Tax-avoidance could backfire on companies

Firms which find ways to dodge paying tax are facing a PR disaster which could hit their shares.

Tax has become the latest battleground for ethical investors, but their message sends out a warning to anyone who invests in shares.

Investors are demanding that funds stop supporting companies that use tax-dodging schemes. By doing so, campaigners claim, firms take cash away from hospitals, schools and other public services, particularly in poor countries.

But the issue is not just about the moral imperative, warned Mark Robertson of the responsible investment research service Eiris.

"Tax avoidance also creates real financial risks for investors," he said. "There's compliance risk, which can stem from complicated and costly disputes. But there's also the significant reputational damage in the form of negative publicity arising from aggressive tax evasion or avoidance.

"As a consequence investors should look at tax avoidance from a risk management perspective, irrespective of their own opinions or ethical stance on the issue."

For example, Vodafone has come under heavy criticism in the UK about its tax payments. Meanwhile the commodities giant Glencore, which is holding its first AGM in May, has also been accused of tax-dodging in Zambia, one of the world's poorest countries, although the firm denies the accusations.

In the last few days there has been widespread criticism of the online retailer Amazon after it was revealed that UK tax authorities were investigating the firm. Questions have been raised about why it paid no corporation tax on sales of more than £3bn and whether it avoided tax by allocating sales to a Luxembourg firm.

"When companies dodge their taxes, it hits hospitals, schools and other public services – and the millions of people who need them," pointed out Joe Stead, senior economic justice adviser at the charity Christian Aid.

"In poor countries especially, tax-dodging costs lives – and for some ethical investors, that matters. They want the companies they invest in to thrive, but they want the same thing for the societies where they operate."

While the charity is keen to publicise the negative effects of a major company attempting to avoid tax, the charity also pointed to the financial grounds for avoiding the firms.

"Becoming known as a tax dodger can damage a company's reputation and lead to costly penalties being imposed by governments," said Mr Stead, pointing to Barclays' recent run-in with the UK government.

To date, there are few ethical funds that have taken on board investors' concerns about tax-dodging companies. But that is likely to change, according to Mark Robertson.

"The issue of corporate tax avoidance is of increasing concern to consumers, and this will likely lead more investors to look at it alongside all the other sustainability issues they consider when investing.

"Few UK ethical funds have specific investment policies to address tax avoidance, but this will change as governments and the public step- up their pressure on companies to tackle the issue."

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
Ashton Kutcher speaking at Human Rights Watch's Voices For Justice dinner in November 2013
people'What is so wrong about digging up dirt on shady journalist?'
Life and Style
Jane Merrick rides on a Micro Scooter through St James's Park, on November 18, 2014 in London, United Kingdom.
life
Arts and Entertainment
Babysitter Katie and Paul have terse words in the park
tvReview: The strength of the writing keeps viewers glued to their seats
News
i100
Arts and Entertainment
American singer, acclaimed actor of stage and screen, political activist and civil rights campaigner Paul Robeson (1898 - 1976), rehearses in relaxed mood at the piano.
filmSinger, actor, activist, athlete: Paul Robeson was driven to a miserable death. His story is to be told in film
Sport
Qatar has very little football history

It is a crazy place to play in summer, writes Paul Scholes

Life and Style
Make-up artists prepare contestants for last year’s Miss World, held in Budapest
fashion
News
Actor Dave Prowse in his role as the Green Cross Code Man in 1982
peopleStar Wars actor to reprise his other role - as the Green Cross Man
Life and Style
life
Arts and Entertainment
Brit Marling as PR woman Liz Garvey
tv

It was all about Liz’s cocaine-fuelled brainwave, 'The Metwork'

Voices
The Emir of Qatar Sheikh Hamad and Russia’s deputy prime minister Igor Shuvalov flank Fifa president Sepp Blatter
voices
Life and Style
tech
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Carlton Senior Appointments: Director, Private Bank - San Francisco, CA

    $175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...

    Carlton Senior Appointments: San Diego, CA – Tier 1 House - Senior MD FA

    Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines