Perhaps the most important revelation has been that major entities used by Apple to conduct their worldwide business were described as ‘homeless’ for tax purposes, with no country able to collect tax on their corporate income. This ‘homeless’ status undermines some of the most fundamental principles underpinning the international tax and trade treaties relied upon by OECD and G20 nations.
Now business leaders are of course supposed to focus their attention on generating profits and pleasing shareholders. Minimising corporate tax bills can be an effective way to boost cashflows, profits and shareholder returns.
CEO bonuses usually depend entirely on achieving profitability targets and increasing shareholder returns. So it should be obvious that corporate leaders will structure business workflows and organisational design to maximise their bonus.
The result can be bizarre workflows spanning multiple international corporate entities and legal jurisdictions. When tax considerations trump customer service in decision making, it can make high quality customer service very difficult to deliver and consumer rights unclear. In this digital age, corporate reputations can be quickly tarnished, and very expensive to repair. It has never been easier for the public to learn the financial affairs of large corporations.
Multinationals usually base major operational centres in locations which offer high-quality infrastructure and workforces, all of which depend on a stable social environment with sophisticated government services.
If there is no government funding for infrastructure, crime prevention, education or healthcare, then someone else will end up paying the price. There is a very good reason why there are so few successful multinationals headquartered in third-world countries.
While BEPS is currently attracting media scrutiny, it remains to be seen how much impact that attention will have on actual corporate behaviour. While executive KPIs reward elaborate tax avoidance strategies, there will be little chance of corporate-driven change.
On the other hand, politicians can always change the rules of the tax game. The international scale of the BEPS problem is already monumental, and politicians of all stripes are going to need corporate scapegoats to deflect inevitable community anger. Now is the time for corporate leaders to rebalance the risks they are taking with their tax affairs.
