Businesses that continually seek to minimise tax liabilities risk their corporate reputation

For years the status quo has been that many companies and those who run and own them seek to pay as little tax as possible. In the process they exploit domestic tax loopholes and offshore tax havens.

Few surprises then in a recent report from the Institute for Policy Studies, a US thinktank, which says there are US firms spending more on their chief executive’s salary than they pay in taxes. The IPS’s numbers suggest that many companies, such as General Electric and Verizon, are paying a very small amount of tax relative to their profits.

Many companies dispute the study’s figures. Boeing claims that its tax bill is not the $13m the IPS claims, a number that spokesman Chaz Bickers says is “simply wrong”. It is in fact closer to $360m, he says. He also points to a reimbursement from the US government of millions of dollars for past overpayment of taxes, which is evidence, he claims, that Boeing has always paid its way.

Of course, those running businesses have an obligation to maximise the profits for their shareholders, and keeping their tax bill low is one way of doing so.

But is a different attitude starting to take hold? A number of France’s most prominent business owners, including Liliane Bettencourt, the heir to the L’Oréal fortune, have urged the French government to tax them more in order to help get the public finances back into shape. In the US, the prominent entrepreneur Warren Buffett has made a similar call.

Is this a sign that business owners are becoming more willing to shoulder the burden of taxation?

The UK’s Institute of Economic Affairs, a free market thinktank, does not see any evidence of a wider trend. IEA’s Phillip Booth says: “You will always get the very rich who believe on principle that they should pay higher taxes but that is neither here nor there.” The institute argues that Warren Buffett has “been making statements like this for about ten years”, and that these statements are now merely making more headlines because of the current economic situation on both sides of the Atlantic.

Follow the money

And the calls for higher taxes focus on individuals, not businesses themselves. It is corporate taxes that are the focus for tax campaigners, seeing them as a greater source of revenue than personal tax contributions.

Most companies reduce their potential tax bills through perfectly legal means, but even this is not guaranteed to be legitimate in the public eye. Patricia Feeney from Rights and Accountability in Development, a campaigning NGO, says this “is going to be increasingly unacceptable to ordinary people” and that the issue should be addressed by “companies coming forward and working constructively to rebalance the system”.

Feeney says: “The political climate is very bad and [companies] need to take notice of it.”

So is it really in companies’ own interests to start paying more tax? If they want to retain brand integrity in today’s economic and political climate, the answer could be yes.