Tax avoidance not a legal duty

UK companies cannot justify engaging in tax avoidance strategies by claiming they are seeking the best return for their shareholders, according to advice from law firm Farrer & Co say Harris & Co chartered accountants Northampton who provide innovative accountancy services to small and medium sized businesses.

Details of the firm’s legal opinion have been sent in a letter to the heads of all the FTSE 100 companies by campaigning group the Tax Justice Network. It commissioned Farrer to look at whether or not companies’ responsibility to their shareholders to drive down costs includes minimising tax payments, as it says many advisers and companies maintain.

The firm found that ‘it is not possible to construe a director"s duty to promote the success of the company as constituting a positive duty to avoid tax.’ The opinion goes on to explain that directors have a wide discretion to act with a view to the social impact of their decisions, and says that by paying tax responsibly instead of putting in place complex structures, they would be protected by applicable law, rather than risk liability.

Tax barrister David Quentin, who was involved in drawing up the opinion, said:

‘When companies talk about being under duty to shareholders to mitigate tax, they are not telling the whole story. Board-level executives often benefit from performance-related reward packages which are indirectly affected by the amount of tax the company pays. Corporate tax avoidance is presented as a matter of high-minded “fiduciary duty”, but it is probably better understood as being about personal reward.’