Monday, January 28, 2013

Transparency: to stop firms from gaming tax system, make them admit what they are doing

A Guardian article provides yet another example of requiring transparency and letting the benefits of sunshine clean up bad behavior.  In this case, the behavior being cleaned-up is the exercise in tax deferral.

Lloyd Blankfein, the boss of Goldman Sachs, is unrepentant about plans – now dropped – to help the bank's already highly paid traders avoid paying the top rate of income tax. 
To recap, Goldman had been thinking about deferring part-payment of bonuses from 2009, 2010 and 2011 into the new tax year to help recipients benefit from a fall in the top rate of tax from 50% to 45%. 
The firm surrendered only after Sir Mervyn King, governor of the Bank of England, said he found the idea "depressing" and Treasury minister Sajid Javid quietly intervened. 
There is, of course, nothing illegal about moving payments beyond 6 April, when the new tax year begins, but there is a question about whether it can be justified morally.... 
tax specialists at the likes of PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte – all of whom have been called before the public accounts committee this week – should be forced to think about the advice they give to companies when it comes to "tax planning". The advice should comply not just with the letter of the law but the spirit too. ...
the government should seize upon an idea raised by the corporate governance body Pirc last week when it wrote to remuneration consultants to ask them what advice they have been giving about deferring bonuses. Crucially, Pirc suggested the consultants should advise clients to disclose any such wheezes in annual voluntary reports.... 
Embarrassment forced Goldman to reconsider its deferral plan. Being forced to admit to tax schemes for staff in annual reports may well prove to be an effective deterrent for others.

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