Fair Tax Mark – fairness testing

I’ve just been playing with Richard Murphy’s new Fair Tax Mark (no apparent relation of the old one).  I was surprised by how little of it actually relates to tax, and how many points are available simply for complying with company law – I’d have thought that sort of thing should be taken as read, to be honest.   But if one views it as a Tax Transparency Mark it seems to heading along the right sort of lines.

Anyway, the point of this post is that as so many points are essentially sent up with the rations, it occurred to me to try to see how obnoxious one can be and still get 13 points.

It looks as though it would be surprisingly easy: if you want to be cynical about it, you can deliberately miss out on 7 points and still qualify for the mark.  If we assume a company set up with a primary aim of avoiding as much tax as possible, then it will spend 4 points straight away by having a low ETR.  However, it can get 2 of those back again by explaining the low tax rate in detail.  It can then explain that it has a policy of seeking the absolute minimum tax rate, which is enough to preserve 1 point (the policy doesn’t has to be nice, it just has to be clear); if it goes on to say that it will not avoid artificial structures or tax havens, it looks as though 4 points are spent on those factors.

If you’re happy to set out the names, addresses and incomes of directors and beneficial owners, then there seems to be no need to lose any further points: you can score 14/20 and get a comfortable Fair Tax Mark despite avoiding as much tax as you like, so long as you’re up-front about it.  I can see how this is laudable transparency, but it seems odd to call it Fair Tax.

The way the policy marks are lost is possibly a bit loose, too: you lose 2 points for not declaring that you won’t “abuse” tax havens, but if the whole point of a tax haven is to reduce your tax bill then one might argue that this isn’t “abuse”: 2 points back straight away.  I can’t see that you’re actually measured against your policy, anyway, so nothing seems to stop you saying that you won’t abuse tax havens but then doing something can someone else might see as abuse but which you argue is in fact in accordance with your policy.  One could then spend three points to conceal names, addresses and incomes and still get the 13/20 required for the Fair Tax Mark, even if there is no tax being paid on profits which then accrue to anonymous beneficiaries…

I feel the points should be weighted more towards the actual tax being paid; or alternatively, and probably better, there should be some sort of assessment of the reconciling items.  At present, due to the favouring of transparency over fairness, the points you lose because of the fact that you have carefully structured your business to ensure that profits are treated as arising offshore can be more than off-set by boasting about it.  To me a better methodology would be to look at the reconciling items, establish the reason for them, and only allow the points if the reason is acceptable.

I appreciate that this would make the mark more subjective than objective, but it should be possible to set up some assessment criteria so people can understand why a view has been taken – you could mark the reconciling items against the model tax policy, for example. 

At present, “Fair” seems to involve almost no moral element, which is a serious deficiency in my view.

So: Transparency Mark, yes; Fair Tax, not necessarily.

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2 thoughts on “Fair Tax Mark – fairness testing

  1. Andrew, thanks for doing this. I was feeling that the criteria felt a bit easy, but hadn’t found the time this weekend to prove it.

    I think it is the right way to assess it: to see how “obnoxious” you can be and still pass.

    May I suggest getting full marks on the rate analysis by paying for a box at your favourite sports club through the company and taking some “business contacts” along each week?

    It is a very amusing way to bump up your corporation tax rate whilst reducing your tax bill overall. 😀

  2. Pingback: Fair Tax Mark – fairness testing – Andrew Jackson | Tax Transparency

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