Allan Ahlberg, with his illustrator wife Janet, has been one of the most successful writers of children’s books in the last 100 years. They created more than 80 books including The Jolly Postman, which sold over 6 million copies, and Burglar Bill, the tale of an artful kleptomaniac who ultimately returns all he’s stolen to the rightful owners.
In July, Ahlberg was chosen for the inaugural Book Trust lifetime achievement award. He was delighted, but then discovered the award was sponsored by Amazon. Turning down the honour, he pointed to Amazon’s position as ‘the UK’s number one tax avoider’. Tax fairly applied, Ahlberg believes, is a good thing, paying for schools, hospitals and, close to his heart, public libraries. Is the situation sustainable, he asked, where a company can pay as little as 0.1% tax in a country where it turns over billions of pounds?
Ahlberg isn’t alone in commenting on the corrosive effect of profit shifting. ‘Spillovers’, as they’re also known, are the subject of a recent International Monetary Fund study that complements a G20/OECD initiative on base erosion and profit shifting. The IMF report contains evidence that the tax-avoiding behaviour of many multinational enterprises is having the most significant impact on developing countries, which typically derive a greater proportion of their revenue from corporate tax. Limiting adverse spillovers will only be tackled effectively by addressing weaknesses in local legal frameworks and establishing robust international systems. The IMF report concludes that the international framework is weak.
While governments call for concerted international action, they often seek advantage for their economies too. In October, the European Commission released a provisional finding that private tax approvals between Apple and the Republic of Ireland, where corporation tax is a low 12.5%, were tantamount to state aid.
Nonetheless the pressure for action is growing when, for example, the US government – in the case of Apple – argues that billions of taxable profits ought to be repatriated. In the Observer last month, Carl Levin, chair of the US Senate's subcommittee on investigations, wrote: ‘If the public understands the full truth of how Apple and other companies skirt their obligations, pressure will grow on elected officials to close the loopholes that enable tax avoidance.’ Levin said the EU ruling exposed corporate giants essentially shifting their tax burden onto ordinary taxpayers and leaving governments less able to fund education, national security and other priorities.
The accountancy profession has an essential role to play in addressing the quality of public financial management. We have considerable expertise in designing, implementing and operating financial information and management systems. It is in our power to lobby for the necessary reforms to deliver the global and national systems, transparency and good governance that are needed to limit spillovers, base erosion and profit shifting. We need to be seen to be doing the right thing in the public interest.
The profession must further consider its ethical framework. In extreme cases of avoidance, even if technically the law is not broken, accountants must be seen to give balanced advice. If a practice is highly questionable, or against their advice, as regulated professionals acting in the public interest accountants arguably have a responsibility to notify relevant authorities. The profession also has a voice and a duty, not only to put pressure on governments to reform their financial management systems, but also to acknowledge that it has further to go with its own reforms so that it is trusted to act in the public interest.
The prize is great because the global interconnectedness of government finance and the capital markets has never been more apparent. When poor financial reporting in the Greek government came to light, not only were banks and other lenders left with significant losses, the impact was felt globally.
In the developing world, a wealth of natural resources, technological advances and exponential growth in productivity present a phenomenal opportunity, but also a profound risk from corruption. Without institutions able to deliver good financial management, reporting and transparency, the potential of these countries will be only partly realised, at huge cost to their citizens. Our profession can help countries shift from poverty to prosperity.
Without good financial information and advice, policymakers and managers of public services will fail to make sound decisions, leading to poor use of public money, ineffective services and exposure to risk.
Whatever the issue – transparency of government financial reporting, controlling fraud, limiting the corrosive effect of profit shifting – these are ethical questions for accountants that must not be ducked. We must work with others to bring about reforms that secure greater fairness and opportunity across all communities.
Amazon’s position and defence, Ahlberg noted, is that it isn’t doing anything illegal. He felt this was less a question of law and more one of ethical behaviour and morality. So let’s hope, like Burglar Bill, with a little help from the accountancy profession, Amazon and others will see the error of their ways too.
This article appears in the Winter 2014 issue of Public Finance International magazine
