Corporate tax: the reputational issue you can't afford to ignore

The scandal du jour – Volkswagen’s epic crisis over emissions testing – has highlighted the ever-increasing need for companies to pay attention to their reputation management. Often we think of reputation management merely as crisis management – such as in the case of Volkswagen – but while it is indeed about being able to handle things when the merde hits the fan, it’s also about making sure your house is in order.

And tax (particularly corporate tax avoidance) is one of the top things now on the agenda for big companies all over the world. A research survey published in the UK earlier this year indicated corporate tax avoidance is the biggest issue that needs addressing, according to everyday folk. That’s ahead of executive pay; employees being able to speak up about company wrongdoing; bribery/corruption; exploitative labour; discrimination; human rights; and fair and open pricing of products and services. Whew.

On a consumer level, Starbucks is a prime example of how it can all go wrong. When the coffee multinational attempted a hashtag #SpreadTheCheer for Christmas, users hijacked it to criticise the company over its tax practices in Europe. Embarrassingly, the tweets appeared on a big screen at a public event, with zero vetting from Starbucks. And story after story in mainstream media discuss Starbucks' tax practices.

Financial services firm Ernst & Young has been proactive in advising companies to sort out their reputational tax affairs. According to a 2014 Ernst & Young survey, 89 per cent of the largest companies surveyed were ‘somewhat’ or ‘significantly concerned’ about the media coverage of tax paid by companies. That’s up from 60 per cent in 2011. Meanwhile, 65 per cent of the largest companies say they’ve developed a more structured approach to managing their public tax profile.

Closer to home, National Business Review journalist and self-confessed tax geek Rob Hosking has also noticed the trend.

“Increasingly tax disputes are now being fought in the court of public opinion – and it’s a global court,” Rob says. “I was at a tax forum last year and much of it was about reputational image, which was something I haven’t seen in about 15 years of attending these things.

“It’s a global thing. Governments under fiscal pressure after the GFC, and also the rising awareness of some of the profit-shifting mechanisms that helped trigger the GFC, are all heating this issue up.

“And of course the amount of connection amongst political activists on social media means a kind of crib sheet of accusations about a company can be flashed around the world at the flick of a finger.

“It’s meant that matters of how a firm structures its financial arrangements, which would previously have been dealt with at a comparatively low level, are now going to the chief finance officer, to the CEO, and to the board.”