By Francesca Lagerberg, global leader for tax services at Grant Thornton International
The media is awash with stories on the tax planning activities of large corporates. In the US, Apple chief Tim Cook has had to answer some tough questions with regard to the levels of cash his company holds abroad. And in the UK, senior leaders from Amazon, Google and Starbucks have been hauled in front of a hostile government committee to explain why they pay relatively little corporation tax in that country.
What’s interesting is that these companies are not in anyway being accused of breaking the law. The issue is not tax evasion – which is illegal – but tax avoidance – which is not. The debate has moved on to whether these companies ought to be paying more. Elected officials now say it has become a question of morality.
But morality is a nebulous concept, certainly in the business world. Whose morality do we use as a base for deciding what constitutes a ‘fair share’? Yours? Mine? Businesses need things in black and white. They have a responsibility to their investors and shareholders to keep costs down. Simply telling them to pay their ‘fair share’ is not a viable alternative to a clear set of rules or principles.
According to the latest research from the Grant Thornton International Business Report (IBR), a quarterly survey of 3,200 businesses in 44 economies, the vast majority of businesses (68%) would welcome more global cooperation and guidance from tax authorities on what is acceptable and unacceptable tax planning, even if this provided less opportunity to reduce tax liabilities.
Current tax planning rules are archaic, and businesses need clear guidelines for a modern, digital, internet-powered world. But trying to modify individual countries’ tax laws is unrealistic as it would put them at a relative disadvantage to other countries.
Rather, we need to design a system that works globally and simplifies and clarifies the tax code, which would be good for businesses, consumers and governments. The tax system needs to be addressed through international institutions such as the OECD and the UN, and via global groupings like the G20. Using these channels meansany modification of corporate tax laws would be worldwide, understandable to all and enforceable.