Since I noted on 28 February the cautious welcome given to the new Fair Tax Mark by ICAEW and Baker Tilly, ICAEW’s Tax Faculty team has published a second statement on its tax forum. The cautious welcome remains, but ICAEW stresses that “to succeed [the FTM] needs further work”.
A key question for anyone considering the invitation to support the FTM or become a “Fair Tax Business” is the question I asked on 23 February: “What is the ‘right amount’ of tax, and who decides?” I guess there are two questions.
First, what is the “right amount” of tax? A “Fair Tax Business” is, according to the FTM website, a business that has, among other things:
“adopted a fair tax policy that suggests it is seeking to pay the right amount of tax (but no more) in the right place at the right time, where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes”
A “guiding principle” set out in a criteria note for companies that trade solely in the UK says:
“A company should pay the right amount of tax (but no more) in the right place at the right time according to the spirit of the law of the jurisdiction in question.”
The note adds that the FTM team is “unambiguously seeking to boost the fortunes of those companies that pay fair tax …” And feedback is invited: “Developing the criteria is an evolving process of negotiation that responds to changes in the regulatory environment and is open to as many voices as possible.”
The criteria note says companies are awarded points for meeting each criterion – up to a possible 20 points – and in the first year companies can achieve a Fair Tax Mark by scoring “above the threshold of 13”.
The assessment criteria 1 to 5 are concerned with transparency. Numbers 6 to 11 relate to “tax rate, tax avoidance and disclosure”. Number 6 relates to the company’s “tax policy” and number 11 relates to disclosure of directors’ remuneration. The remaining criteria (7-10) are those relating to corporation tax liabilities.
Number 7 compares the company’s average tax rate over four years with “the expected headline rate”. Between one and four points are awarded here, depending on the difference between the current tax rate and the headline rate.
No points are awarded if the current tax rate is more than seven percentage points below the headline rate. However, two bonus points (subject to the overriding four-point maximum) can be awarded at number 7 “if the company explains its tax position well by scoring above four [that is, five] points in questions 8, 9 and 10”.
Mike Truman has pointed out that the absence of “weighting” for the amount of profits could disadvantage some companies. But that should not prevent most companies from getting the FTM “if they are willing to make the appropriate disclosures”.
Ben Saunders went further, pointing out that the present criteria do not appear to discriminate between “fair” and “unfair” adjustments (ie. differences in tax rate).
Andrew Jackson said he was expecting that the FTM “would ensure that a company displaying the mark had paid a fair amount of tax, where ‘fair’ means the amount is reasonable given the tax laws of the country”. But, in a long exchange on Richard Murphy’s blog, he suggested that the present criteria would allow a “clearly tax-avoiding company” to get a Fair Tax Mark.
Murphy replied (in his final comment on 3 March): “You’re right: the condition [behind criterion 7] may not be sufficient. We’ve never denied the criteria will change.”
Murphy has confirmed today that the criteria will be revised. So I’ll revisit the “right amount” question in due course, and say something shortly about “who decides”.
Update 7 March: An extract of this blog post has been published in Tax Journal (registration required).