George Bull

Written by: George Bull

George Bull

Senior Tax Partner

Tax and reputational damage: when does brand loyalty die?

Fascinating research undertaken by my colleagues in the retail team at RSM demonstrates the impact of a retailer's reputation on consumer attitudes and on sales.

This got me thinking. How long does reputational damage last? Does the damage depend on the nature of the behaviour that gave rise to the problem in the first place? That certainly seems to be the case for retailers. And how does that translate into the tax arena?

Take tax avoidance, for example. Allegations about the tax practices of big brands such as Amazon, Apple, Facebook, Google and Starbucks produced a furore when they were publicised. There is some evidence of a small short-term impact on the sales of the organisations, before consumers returned to business as usual. The implication of this, that consumers may be uncomfortable with the ethical stance of a retailer, but nevertheless continue to use them as much as they did before the issues became public, mirrors the findings of RSM's retail research. It is also an issue discussed in paragraph 1.74 of the recent paper published by the Office of Tax Simplification Technology Review: a vision for tax simplicity.

It's tempting to think that website and shop-window proclamations ‘buy from us because we pay our taxes’ would boost sales, but how would consumers know that they could trust the statement? This is where organisations such as the Fair Tax Mark come in, offering an independent certification scheme which seeks to encourage and recognise those that pay the right amount of corporation tax at the right time and in the right place. At the time of writing, 46 organisations have been accredited. There may be many explanations for the apparently low number, one of which might be that retailers don't believe that a fair tax accreditation will have any impact on their own business.

Is the result different if the alleged tax avoider is an individual instead of a global corporation? Comedians, politicians and sports personalities who have been exposed as tax avoiders do, by and large, weather the storm.

So, if a company or individual is perceived by the public to have overstepped the mark (wherever that mark is) and engaged in unacceptable tax avoidance, does the public reaction make any difference? Of itself, perhaps not. But it can force, persuade or give added impetus to government to legislate against the perceived abuse. One doesn't have to look far for examples which have shaken the foundations of the UK tax system over the last decade:

  • changes to the non-dom tax regime;
  • disclosure requirements;
  • general anti-abuse rules;
  • loan scheme;
  • diverted profits tax (‘Google tax’); and
  • unexplained wealth orders.

It would be tempting to conclude that, honour satisfied, public and Parliamentary attention then moves on to the next challenge. But cracks are beginning to appear.

The Google tax may eventually achieve its objective of increasing the tax yield by forcing self-disclosure onto companies which might have been taking liberties with their tax structuring and transfer pricing. But when the Google tax claimed drinks giant Diageo as its first success, people began to wonder whether enough thought had been given to the structure and targeting of this tax. These doubts were reinforced when, in January 2019, HMRC introduced a disclosure facility to back up the Google tax. At one level, this seems illogical: if the Google tax is working, companies will change their ways and pay more corporation tax. Like so many anti-avoidance taxes, a low yield means the target has been reached. So, what's going wrong? Time will tell whether public pressure encouraged the then Chancellor of the Exchequer to impose a new, popular tax without paying sufficient attention to how it would work and how its success would be measured.

But it's the loan charge on ‘disguised remuneration’ arrangements which seems to have drained public support from HMRC's attack on tax avoidance. Most of the anti-avoidance measures enacted in the UK since 2000 have affected only a tiny minority of individuals and companies. Calls for social justice have made them easy and publicly acceptable targets. By contrast, most people will know someone who's been paid through a ‘disguised remuneration’ arrangement. The prospect that a friend, a neighbour, someone in the same street might be on the receiving end of a potentially life-changing tax bill upsets the public view. HMRC is struggling to maintain public and political support and has already been forced into a review.

Reputation is as fragile as public perception is fickle. HMRC, accustomed to calling taxpayers its ‘customers’, may find its brand as susceptible to being damaged as the household-name companies and individuals who have received so much adverse tax publicity over the last 20 years.

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