Monday, November 04, 2013

U.K. Opinion Says Directors Have No Fiduciary Duty to Avoid Tax

The Tax Justice Network, an independent organization launched in the British Houses of Parliament dedicated to analysis and advocacy in the field of tax regulation recently sent a letter to the CEO of every company in the UK's FTSE100 opining that company directors have no fiduciary duty to their shareholders to avoid tax. A director's duty to exercise reasonable care, skill and diligence is not a duty to avoid tax, particularly in view of the role generally played by external advisers. Although the opinion in itself only directly applies to the UK, it potentially has wide international relevance. The opinion was prepared for the Network by the law firm Farrer & Co.

Delaware decision. Company directors have no general independent fiduciary duty to minimize taxes, ruled the Delaware Chancery Court, and a failure to minimize taxes is not per se a waste of corporate assets. There are a variety of reasons why a company may choose or not choose to take advantage of certain tax savings, reasoned Vice Chancellor Glasscock, and a company’s tax policy typifies an area of corporate decision-making best left to management’s business judgment, so long as it is exercised in an appropriate fashion. (Seinfeld v. Slager, Del Chan Ct, No. 6462, June 29, 2012)

While not foreclosing the theoretical possibility that under certain circumstances overpayment of taxes might be the result of a breach of a fiduciary duty, the Vice Chancellor noted that a decision to pursue or forgo tax savings is generally a business decision for the board of directors. Vice Chancellor Glasscock observed that a company’s tax policy may be implicated in nearly every decision it makes, macro or micro, including about its capital structure, when to purchase capital goods, where to locate its operations and whether to rent or buy real property.

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