Published: October 2019 (5 Min Read)

It is generally assumed that tax is just one of a company’s many costs, and that self-respecting finance directors try to keep tax bills as low as possible and so maximise after-tax profits for shareholders.

Among others fund managers Baillie Gifford argue that there is a better way for businesses and shareholders to think about tax. Rather than a cost they suggest that it should be considered one of the mechanisms by which the benefits of conducting a business are distributed. “Just as workers and shareholders are eligible to a share of the gains, so is the society that created the conditions for that activity in the first place.” (Source:

Increasingly politicians and voters are concerned by the extraordinary lengths to which multi-national businesses go to avoid paying “their fair share” of taxes where they operate. We know that this generates cross-party interest in Westminster, and that UK taxpayers are outraged by how little tax some companies pay.

Baillie Gifford use a metric which compares the actual amount of tax the businesses they invest in had paid to the tax authorities with the statutory rates in the countries where they operated. This highlighted some anomalies, which they investigated and used as a starting point for engagement.

For example, they found that insurance broker Arthur J. Gallagher has for some time invested in refined coal facilities that chemically treat coal to make it burn cleaner and release fewer pollutants and emissions. A noble cause perhaps, but one which has nothing to do with insurance broking. The only reason the company was investing in these projects was to earn the US refined coal tax credits which Congress had temporarily made available for such investments. In other words, the company was doing it simply to reduce its tax bill.

The insurance broker said that this was the first time an investor had questioned them as to whether these arrangements were “responsible” and that normally investors just want to understand the impact upon post-tax earnings.

By comparison Baillie Gifford commended insurance company Prudential for applying best practice. “The Pru” produces an excellent report called Managing our tax affairs responsibly and sustainably, in which they set out their commitment to paying taxes.

One statement they make is: “We act responsibly in all of our tax matters. We understand the importance to governments and societies of paying the right amount of tax on time, and so we take our tax compliance obligations seriously.”

At a time when national budgets are under pressure and communities are ageing this is surely the right way to think about this subject.