Tax contributions are a key part of the positive social and economic impact made by business – helping the communities in which they operate to deliver valuable public services and to build the infrastructure that allows business to thrive. A small, but rapidly growing, number of progressive businesses now publicly recognise this and say what they pay with pride, with some even linking their contributions to the UN’s Sustainable Development Goals.
The growth of tax havens and unethical corporate tax conduct have become prominent concerns across the world. Aggressive tax avoidance negatively distorts national economies and undermines the ability of business to compete fairly, both domestically and internationally. Across the globe, 36% of multinational profits (US$1trn) are artificially shifted to tax havens each year, leading to a US$226bn reduction in corporate income tax revenue. The UK was found to suffer a staggering £71bn of profit shifting, leading to an estimated £14bn reduction in corporate tax revenues.
Compared with other areas of corporate responsibility, responsible tax conduct has emerged relatively recently. Commitments and disclosures on tax significantly lag behind reporting on other sustainability issues, with a recent global analysis finding:
However, the pressure for change has now reached a tipping point. Across the world, there is now general agreement that tax laws need to be rewritten to end the global race to the bottom. Institutional investors and asset managers are paying much greater attention to the tax practices of companies in their portfolios, recognising sound tax practices as an important sustainability issue and that companies employing aggressive tax practices could be exposing themselves to growing regulatory and reputational risks. Citizens across the world are insisting by a large majority that government support for business (i.e., in connection with the Covid-19 pandemic) should be conditional on recipients ending the artificial use of tax havens and tax avoidance.
It is no longer enough for a business to claim that their tax conduct is acceptable as long as they are not breaking the letter of the law – in the same way that such a narrow framing of impact would be frowned upon if it were to be deployed with environmental and human rights considerations.
“Earnings that are reliant on tax planning rather than genuine economic activity are vulnerable to changes in tax regulation and enforcement… Even if specific tax regulations are not changed, more proactive enforcement by regulators suggests the earnings risk resulting from these strategies is increasing. As countries and their tax authorities become increasingly concerned with the exploitation of loopholes in international tax frameworks and are under fiscal pressure to fund additional government programmes, the incidence of tax disputes and litigation will increase.” The United Nations Principles for Responsible Investment (PRI)
“Effective tax policies are integral to ensuring that profits are taxed where economic value is created.” International Chamber of Commerce (ICC)
Read our report, Seven magnificent reasons to pursue the Fair Tax Mark.
The Fair Tax Mark standards are based on the following principles. A business should:
Progressive business can be expected to go further than pledges around legal compliance and tax evasion. Not least as such a lowest common denominator approach would be unthinkable in other areas of corporate responsibility, such as environmental protection or human rights. A Fair Tax Mark business would be expected to explicitly shun tax avoidance and the artificial use of tax havens, and commit to the declaration of profits in the place where their economic substance arises.
As part of our assessment we review policy, reporting and tax payments, and subsequently provide suggestions for improvement. Fair Tax Mark companies tell us that the process of certification is a valuable means to benchmark performance and move towards best practice. They appreciate that the bar is set high and view this as a valuable asset in an area where trust is often low.
The scoring system underpinning the Fair Tax Mark standards is predominantly driven by the belief that ‘transparency’ encourages, and helps business demonstrate, responsible tax conduct. The tax contribution made by a business over a number of years is also considered (with feedback from civil society strongly supporting inclusion of this additional element). However, there are many good reasons why a business may not be paying high tax rates over a given period – for example, it may be loss-making in some years, or legitimate tax reliefs are being claimed within both the spirit and letter of the law. Such businesses can still secure a Fair Tax Mark, but additional disclosures will be needed – especially in connection with shortfalls from the applicable headline rates of tax in operation.
Note: initially, the Fair Tax Mark label was available only to businesses headquartered in the UK, but this was extended internationally to multinational enterprises on 25 November 2021, with the launch of the Global Multinational Business Standard.
We’re often asked why we focus on corporate tax, when this is just one of a number of taxes that business pays.
Our Why we focus on corporate tax explainer highlights why it is so important, and why we place it at the centre of our work and our Fair Tax Mark standards.
Briefly, corporate tax is uniquely important because:
Read our full explainer for more detail, facts and figures.
The use of low-tax jurisdictions (more commonly referred to as ‘tax havens’) has been an area of high concern for civil society, institutional investors and the public in general for many years.
The growth of tax havens and unethical corporate tax conduct have become prominent concerns across the world. Aggressive avoidance negatively distorts national economies and undermines the ability of business to compete fairly, both domestically and internationally.
Sometimes a business will use a combination of tax havens to shuffle money around the globe and exploit loopholes in the bilateral tax treaties between particular countries. So, for example, Google has, in the past, combined a ‘Double Irish’ and a ‘Dutch Sandwich’, with a zero-tax haven such as Bermuda as the final destination. There have even been instances of corporate profits becoming ‘stateless’ from a tax perspective, as was revealed in the Paradise Papers and with Apple’s income flowing through Ireland.
On the other hand, business should not be condemned for their presence in a tax haven if there is evidential economic substance in that jurisdiction (demonstrable via public Country-by-Country Reporting). Economic substance might be indicated by the presence of a significant number of staff or substantial third-party sales.
So, for example, the Fair Tax Foundation’s Global Multinational Business Standard includes the following question:
“Does the business utilise tax havens as locations for either registration, subsidiaries or operations?”
Four points are awarded if the business does not utilise tax havens as locations for either registration, subsidiaries or operations.
Alternatively, four points are awarded if it is clear (from public Country-by-Country Reporting) that the use of tax havens reflects the economic substance of transactions located in the territories, and that these transactions are taxed where value is added.
The Fair Tax Foundation’s identification of tax havens is informed by the work of the Tax Justice Network and their Corporate Tax Haven and Financial Secrecy Indexes, and others. The determination of tax havens is periodically reviewed and a current listing is provided to businesses as they begin assessment and certification. The Fair Tax Foundation use their list of tax havens as a prompt for discussion with clients, data analysis consideration and as a guide for areas where extra narrative explanation may be merited in public reporting.
The Fair Tax Foundation’s current listing of tax havens is available online.
We believe that comprehensively implemented public Country-by-Country Reporting (pCbCR) significantly enhances the ability of stakeholders across the world to form an informed opinion as to whether a business is paying the right amount of tax, in the right place and at the right time.
Please see our pCbCR explainer for more information, including the Fair Tax Mark’s stipulations for pCbCR disclosures.
You may also be interested in our template pCbCR reporting table. If completed, the reporting table would score full points in the pCbCR section of our Fair Tax Mark Global Multinational Business Standard assessment.
The annual process of certification is simple, collaborative and confidential, as follows:
1) Contact us. Use our application form to let us know that you want to explore your business becoming certified. This only takes a couple of minutes. One of our certifiers will do a high-level assessment of your business structure and then contact you, detailing how the certification process will work, including benefits, costs and timings.
2) Letter of Engagement agreed. Once scope, timings and costs of have been agreed, we will issue a Letter of Engagement, which sets out our responsibilities to you, including confidentiality undertakings. Once this is signed by both parties we begin our Fair Tax Mark assessment of your business.
3) Assessment undertaken and feedback provided. The workload at your end is little or nothing initially. We review your recent Financial Statements, connected public communications and anything else you think is relevant.
We then present you with a detailed report that highlights how well you currently perform against the relevant Fair Tax Mark certification standard, together with suggested areas of improvement that would allow you to secure a Fair Tax Mark label.
This report takes the form of a scorecard. This preliminary assessment and scorecard normally takes four to eight weeks depending on the complexity of your business and the information required being readily available.
We will then happily engage in multiple rounds of conversation to help you to get to a place where your business can improve their score (if needed) and secure their first Fair Tax Mark label. We can be lenient in some areas in the first year, as long as there is a solid commitment to improvement in the near future.
A final scorecard will be issued, hopefully confirming that your business can progress to full Fair Tax Mark certification.
4) Fair Tax Mark label issued and announced. Once your reporting, policies and practice meet our requirements, you will be eligible for a Fair Tax Mark and we will work with you to announce your certification. We will issue a Licence Agreement that allows you to use the Fair Tax Mark label and related marketing materials in public communications for the qualifying period (usually 12 months). Together, we’ll celebrate your achievement and share the good news.
5) Annual re-certification. Fair Tax Mark certification is an annual process, with assessment and re-certification progressing afresh each year based on the information detailed in your most recent set of Financial Statements.
Our fees are largely influenced by business size and complexity. We regularly benchmark our fees against comparable certification schemes and strive to be as moderately priced as possible. Fees are subject to negotiation as required, and are agreed before a Letter of Engagement is issued.
Fair Tax Mark certification is an annual process, with assessment and re-certification progressing afresh each year based on the information detailed in your most recent set of Financial Statements.
In short, no. We’ll always bring our businesses along with any substantial changes to our Standards, you’ll never suddenly lose out on being part of the fair tax community.
If and when a Standard requires a major update, we will consult with certified businesses before anything is finalised, and allow businesses a two-year transition period towards the update. That means there is an option of two further annual cycles on the original Standard before any updates must be incorporated.
Our Standards and Guidance Notes detail the criteria and scoring system we use to assess and certify a business.
We also provide a range of templates and good practice examples, as listed below. Please note: a number of these are currently being updated and will be published anew in early 2023.
Fair Tax Mark certification verifies that a business’s tax conduct and public reporting has reached a gold standard according to criteria set by a trusted social enterprise. The Fair Tax Mark label can be publicly displayed by your company brand, demonstrating that the Fair Tax Foundation have independently certified your tax conduct after rigorous review. The Fair Tax Mark label is a clear and simple way to communicate that your business pays the right amount of tax, in the right pace and at the right time. Securing a Fair Tax Mark will usually take a number of months.
The Tax Responsibility and Transparency (TR&T) Index is a benchmarking tool that can be used to understand how a multinational business’s tax responsibility and transparency compare to current best practices and an anonymised pool of fellow TR&T Index participants/peers. The TR&T Index scorecard will facilitate a robust internal discussion on where a business is currently at, and provide options for it to consider for further improvement. A business is free to disclose its Index scoring, but it is expected that many businesses will not initially do so. Undertaking a TR&T Index assessment will usually take a number of weeks.
Both Fair Tax Mark and TR&T Index assessments are completed by Fair Tax Foundation technical staff.
The Fair Tax Mark is subject to a yearly re-certification and licensing process, while a TR&T Index assessment can be a less frequent engagement depending on the preference of each business.
