States that have long treated tax breaks as a source of international competitive advantage are learning that they may be big losers. Global companies seem to be hoarding, and sterilising, billions perhaps trillions of dollars in offshore centres. Hand-wringing abounds.
For markets that are dominated by a single utility-like company (such as Google or the Amazon portal), changes in the international tax regime may be the only 'solution'. Consumers have little real choice and thus no leverage to influence these behemoths. They can carry on with modest reputational damage the only likely consequence of systematic tax avoidance as long as it remains legal.
But in some markets, such as food and most other consumer goods and services, consumers have choices. Here, the choice to avoid tax legally can more easily bring reputational damage in its wake.
It's now easy to paint companies that systematically avoid tax as unethical (even though not outlaws), putting them in the same basket as those who, for example, 'exploit' child labour in ways that are legal locally but unacceptable to customers.
Where they have a choice, consumers can, and sometimes do, choose to buy from those who pay a 'fair' amount of tax. Concerted campaigns, especially if whipped to a frenzy by politiciains, could tip this into a climate for tax avoiders that is as hostile as that faced by banks, bringing reputational damage to a scale that exceeds tax savings.
How can companies seeking to be 'fair' locally protect themselves from such a storm? Fairtrade has attracted local brands and international companies driven by pragmatism. "FairTax" could be the new Fairtrade, an independent seal of approval for international companies seeking outside confirmation that their tax structures are fair.
- Reputability LLP
- Reputability LLP are thought leaders in the field of reputational risk and its root causes, behavioural risk and organisational risk. Our book 'Rethinking Reputational Risk' received excellent reviews: see www.rethinkingreputationalrisk.com. Anthony Fitzsimmons, one of its authors, is an authority and accomplished speaker on reputational risks and their drivers. Reputability helps business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.