Tax and reputation: A simmering issue

Taxes are the price we pay for civilised society. With that sentiment, US Supreme Court Justice Oliver Wendell Holmes tapped into the inherent tension around the duty and obligation corporate and individual taxpayers have to the state.

Parting with money is never done lightly and always carries the risk of contention. Increased mobility for both individuals and companies means that the art of taxation is more complex and contentious than ever, as national laws and international principles must be navigated.

Whenever an issue is both complex and divisive, a cautious and balanced approach is necessary. Caution should be baked into tax policy, tax transparency and tax reporting. It should also be exercised in tax structuring.

While matters of law are (or should be) clear-cut, laws and morals do not always align, while societal and political issues add an emotive layer. This gives rise to nebulous concepts such as ‘fairness’, for which there is never any shortage of commentators.

As we approach the final quarter of 2020, scrutiny of tax affairs is simmering once more. The impact of coronavirus and lockdown on employment, consumer spending and confidence has accelerated the expected economic downturn. The arrival of this recessionary period will see a renewed public and media interest in corporate behaviour and this will be accompanied by changing attitudes to wealth and the wealthy.

Policymakers are turning to taxation to recoup revenues to deal with the continued impact of the pandemic, while tax authorities must ensure the treasury receives its dues.

Displays of wealth or unscrupulous behaviour will not be well-received, so communications policies must not be tone-deaf to what is going on in the wider world, while there will be particular scrutiny of businesses and individuals perceived to have abused public funds received, for example through furlough and government loan schemes.

Whichever way we slice it, tax will be part of the solution on the road to economic recovery.

Corporate taxpayers and wealthy individuals should prepare for a carrot and stick approach, characterised by punitive measures being imposed for non-compliance or abuse, and targeted incentives to stimulate economic activity. At this point, taxpayers must listen to their stakeholders and monitor patterns in media reporting.

A quick scan of recent headlines validates our position within a simmering phase. The Guardian newspaper on September 8 2020 ran the headline “Amazon UK pays 3% more in tax despite 35% rise in profits”. On April 4 2012, it ran with “Amazon: £7bn sales, no UK corporation tax” so the cyclical nature of the relationship between tax, reputation and the economy is clear.

The stories dominating the news agenda around Covid-19 and social justice will in this case drive, rather than distract, increased attention on taxation. Simmering interest will soon reach boiling point and taxpayers need to adapt accordingly, or risk testing Oliver Wendell Holmes’ “civilised society”.

Infinite Global has conducted detailed research into the nature of media reporting around tax affairs, and how this fluctuates in response to the health of the economy. To read our research in depth, you can download it here. Or to set up a conversation around communications, please contact matthewg@infiniteglobal.com