Tax in Social
Historically, most businesses and wealthy individuals have been concerned primarily with profitability, growth, market share and wealth creation, rather than a focus on environmental and social concerns. To the extent they have been interested in the latter, this has been expressed largely through Corporate Social Responsibility (in organisations) and philanthropy (in private individuals) in what could be termed a ‘bar bell’ approach: a balance between wealth creation and ‘doing good’.
However, the world is changing, and the pace of change accelerates. Increasingly the environment, sustainability, equality, ethical supply chains and ethical investments are key metrics for government, investors, consumers, and employees.
One of main purposes of tax is to finance government and the state. Organisations and individuals, with the help of the press, are increasingly highlighting the link between social responsibility and that organisation or individual’s tax practices.
For many private individuals, the ‘bar bell approach’ may no-longer work. Increasingly, they are seeking alignment to their personal values (and the values of their family members for example), across their affairs. In a recent conversation with one such next-generation wealth inheritor, it was clear that this balance for some has already shifted and will continue to do so:
“I’ve seen a significant emerging movement of next generation wealth holders who are not just looking for ways to reduce their tax bills anymore, but want to pay a fair share of tax, and are proud to pay tax.
The assumption that every individual’s goal is to accumulate wealth and minimise tax leaves little space for conversations beyond that, about achieving impact, aligning to values and what tax means.
There are also assumptions that philanthropy and impact investing are the main ways to have impact. Tax is the missing piece. More advisers should consider how they can support a tax-positive relationship and help inheritors explore and articulate tax decisions around our wealth.”
Kristina Johannsson, member of Patriotic Millionaires UK
Transparency around tax affairs is a requirement for business and individuals, and is inextricably linked with the ‘G’ of ESG. View our interactive map that summarises the Common Reporting Standard, a global standard for the automatic exchange of information around individuals’ tax affairs.
Within the corporate world, there has been a clear shift from viewing tax as a ‘burden’ of doing business, which is to be mitigated at all costs, to seeing tax as a valuable contribution to society, which pays for the infrastructure of the state and the public services required of a modern world. This can then also be seen in a changing perceptions of what is ‘right’ or ‘wrong’ in terms of aggressive tax avoidance (and also an ever increasing focus on clamping down on tax evasion).
This change can be seen not just in the behaviours of corporates themselves, but also in the way they view their business partners within the supply chain. An increased focus on ethics and integrity within supply chain expands to include tax behaviours and compliance – a shift away from simply thinking that compliance within the supply chain is ‘somebody else’s’ problem.
And there are good, commercial reasons for this focus. Reputational damage arising from aggressive avoidance can have a direct impact on earnings. Any associated interventions from the tax authorities will have both a detrimental effect on the relationship between a business and the tax authority and can additionally lead to time-consuming and costly tax litigation.