Rep­u­ta­tion can take a tax blow

Com­pli­ance with hard­line tax leg­is­la­tion is es­sen­tial as fall­out extends be­yond fines

Business Day - Business Law and Tax Review - - FRONT PAGE - EVAN PICK­WORTH

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


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