steve Fowler is CEO of the Institute of Risk Management

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