A duty to pay more tax

I didn’t manage to attend the World Economic Forum in Davos earlier this year. But according to the BBC, the British Shadow Chancellor of the Exchequer, John McDonnell was there, and he said that, the ‘Big Four’ accounting firms should work to maximise the amount of tax their clients pay.

It’s easy to dismiss this as out-of-touch craziness. But maybe there is an element of wisdom in his remarks.

Paying tax – whether corporate or personal – does have a link with philanthropy and ‘Corporate Social Responsibility’. I have advised various Japanese corporates whose objective has been to pay more tax, not less, because they wanted to be regarded as good corporate citizens.

Equally, there is nothing wrong about transparency. Showing off about the amount of tax you pay (whether corporately or personally) is a valid choice, as long as it’s not misleading. It brings to mind the lists of benefactors you see in some public buildings, such as in the "Painted Hall” in the Old Royal Naval College in Greenwich. (Click here for a picture.)

But it should be a matter of choice. It’s perfectly acceptable to pay the minimum amount of tax according to the law. That’s the whole point of having laws.

Of course, what no-one likes is nasty surprises. This applies whatever approach you have chosen as regards tax strategy and transparency. Some nasty surprises you don’t have control of: such changes in tax legislation (which are sometimes retrospective) or changes in case law (which are always retrospective). Other nasty surprises can be avoided. Having a firm handle on your legal structure is a basic measure which, in most cases, is easily achievable.

If you think your intercompany agreements may be sufficient to support your transfer pricing strategy, but they weren’t prepared by specialists, you’ll want to get that checked to avoid nasty surprises. We regularly review and update intercompany agreements for multinational groups – including agreements prepared by in-house legal functions or external lawyers. To arrange a free initial consultation, email us at info@lcnlegal.com. Click here for an overview of our services in this area.