Tax directors must design a responsible tax strategy for their businesses to guarantee their long-term sustainability, as well as increase transparency with shareholders and the public, said Alan McLean, EVP of tax and controller at energy company Shell, while speaking at an IFA panel in Berlin yesterday.
“In business and in normal life, we are faced to make choices. More often, we look at the law and it does not give us a clear answer. It requires us to use our judgement,” McLean said.
When considering different choices, tax directors are bound to look at legal consequences and their broader implications, which inevitably bring value judgement and morality.
“The question of morality is not one I can ignore as tax director,” he added.
With responsibility comes judgement
To promote tax compliance, McLean considers it essential that a business have a responsible tax strategy to ensure its choices align with its needs. This will also strengthen relationships with shareholders and the public.
Tax strategies often vary across companies, depending on their history, nature, and relationships with governments, employees and customers. But it is the tax director who will be at the heart of balancing, according to McLean.
“From a legal and regulatory point, it’s easy to believe the law does not require [one] to exercise judgement. The UK Companies Act requires the board to exercise its judgement in the interest of shareholders,” he explained.
“It implies a requirement to think about morality and the impact of decisions,” he added.
The UK law also requires that corporations publish their tax strategies to ensure they remain transparent with their planning and risk approach – a “name and shame” process.
Transparency crucial
While there is a belief that shareholders seek immediate profit maximisation, the rise of ESG has proven the contrary, according to McLean.
“ESG shareholders have expectations about the behaviours of companies in regards to tax,” he said. “A prudent approach to tax planning – it implies judgement.”
Transparency is essential to building trust, which the OECD currently considers one of the most significant issues regarding tax morality and compliance, as seen in its latest report.
Above all, McLean claims that transparency offers greater tax certainty, and ultimately leads to better tax outcomes.
“We get better tax law, policy and administration. That is in the interest of all of us,” he said.
The duty of the tax director therefore lies in determining whether a proposed transaction is aligned with the tax strategy.
