Reputation can take a tax blow
Compliance with hardline tax legislation is essential as fallout extends beyond fines
THE days of striking sweetheart deals with tax authorities are truly over and in their place is a corporate community living in a state closer to fear of the damage that will be done to their reputations ( and pockets) if they become embroiled in a tax dispute.
The tide has turned and is sweeping swiftly in the direction of larger settlements to avoid reputational risk by being named and shamed. This can be the case even if companies truly believe they had structured their tax affairs in a legal manner.
People have traditionally been scared of the South African Revenue Service (SARS). Now, in addition, the compliance culture is very different to what it was 20 years ago, when there was a much more cavalier attitude. But companies locally are also becoming increasingly scared of legislation, which is becoming far tougher on non-compliance.
It is hard to argue that big corporate players should believe they can simply put pressure on governments into allowing them to keep large amounts of capital offshore and still pay low taxes at home. Those that do will do more harm than good to their reputations. The concern is how bottom lines will be affected by the negative press from a drawn-out tax dispute and the possibility that reputations will be tarnished to such a degree that consumers will simply go elsewhere.
In 2013 Starbucks, for example, threatened to suspend millions of pounds of investment in Britain after what it described as constant and unfair attacks over its tax affairs. It had faced a barrage of criticism by Prime Minister David Cameron about its tax affairs, being accused of using an offshore tax structure that wiped out profits in the UK — apparently just £8m in tax was paid on £3bn of UK sales since 1998. A year later the company said its profits had fallen in the wake of the tax avoidance row.
Despite maintaining it had not made profits, the company agreed to pay taxes of £20m.
Tax authorities are increasingly flexing their muscles, with a united front being created as they work together to achieve higher levels of cooperation to target evaders while laws are tightened up significantly. This is not going to change any time soon. To a degree, this is also needed.
The Swiss Leaks project by the International Consortium of Investigative Journalists continues to dig up plenty of really unsavoury incidents that spell a corporate PR disaster at every level on a daily basis.
The project is based on a trove of almost 60,000 leaked files that provide details on more than 100,000