Tax avoidance and fiduciary duty

Good work by the Tax Justice Network, who commissioned a legal opinion on directors' duties in relation to tax. There's a really irritating bit of 'common sense' blah about company tax avoidance, that (when argued most strongly) suggests that directors have a fiduciary duty and responsibility to shareholders to minimise the amount of corporate tax paid. Anyone who has bothered to read the section of the Companies Act on directors' duties will surely have been left scratching their head at this claim as such duties are drawn very widely. Nonetheless the pro tax avoidance interpretation is still the most commonly heard one.

As such, this is really helpful.

This morning the Chief Executives of every company in the UK's FTSE100 index will be receiving a letter from Tax Justice Network drawing their attention to a legal opinion prepared for us by the prestigious law firm Farrer & Co.

The opinion provides an unequivocal and authoritative view on whether or not company directors have a duty to their shareholders to avoid tax: no such duty exists in English law. The legal opinion is available here. A press release accompanying this legal opinion is available here. The Guardian newspaper has written about this here.

Although this legal opinion in itself only directly applies to the UK, it potentially has wide international relevance, as we have noted before.

It's important to note that this doesn't mean that companies shouldn't undertake tax avoidance, it simply makes clear that they directors are not in any way compelled to do it. I suspect this will have a similar effect to the work Freshfields did for the PRI a few years back on fiduciary duty and consideration of ESG issues in investment strategy. It doesn't overnight change anything, but it helps cut away at some of the arguments that are used to bolster unthinking defence of the status quo.