6 thoughts on “On Ethical taxpaying: how does a company ascertain the “right amount of tax”?

  1. In my opinion that is not the idea behind this article, but to add reputational cost as part of the tax burden. Until now “the right amount” ot the tax due for a tax director was “the less possible” within the boundaries of legality: and tax treaties and legitimate tax systems that Countries as Bermuda are part of the rule of law. At now they have take in account that public opinion is changing about taxes and that if through a clever, and proabably legal, agressive tax planning they save too much taxes… perhaps they will suffer an agressive gboicot because that, loosing -by fallen down the turnover- a significant part of the tax savings.
    Thank you, both of you, for sharing this interesting contribution.

  2. Reputational cost. I hear that a lot, you know? That MNEs must understand that there is a reputational cost in not paying taxes, or in paying less taxes than what they should “actually” be paying. But who determines the “right amount of tax”? I have seen people defending the standard of “how much money you are left with at the end of day”. I will explain: if an “ordinary” taxpayer is burdened with taxes that take away 40% of annual income, that is what MNEs should be left with. Do that and MNEs will crumble to the ground. And what about asking MNEs to negotiate with governments to establish the “right amount of tax”? What do you think made the legislation provide for the X amount of tax for MNEs in the first place? Was it all created out of thin air by the brilliant minds that work at the Revenue Service? Come on.

    Moreover, in Brazil, we have two indexes that measure (1) the amount of money paid to tax authorities each year and (2) the amount of money correspoding to the tax evasion each year. In 2013, the first index reached the record amount of R$ 1.7 trillion (approximately US$ 732 billion). The second reached R$ 390 billion (approximately US$ 169 billion). Obviously, the first one was created by taxpayers and the second one was created by tax authorities. While the first one corresponds to the amount actually paid in taxes each year (therefore on arguably reliable data), the second is based on debatable market estimates elaborated by the Government and on the tax assessments made against companies and individuals (which are pending or can be reversed by Administrative and Judicial courts in their entirety). The first one is real, the second one is an attempt to take people’ minds away from the magnitude of the first one.

    Once again… Reputational cost. Carefully engineered reputational cost.

    • A very interesting viewpoint, dear Lucas. Actually, in Spain tax inspectors get a bonus if they discover “tax fraud”, but also tax assessed on weird tax interpretations counts as “tax fraud” even if the tax assessment is later declared void by the courts.

  3. “Tax could fall within the CSR agenda of companies in this narrow sense if company directors believe that shareholders, analysts and the public might view corporate tax planning unfavourably, since this might lead to reputational damage leading to a fall in share prices, sales and profits. If this were the case,directors would have to consider whether the benefits of tax planning were outweighed by these costs.” British Tax Review (1) 2009, p. 90 I was not justifying the multinational tax policy approach: I was speaking, as a matter of fact, about how they can manage their tax costs in a wider sense. Only that: a thecnical issue, not a moral one.

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