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Why FTSE 100 companies are signing up to the Fair Tax Mark

09 July 2019

Josh White

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Fifty British businesses have been Fair Tax Mark certified. The mark is fast becoming an ethical standard for UK companies large and small – and the organisation hopes to go global next year.

Several FTSE 100 companies have set out to meet the standard and some have even made structural changes to get the certificate. The first FTSE 100 business to receive the Fair Tax Mark was the Perth-based power company SSE.

"The Fair Tax Mark is about sending a signal about the kind of economy and society we want to be in," said Gregor Alexander, finance director at SSE. "We want to see inclusive economic growth in every part of the British Isles."

SSE is one of the 'big six’ energy suppliers in the UK. The company has also made a point of paying the living wage (as defined by the Living Wage Foundation, not the minimum wage, which the UK government renamed the 'national living wage’ in 2016) across its UK operations.

"It’s a positive movement seeking to create a culture of pride in tax," Alexander said. "That’s something SSE wants to be a part of."

Much like Fairtrade and organic food, the Fair Tax Mark is hoping to establish an international standard synonymous with corporate responsibility. Businesses like ethical cosmetics company Lush are signing up in the hope of standing out from the crowd to consumers looking to make better decisions in the supermarket aisles.

One company that signed up to the standard overhauled its tax structures in a bid to clear its record before filing its first country-by-country (CbC) report. The cost of restructuring may be high in some cases, but the impact of a scandal could cost a company its reputation.

"You have to take care of your reputation," a financial officer at a UK window company told ITR. "It may be legally above board to pay a certain [tax] rate, but what’s fair is another matter. It’s not just about what’s legal and what it costs at the end of the day."

"We want to demonstrate our corporate social responsibility," the financial officer said. "I don’t want my company to just pay the lowest tax rate possible, but how do you communicate that to shareholders? It’s a difficult balance to strike sometimes."

The meaning of tax 'fairness’

Companies signing up to the mark have to confirm their tax compliance every year. This means reporting of income, profits and taxes on a country-by-country basis, as well as policy commitments to shun aggressive tax planning and the use of tax havens.

Paul Monaghan, chief executive of Fair Tax Mark, co-founded the organisation in 2013. "We have now certified more than fifty businesses, with more than half of those in the last eighteen months, and we will be announcing new FTSE-listed accreditations in the summer," he told ITR.

"We are also seeing increasing demand from businesses headquartered outside of the UK and we will soon begin work on developing international standards to accommodate this," he said.

Before Fair Tax Mark, Monaghan oversaw ethics and sustainable development at the Co-operative Group for the best part of 20 years, including more than a decade at the Co-operative Banking Group.

"The Fair Tax Mark means enhanced tax transparency, such as detailed numerical reconciliations of both total and current tax and deviations from expected headline rates of tax," Monaghan said.

Ever since the corporate world was shaken to its core by tax avoidance scandals, the public has grown far more critical of tax planning. Think tanks and NGOs have played a key role in shaping the debate on tax reform.

"Our research found that there is a huge trust issue with big business," said Susan Davy, CFO at Pennon Group. "Businesses not only need to pay their 'fair share’ of tax, but they have to demonstrate that they are doing so."

"That’s why this initiative is so important," she added. "It’s about transparency. It’s about indicating to our customers what we are doing."

Pennon Group is one of the biggest recycling companies in the UK and has assets worth more than £6 billion ($7.5 billion). The FTSE 250 company was the first water and waste management business to sign up to the Fair Tax Mark.

"Eighty to ninety per cent of the public thinks that tax avoidance, even when it’s perfectly legal, is morally questionable," said Robert Palmer, director of Tax Justice UK. "Paying tax is one of the most basic ways companies can contribute to our society."

Palmer called for a "new deal" in tax policy. "This new deal involves tackling tax avoidance and evasion, closing loopholes and tax giveaways to the wealthy, and making the positive case of what a fairer, simpler tax system should look like," he explained.

"Tax is absolutely fundamental to who we are as a society and a country," Palmer said. "We need to get it right and we’re not doing a good enough job at the moment."

Many tax professionals would worry about the level of subjectivity involved in attempts to forge an ethical tax brand. The difficulty for policymakers has been to define tax 'fairness’ since it can’t be simply reduced to legalistic questions.

What is legal is not automatically 'fair’, even if what is clearly illegal is 'unfair’. Tax policy has long been about legal and accounting principles, rather than answering philosophical questions. Yet the Fair Tax campaign relies on companies to do just that.

The BEPS project may have rewritten the rules of tax, but the Fair Tax Mark aims to shape corporate behaviour within those rules. The next step will be to take the Fair Tax Mark international in the latter half of 2020.

International Correspondents