From the Corporate Law and Governance blog:
A legal opinion, prepared by law firm Farrer & Co, was published today by the Tax Justice Network: see here (pdf). A copy has been sent to the chief executive of every company in the FTSE100. The opinion considers - and rejects - the view that company directors are subject to a fiduciary duty to avoid tax. Indeed, it states that the "... idea of a strictly 'fiduciary' duty to avoid tax is wholly misconceived ...[and] ... It is not possible to construe a director's statutory duty to promote the success of the company [undersection 172 of the Companies Act 2006] as constituting a positive duty to avoid tax."
As a US lawyer, of course, the more interesting question for me is whether the business judgment rule would protect a board decision to minimize corporate taxes and/or a board decision not to do so. As I read the US cases, the answer is that the BJR would in fact protect either decision from judicial review:
(1) Whether board approval of a supplemental retirement bonus was a breach of fiduciary duty to the extent that it constituted waste and did not qualify for a tax deduction; and (2) Whether a stock option plan for the directors was self-interested and not entitled to the benefit of the business judgment rule.
Francis explains that the court answered those questions as follows:
(1) The Court found a failure to plead demand futility and dismissed the waste claim, and the Court found that Delaware law did not impose a fiduciary duty, per se, to minimize corporate taxes, thus rejecting a related tax argument about the deductibility of the compensation paid to a retiree; (2) The Court found also, however, that the stock option plan for directors did not have sufficient limitations despite shareholder authorization, and therefore, could be considered self-interested and not entitled to the benefit of the business judgment rule.
It reminds me of a New York case, Kamin v. American Express, in which AmEx shareholders challenged the board's decision to structure the disposition of shares Am Ex owned in a firm called Donaldson, Lufken and Jenrette as a dividend of property to the shareholders rather than as sale on the market:
... the complaint alleges that in 1972 American Express acquired for investment 1,954,418 shares of common stock of Donaldson, Lufken and Jenrette, Inc. (hereafter DLJ), a publicly traded corporation, at a cost of $ 29,900,000. It is further alleged that the current market value of those shares is approximately $ 4,000,000. On July 28, 1975, it is alleged, the board of directors of American Express declared a special dividend to all stockholders of record pursuant to which the shares of DLJ would be distributed in kind. Plaintiffs contend further that if American Express were to sell the DLJ shares on the market, it would sustain a capital loss of $ 25,000,000 which could be offset against taxable capital gains on other investments. Such a sale, they allege, would result in tax savings to the company of approximately $ 8,000,000, which would not be available in the case of the distribution of DLJ shares to stockholders.
The court held that the business judgment rule protected the directors' decision from judicial review. The parallel to the Seinfeld case is readily apparent, of course.