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Reputation, reputation, reputation! The reputational risks posed by your tax affairs

Posted: 31/01/2023

Shakespeare’s Othello famously lamented: 'Reputation, reputation, reputation! O, I have lost my reputation! I have lost the immortal part of myself, and what remains is bestial.' One’s reputation permeates every aspect of life. In this article, we explore the potential risks that your tax arrangements may pose to your reputation.

‘Fair’ compliance

Tax has been placed at the centre of reputation management concerns in recent years, as the issue has transitioned from one of compliance to one of public interest. Amid a storm of scandals, there has been increasing pressure for companies, politicians and celebrities to be transparent about their tax affairs in order to ensure that the wealthy pay their ‘fair share’.

The naming and shaming of tax avoidance schemes is further driven by concerns that such activities could harm Britain’s economy, as highlighted by Margaret Hodge when commenting on Barclays' tax arrangements last year. The revelation in January 2023 that the Conservative Party chair, Nadim Zahawi, had paid HMRC some £5 million in tax owed (including interest and a penalty reported to be 30%) while he was (a short-lived) Chancellor of the Exchequer has brought the subject firmly back into the public gaze.

Individuals and companies can, therefore, find themselves in the media spotlight, attracting a tidal wave of adverse comments regardless of whether they are conducting their tax arrangements entirely legally. Jimmy Carr, for example, found himself the subject of widespread criticism for his decision to become involved in the K2 tax scheme. In a stream of tweets, the comedian noted that his decision was entirely based on legality but noted that it was still ‘a terrible error of judgement’.

The tax affairs of Akshata Murthy, Rishi Sunak’s wife, also tainted the credibility of her husband’s own tax policies imposed on the public, contributing to the ‘us and them’ narrative commonly pursued by the media.

Indeed, the risk to one’s reputation as a result of their tax affairs is not limited to individuals. As mentioned, only recently was Barclays Bank brought under the media microscope for having avoided nearly £2 billion in tax through an arrangement in Luxembourg.

Starbucks has been the subject of criticism for its tax affairs for a decade. In fact, when the company’s affairs became of significant public scrutiny, Starbucks emphasised its compliance with UK tax law, consistent with its values of 'balancing our need to operate a profitable business with a social conscience'. However, in today’s world of social media and demands for transparency, social conscience has an unwavering impact on profitability.

Prevention is better than cure…

One of our reputation management and privacy team’s mantras is ‘prevention is better than cure’. From a lawyer’s perspective, reputation management is generally about keeping damaging stories out of the media, or at least diluting what is going to be said by getting a statement countering the allegations into the story.

Seeking legal advice at an early stage is, therefore, fundamental. This might include advice regarding one’s tax arrangements in order to devise a strategy which poses minimal risk to your reputation. Do you feel confident in justifying your position publicly? If not, it may be time to re-think your strategy in order to protect yourself against any prospective scrutiny.

Prepare for negative press

If, despite your best endeavours, you do find yourself in the media spotlight, being prepared will help you to retain a measure of control.

If you are a company developing a plan to deal with negative press, elect one person as your point of contact with the media. Ensure that all media communications are directed to them. If you are contacted by the media, request that all questions be sent via email – do not engage in an off-guard interview.

Clients can often feel pressured by a journalist into complying with unrealistic and arbitrary deadlines to respond to their questions. Generally, those deadlines can be extended if a substantive response is promised. Reputation management lawyers invest years in developing their relationships with the media and their legal teams. These relationships can help to facilitate negotiations pertaining to the delay or dilution of a threatened article. Open, honest and boring communications with the media are usually the best policy. 

If all else fails - litigate

As our tax lawyers can attest, the topic of tax is complex and often misunderstood. This opens up the risk of one’s affairs being inaccurately communicated publicly. If all else fails in the event that a third party publishes an untrue allegation about you which causes or is likely to cause, serious harm to your reputation, you may be able to bring a claim for defamation.

It is important to note that there are a number of defences to a claim for defamation and seeking legal advice about your particular situation is strongly advised. Additionally, in some cases, where one has a reasonable expectation of privacy which outweighs the publisher’s right to freedom of expression, a claim may be brought for misuse of private information.

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Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP