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    Reputation and tax, can it affect you

    The current debate on international tax planning is no longer a battle on what is legally possible but merely what is morally possible. Companies can choose to ignore this element by stating that the law is the law and nothing but the law. But in situations where your company is mainly oriented on B2C business, the consequences of ignoring the moral aspects can really cause a decrease in value. It was only a couple of years ago (2009) that Reuters published a report stating that Starbucks avoids paying UK corporate income taxes. Please understand that tax avoidance is not the same as tax evasion. In an avoidance scheme the company applies principles which are legally acceptable. Media and politicians increased the pressure on Starbucks (and other companies) to pay more taxes in the United Kingdom.  Pressure on Starbucks was again increased by United Kingdom pressure group UK Uncut which organized a boycott of Starbucks by having sit-in protests in UK coffee shops. In an extraordinary response of Starbucks to regain trust of the clients, Starbucks offered to pay  £ 20 million more corporate income taxes than it was obliged to over the years 2013 and 2014. In a newspaper advertisement a public apology was made: ‘We know we are not perfect. But we have listened over the past few months and are committed to the UK for the long term’.

    In the same period also companies like Amazon and Google were challenged by the media, but they did not give in like Starbucks did. Google’s CEO Eric Schmidt responded to Starbucks move that he was perplexed by the anger towards tax practices in the UK. He explained that Google paid the amount of tax legally required in the UK and therefore Google was not to blame. If they want more, than they have to change the tax system and Google will comply to this, he said.

    Amazon explained in a statement ‘Amazon pays all applicable taxes in every jurisdiction that it operates within. Like many companies, Amazon has received  assistance in relation to major investments in the UK’.

    In the above we see three US multinationals responding in a different way to being accused to be immoral. Why did they take a different approach? Clearly the position of Starbucks is more vulnerable since Starbucks has shops and whenever people stop visiting these shops, revenues go down and so will shareholders value. Google was the least vulnerable of the three since their product is not something ‘touchable’. The response of Amazon that they were just one of the many companies receiving some help, is related to the fact that they sell products to customers directly, without having shops.

    What can be learned from the above? Reputation is an asset of which many companies have no specific idea how to value this. But sometimes the consequences of not having a ‘good reputation’ can really affect your business and therefore the company’s shareholders value.

    Is this only the case when we deal with B2C companies? Well, probably not. Challenging B2C companies by pressure groups is just the first step in challenging companies. It is considered to be the ‘low hanging fruit’ for pressure groups. It is not a question if B2B companies will be challenged by pressure groups but merely when.

    If you want to know how discussions with pressure groups can affect your business and how you can be best prepared for the debate on ‘fair taxation’ please contact us: info@cygnustax.com