July-August 2012

OPINION: Time to talk tax

TaxSome time ago, I moved my mobile phone account from Vodafone to another provider. Why? Because, Vodafone, it seemed clear to me, peering through a web of claim and counter-claim, had not paid all its taxes. Shortly thereafter, I realised I was still supporting Vodafone through an investment I had in an ethical fund. In fact, it was the fund’s largest holding. I thought about transferring my investment to another ethical fund. But when I looked at its top ten holdings, what did I find? You guessed it: Vodafone. Now, Vodafone will argue (and does vociferously on its website) that it has done nothing wrong and that I should be entirely relaxed about investing in it. In fact, it has taken to the moral high ground on the issue of tax, describing recent claims by Reuters that it shaved £1 billion (€1.3 billion) off the taxes its UK arm should have paid in the last decade as “without foundation, misleading on multiple fronts and clearly defamatory”. It adds: “We are concerned that a respected organisation such as Reuters should publish such a wholly inaccurate and misleading article.” As a reluctant Vodafone investor, I’m concerned about that, too. It seems to me that Reuters probably wouldn’t do that. It also seems to me that the settlement Vodafone reached with the UK tax authority in 2010 did not equate to a full coughing-up of all taxes it owed. This begs the important question: how much attention do ethical funds pay to the issue of tax avoidance when choosing their investments? It is clear that people across Europe are cheesed off with tax avoiders. Many would probably prefer not to invest in companies that engage in aggressive tax avoidance. And yet this does not get the same attention as other forms of corporate responsibility. That is not to say that fund managers do not consider the issue. In 2004, Henderson Global Investors wrote to all the companies in the FTSE 350 index to ask how they made decisions on tax, what their policy on tax avoidance was and how risky they considered their approach to tax to be. The results revealed a certain ring-fencing of tax in the corporate mind. “With some notable exceptions, most companies do not appear to have considered systematically the relationship between their tax management and their approach to corporate responsibility,” wrote Rob Lake, head of corporate engagement at Henderson. This is interesting for two reasons. First, Henderson was blazing a bit of trail with its tax questionnaire. Company chairmen hadn’t expected questions about such an intimate matter, and some were, as the Financial Times noted at the time, “considerably miffed”. Second, Lake is not alone in uncovering a corporate tax myopia. Also in 2004, John Christensen and Richard Murphy of the Tax Justice Network noted in Development magazine that although “tax is the lifeblood of the social contract”, tax avoidance is seen as one of the prime duties of company directors. They added: “It is more curious still that the debate about corporate social responsibility, which has touched on virtually every other area of corporate engagement with broader society has scarcely begun to question companies where their corporate citizenship is most tangible and most important – the payment of tax.” Things have changed since 2004. The public has become more aware of, and angrier about, tax avoidance. But as far as corporate behaviour goes, we are some distance from the “can pay, should pay” policy advocated by the likes of Ethical Corporation, as ably illustrated by Vodafone. The questioning sought by Christensen and Murphy has, however, begun. Tax Justice Network developed a Financial Secrecy Index in 2011, and imug, a German research consultancy, recently introduced the criterion “secrecy jurisdiction and tax avoidance” into its rating system. Still, companies such as Vodafone are taxing ordinary investors’ patience, I’m afraid. ©2012 funds europe 

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