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Tax Avoidance: Barclays and the death of Corporate Social Responsibility?
Why do we pay taxes? Everyone grumbles about having to pay taxes and worries about paying too much, but how many of us worry about paying enough? How many of us go about our daily business thinking about avoiding our tax? More to the point, how many of us can afford to pay someone to think of ways to avoid paying taxes?
Yet, that is exactly what Barclays and other organisations are doing when they avoid paying taxes. They are not simply deferring taxes or waiting until the tax burden is lower (the idea behind IRAs in the US or ISAs in the UK). They are actively working to avoid legally mandated taxes. These taxes fund the government’s programmes that deliver programmes for the common good. Yet, the organisation chose to avoid that responsibility. When it does, how can it say that it is behaving responsibly? How can it say that it is a good corporate citizen as Bob Diamond CEO of Barclay’s Capital Group claimed?
Here is how Barclays citizenship report stated their commitment.
If being a good citizen means obeying the laws and taxes are the law, what does that say about Barclays? Do their tax avoidance lawyers wake up each morning and decide which laws they are going to obey? The philosophical questions this poses are why do we obey the law, and; what does it mean to be virtuous?
The questions are not idle. The questions go to the heart of what it means to be a good citizen. Our respect for democratic legitimacy is one of the reasons why we obey the law. We know it is there to protect us as well as others. The law is not made for one group at the expense of others; it is there for the common good. A respect for the law is a key part of a fundamental democratic belief in the common good. If we simply obey the law because it may punish us, how is that different from a tyranny?
If good citizens do not pay their taxes, how can they support the common good? How can we draw from the common good for essential (and discretionary) government services like libraries, leisure centres, hospitals, or roads? These questions get to the heart of what it means to avoid tax. What are we doing when we avoid tax but avoiding compliance with the law passed by a democratically elected body and enacted through a democratically accountable organisation?
The deeper questions, especially for an employee of these organisations, are the following. If the organisation is spending vast amounts of resources to avoid taxes, that is avoid obeying the law, what other laws are they avoiding? Are they doing the same with their responsibility to health and safety laws? Are they equally responsible to equalities legislation? Why do you accept they will honour their Health and Safety responsibility, when they avoid their tax responsibility? Why do you accept that they can avoid their tax responsibility but they will honour their equalities duties? Why do you as an employee accept their irresponsibility to the common good, when they seek to avoid their tax responsibility?
Here is Barclay’s press statement in which they claim they brought the tax avoidance issue to the HMRC’s attention
If companies, especially banks, are avoiding their taxes, how can they claim to be supporters of corporate social responsibility? How can they claim to be good citizens when they undermine the common good? Do good citizens undermine the common good? For a morally challenged analysis of the issue, see this article. What makes it troubling is it is unable to define a good citizen or the good regime to understand what it means to obey the law. It cannot express what it means to be virtuous as a corporate citizen. With advice such as this, one is in little doubt about why corporate directors may have difficulty addressing moral choices like paying taxes or being a virtuous corporate citizen.
What is interesting to note is that the UK government’s Border Agency has a financial requirements for entry into the UK. In addition to the applicant showing they are of good character, they must have a good financial background.
If Barclays were applying for entry into the UK, would they be allowed entry?
Indeed, if we follow Aristotle’s analysis Barclays behaviour appears to suggest that it is superior to the current regime as it is not a good regime. Aristotle argued in the Politics that the virtue of the good citizen and the excellent man were the same only under an ideal regime. In this regard, Barclays would appear to be suggesting their excellence means that they cannot be good citizens. To be a good citizen means to pay taxes. Yet, their “excellence” (their profit motive) appears to exempt them from that responsibility. Barclays and others are behaving as they do, avoiding paying tax (acting in a tax efficient manner), to show that they are beholden to a different standard. They are suggesting that they exist beyond the regime. Moreover, their behaviour suggests that the regime is corrosive of their virtue (as a legal person) and thus they are not bound by its requirements. If this is what they are suggesting, then we have a deeper problem within the UK. What this may suggest is that we have two regimes, one for those who have to obey the laws and those who can choose which laws they obey.
As we see daily with the Leveson inquiry revelations, such a view, that a small minority are above the law, is corrosive and dangerous to democracy. If we no longer accept that view from the media operators, why should we accept that from banks? Even if they pay more in taxes, why should we allow banks and financial organisations to act differently? If they are above the law, how can they claim to be good citizens? When they act above the law, it shows disrespect to the laws and the citizens who obey the laws. In other words, it shows that they are not fit to be part of the society or able to share in the common good.
We face a difficult choice. Either we can accept that some in our society are above the law, and allow our democracy to be diminished, or we can demand that citizens obey the laws, pay their taxes, help their fellow citizens to nourish and expand the common good.
Will you choose the corporate good or the common good?
Related articles
- Barclays confirms it is bank at centre of tax avoidance row – The Guardian (guardian.co.uk)
- Zero tax for RBS on massive profits from bond trades (independent.co.uk)
Thoughts on management 
I have several points to make.
1) What constitutes “avoidance” is a matter of debate. You claim that using structures such as ISAs to defer income so it is taxed later does not constitute tax avoidance. Richard Murphy claims in this blogpost that deferring income IS a type of avoidance (point 4): http://www.taxresearch.org.uk/Blog/2012/01/05/the-tax-avoidance-cameron-wont-tackle/
You cannot claim that a view of avoidance that doesn’t agree with yours is “morally challenged”. You don’t have the right to define what is and is not moral behaviour. It is simply a different view.
2) You must consider the impact of paying more corporation tax than might be necessary if matters were arranged to take advantage of all the reliefs available under the law. Corporates’ first duty is to their shareholders, their employees and their customers. Paying more tax than they strictly need to reduces the amount of money available for all of these – so dividends fall (which reduces returns on private and corporate pensions), wages are lower and prices are higher.
I don’t think you can equate strategies to minimise corporation tax with deliberate avoidance of health and safety legislation, which if NOT complied with puts workers at risk. Corporation tax arguably is a seriously regressive tax because it falls on the end users – the workers, shareholders and customers. From their point of view, minimising it is, at least in principle, a good thing. The question is whether these people actually benefit from tax minimisation strategies, or whether the benefit only goes to top management – and that, I would agree, is an exceedingly big issue.
3) You are wrong to claim that only banks and financial institutions are seeking to avoid tax. ALL businesses seek to arrange their affairs in such a way as to minimise their tax liability – from the self-employed person arranging sales appointments in different places on the same day so that they can claim travel between those appointments as expenses, to large corporations choosing to do business in countries that have lower tax rates. I am talking about LEGAL tax avoidance here, of course, not evasion. In some cases the complex structures that are created border on evasion since they serve no useful commercial purpose, and there is in my view clearly a case for dealing with these – as indeed the Aaronson committee has already proposed. But where do you draw the line? How do you decide what is reasonable tax planning and what is stretching the law too far? As I said in point 1, this is by no means clear and there are many different views about what should be allowed and what should not.
Even very small businesses use accountants to ensure that they claim all the tax reliefs they are entitled to. I am self-employed, running a business whose turnover is well below the VAT registration threshold, and I am a basic rate tax payer. But I engage an accountant to do my final accounts, because I am not a tax expert and I could easily end up paying more tax than I really need to if I tried to do it all myself – and conversely, I could find myself accidentally claiming things that I am actually NOT entitled to.
You really shouldn’t compare business and personal taxation. They are not remotely similar and the issues are very different. I would seriously criticise a high earner who offshored his top slice earnings to avoid the top rate of tax, because his earnings benefit only him directly (his investments can benefit others, of course, but then so would his taxes so this is broadly neutral – I don’t agree with the libertarian argument that private investment is always better than public). But I don’t think this is necessarily an unreasonable thing for a corporate to do if the result is that it pays higher wages to its ordinary employees (on which they pay tax, of course) and/or charges lower prices to its ordinary customers.
4. Barclays disclosed their tax arrangements to HMRC, as a result of which they were told they were not entitled to the relief they had claimed. I would have thought this was an example of the system working reasonably well. It’s the tax arrangements that AREN’T disclosed that are the problem, surely? Tax law is incredibly complex, so I don’t think it’s at all surprising that Barclays thought these arrangements would be acceptable and HMRC disagreed. In the end HMRC carry the day and Barclays have to pay the money back. That’s a good result.
5. You fail to distinguish clearly between tax avoidance and tax evasion. Tax avoidance IS LEGAL and it exists because of the complexity of the tax system and the numerous reliefs that can be claimed if you know about them. It’s not a question of “choosing which laws to obey”. Failing to obey tax laws is tax EVASION and it is illegal. Tax avoidance is using the laws to achieve a purpose for which they are not intended. Companies and individuals engaged in tax avoidance are not “choosing which laws to obey”. They are choosing how to apply the laws to achieve a result that best suits them. The best way of preventing this is to simplify the tax system and remove the loopholes, exceptions and concessions that enable them to do this.
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