The recent disclosure and publication of the Paradise Papers, like the Panama Papers before them and many other revelations about tax avoidance and murky tax practices by governments, corporates and individuals should sound a wake-up call to both charities and those in the public sector engaged in procurement.
I have long argued, as have many others, that when government or other public sector bodies are awarding public contracts for goods and services they should take into account the bidders’ tax policies and practices. There is no excuse for any tax funded public sector body to award contracts and pay fees or charges to companies that are not meeting their fair tax obligations. When contracts are awarded to companies that are involved in off shore tax avoidance, for example, the public sector is actually providing more money to companies that have failed to make their fair tax contribution. This includes companies that have: demonstrated a disregard for their country and its society; deprived the public purse of much needed finance to fund public services; and sought an unfair competitive edge over others through their tax practices.
It is important that the public sector requires companies bidding for public contracts to demonstrate that their tax practices meet the standards of, for example, the Fair Tax Mark. And it is equally important that they declare their company model, its ownership structure and business funding flows between and within the corporate body and its wider ownership structure. This will enable the public sector to have greater visibility on tax practice and governance standards beyond that in the entity bidding.
I would also advise public procurement due diligence to examine the tax practices of senior executives and investors involved with bidders. Declarations made by bidders would have to be subject to independent audit and verification. Government should draw up guidance on this aspect of public procurement for the wider public sector including the NHS, police and local government as well as Whitehall departments.
My assumption is that this will apply principally to large corporations rather than small and medium size enterprises – the public sector should be encouraging and enabling such businesses to contract with it; and it is essential that the requirements that bidders would have to meet are not over burdensome or bureaucratic.
If public procurement and public sector contracting should be mindful of the tax practices and bidders’ ownership structures, then surely charities should also be concerned to ensure that donations and sponsorship is not coming from sources that are contaminated in terms of tax practices. Most charities are concerned with promoting the wellbeing and opportunities for individuals and communities across the country – the very same individuals and communities who rely on decent well-resourced public services, which are the very services that will have less funding if massive tax avoidance is denying the Treasury much needed tax revenues. Charities are also likely to be supporting individuals and communities where those paying tax are doing so fairly and properly through PAYE and other arrangements.
Charities rightly (and, usually accurately) claim to be values-driven and concerned with promoting decency, collective responsibility and fairness. If they receive and accept funding from those who do not share these concerns and values, and who are not pursuing fair tax practices, it can be rightly argued that their charity funding will be tainted. In these circumstances, charities’s own integrity could be diminished.
As a trustee of several charities, I understand that charities are always under pressure to increase funding. I also recognise that it will not be easy to check the tax practices of every donor or potential donor. They can, of course, at least ask the question of both corporates and individuals, and I believe that they should do so. They need to satisfy themselves that any potential donor is one that they would wish to engage with. Such considerations will go well beyond tax issues but never-the-less, tax practices should form part of a charity’s due diligence when considering a donation- and certainly a major donation.
I believe that it is incumbent on the national charity sector leadership organisations such as NCVO, NAVCA, ACEVO, Charities Finance Group and the Institute of Fundraising to consider fair tax and charity fundraising. The starting point should be serious sector debate about this issue. I would hope that this debate would quickly lead to action.
I would see great benefit in the national charity sector leadership organisations in considering issuing advice and guidance to charities on this matter. It will be important that any measures are not burdensome for either charities or bona fide donors nor put the latter off donating.
Good practice and good governance should drive charities to be transparent about their funding sources and their practices. Therefore, being able to demonstrate compliance with nationally agreed practices should be a positive for fund raising.
I would expect that such an approach would be voluntary, and each charity would determine its own policy and practices. I am most certainly not arguing for government regulation though The Treasury and HMRC might, at some stage, consider what the implications for charity tax exemptions if a charity is in receipt of funding from sources that are heavily engaged in tax avoidance practices.
Charities such as OXFAM are leading the campaign to address international tax havens and tax avoidance. All charities should subscribe to this campaign and adopt rigorous policies in terms of donations and sponsorship to ensure that money comes from legitimate and ethical sources.
The Paradise Papers will hopefully lead to Government and international concerted collective government action to close tax havens and tax avoidance routes but meanwhile, as purchasers of services and goods, the public sector should act. And as regards fundraising, so should charities.