Tax Avoidance: A False Economy

07/12/2012 11:00 GMT | Updated 04/02/2013 10:12 GMT

Unless you have been living in a box over the last few weeks, you can't have failed to notice the recent scandal surrounding certain multinational companies. Much to the chagrin of small businesses and the general public, it has transpired that several corporations - Amazon, Google, and Starbucks to name a few - have legally avoided paying the full rate of UK corporation tax on profits made in Britain. By using complex legal manoeuvrings and transferring revenues to offshore accounts, they have managed to pay a mere fraction of the percentage of corporation tax paid by most British firms and small companies. In the case of Amazon, the company has paid virtually no corporation tax at all.

As a sales consultancy, we would always advise clients to ensure their sales teams act in a transparent way, and here's why: while there may be compelling moral arguments against tax avoidance - it is unfair to small businesses, or it places an undue burden on Britain's infrastructure - there is perhaps an even greater business objection. Although the heads of the offending firms have defended their practice on the grounds that it is legal and maximises profits for shareholders, tax avoidance may well be a very bad long term strategy. In short, it could be a PR disaster.

Any good consultancy will tell you that trust is a valuable commodity; hard won and easily lost. It counts for far more than a quick buck. More than ever, companies operate in a cynical and fickle market. Many consumers feel they have little reason to trust a firm, unless otherwise proven wrong. Companies such as Starbucks, rightly or wrongly, are regarded as corporate behemoths with little connection to the communities in which they operate. Large firms know this, and spend vast amounts on advertising and marketing to create the impression that they care about more than just maximising bottom lines. Consider Starbucks's recent campaign to promote their fair trade and environmental credentials, or Google's famous motto 'Don't be Evil'. Such campaigns seek to add a human face to multinational companies, deflecting criticism that they are merely profit maximising entities.

However, by cooking the books to pay less tax than their competitors, big firms can quickly undo their hard-won image as compassionate and ethical businesses. Although legal tax avoidance might maximise shareholder profit in the short term, such accounting can create public backlash and resentment that can damage a company's long term profits and prospects. Once a business's reputation is sullied, it can be very difficult to bring it back from the brink. The PR burden is often far greater than any savings made by scrimping on tax. The net result: very angry shareholders.

The public is acutely aware of corporate conduct, and public image can make a real difference. The moral of the tax avoidance story is that businesses need to operate honestly, openly and fairly. A company's reputation is worth immeasurably more than any savings made by clever bookkeeping. When it comes to business, the old adage holds true: honesty is the best policy.