Tax avoidance is no longer about legality, it is about Governance.

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Nine out of 10 people believe tax avoidance by large companies is morally wrong, even if technically legal, according to a survey that appears to reflect growing unease in UK’s unwillingness to tackle the issue, reported theguardian.com, recently. The Guardian also revealed the lengths to which companies will go to avoid paying substantial amounts of UK tax on some of the biggest property deals in recent years.

Tax evasion is the illegal evasion of tax, it often entails taxpayers deliberately misrepresenting the true state of their affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting. In contrast, tax avoidance is the legal use of tax laws to reduce one’s tax burden.

According to HM Revenue and Customs (HMRC) in UK, tax avoidance often involves contrived, artificial transactions that serve little or no purpose other than to produce a much lower tax to the detriment of the government. It involves operating within the letter, but not the spirit, of the law. Therefore, both tax evasion and avoidance can be viewed as forms of tax noncompliance.

Globally, the biggest companies in the world are fighting many governments to prove they were not engaged in tax evasion. But the range of activities carried out to subvert the respective tax systems points to an intent by them to pay less tax than any commercial sense. It is also reported that leading accountancy firms could be seen recommending the use of offshore companies and a series of complex loans to minimise the tax bills despite only law firms being exposed in Paradise papers and Panama papers.

Overall, the Board of directors should drive good tax behavior and take responsibility for the tax risks of their companies. Any structuring should not be artificial to manipulate or push the boundaries of the law. If tax planning is part of the way business is conducted and makes commercial sense then that’s good business. With the global attention on avoidance and it’s ill effects, now is a good time for Boards to reflect on proper tax governance and implement a tax governance framework. Boards should ensure that tax risk management is part of their corporate governance framework.

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About surenraj

“Views expressed are my own”
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