Saturday, 31 May 2008

Tesco and Tax

More articles have appeared which question Tesco's methods for reducing their tax burden in the UK. Given that Tesco has issued writs for libel recently, I make no comment about the accuracy of the claims made in these reports nor do I link to them but I do want to comment on remarks allegdly made by a Tesco spokesperson.

Firstly, the spokesperson said, "The truth is that Tesco pays a disproportionately high amount of tax in the UK - around £1bn a year including corporation tax, business rates and employer's NIC."

Tesco is, I assume, referring to their total UK tax bill. I am surprised that Tesco mentioned this because their total tax bill has no relevance to the allegations being made. I am interested to know what Tesco believes a proportionate amount of tax would be and why.

Also stated is, "[The information put to Teso] is also riddled with inaccuracies and designed to portray as unethical what is in fact entirely legitimate and commonplace funding of international companies by successful global businesses based in Britain."

I don't doubt that Tesco's actions comply with the law but Tesco suggests that legitimate actions shouldn't or can't be portayed as unethical. That those legitimate actions are commonplace among successful global businesses doesn't make them ethical.

The law and ethics are not inextricably linked.


  1. You are right that they are not necessarily linked (though laws undoubtedly work best when they accord with widely-accepted ethics). However Tesco's spokesman makes a good point. Tesco's management is in a position of trust in relation to shareholders' funds. It it not management's money and it has a positive obligation to maximise returns by all lawful means. I agree with you that the obligation does not extend to breaches of ethics (even when permitted by law). However, what exactly do you think is "ethical" about overpaying taxes by reason of negligent failure to structure your business affairs rationally? This is what the government and media seems to want Tesco to do.

    If they take measures to prevent British companies doing this, I will direct my financial adviser to make sure my pension savings are not invested in any British companies, as their tax liabilities will vary widely and irrationally according to accidental circumstances of their business, which they will be unable to manage.

    The British Government is famous for using the National Lottery as a kind of tax on stupidity, but taxes themselves are not meant to be a lottery surely?

  2. Sorry I have taken so long to reply to your comment.

    Ethics and the law!!!!

    Let's take a different example. Imagine a company took advantage of a shortage of a key product by selling this product at £10 each rather than the previously normal price of 50p. The company, I guess, has broken no laws and is maximising its shareholder return but is it responding to market forces or profiteering? I would say it was profiteering and was, therefore, acting in a legal but unethical manner.

    Similarly, with tax minimisation schemes. A major company is unlikely to break UK laws but it may well do whatever it can to remain legal but evade the intentions of the law so that its tax bill is less than it should otherwise be. Prudent and legal financial management or legal but unethical actions?

    Well you know which side I come down on.

    I have read that, in some projects, the government has used similar schemes to minimise its iabilities. That says more about government in this country than it does about the ethics of the actions.