Tax avoidance ‘not a legal duty’ of Directors.

Tax avoidance was on the agenda at the G20 summit in 2013. It comes against a backdrop of criticism of tax avoidance by multinationals such as Google, Amazon and Starbucks, that costs taxpayers billions in lost revenues. The Group of 20 pledged in a communiqué at the summit in St. Petersburg, Russia, to help developing nations fight tax evasion by assisting them in tracking funds their citizens hide in tax havens. They said they wanted developing countries to sign up to an international convention on the exchange of taxpayer information.

In Britain business leaders are to be sent a warning that they cannot claim avoiding tax as their fiduciary duty to shareholders. It is clear that Director’s fiduciary duty to shareholders is not to maximise dividends through tax avoidance.

I know tax advisors who tell directors to adopt wrong tax measures to save tax. Some of these advisors go to the extent of advising companies and their auditors on how to mis-present disclosures, so as to save taxes. Many shareholders would also say that directors and executives have a duty to shareholders to minimise their tax bills.

It’s not only a benefit to shareholders. Executives also benefit from performance-related pay which are indirectly affected by the amount of tax the company saves. There should be a monitoring mechanism to punish tax avoidance through illegal means. There should be a way to punish the advisors who misdirect companies. The current corporate environment in Britain could lead to reputational damage to companies doing aggressive tax avoidance. This risk may act as a deterrent for such avoidance schemes.

I hope directors worldwide understand that they can no longer justify tax avoidance, as a directors duty.

About surenraj

“Views expressed are my own”
This entry was posted in Governance and tagged . Bookmark the permalink.

One Response to Tax avoidance ‘not a legal duty’ of Directors.

  1. ameer says:

    End of the day it all depends on how the tax law is drafted & implemented by the authorities and how it is interpreted by the by the tax payer.
    As such it in order to avoid tax evasion best thing is to make the tax law as simple as possible

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