Tuesday, 13 November 2012

USA: a fiduciary duty to minimise tax?

A hearing took place yesterday in the UK parliament at which individuals from Google, Starbucks and Amazon were questioned on corporation tax: see here. The focus was on the corporation tax paid by these organisations in the UK and the corporate structures adopted across Europe and internationally. The impression was given more than once that directors are subject to a legal duty to minimise costs including tax.

Is this so? The existence and scope of such a duty has been considered by the courts in Delaware this year. First, in Freedman v Adams (Del. Ch. Mar. 30, 2012, available here, pdf) and second in Seinfeld v. Slager (Del. Ch. June 29, 2012, available here, pdf). In the latter case Vice Chancellor Glasscock stated (pages 8 and 9, footnote citations removed):
This Court has concluded that 'there is no general fiduciary duty to minimize taxes.' There are a variety of reasons why a company may choose or not choose to take advantage of certain tax savings, and generally a company’s tax policy “typif[ies] an area of corporate decision-making best left to management’s business judgment, so long as it is exercised in an appropriate fashion.' I am not foreclosing the theoretical possibility that under certain circumstances overpayment of taxes might be the result of a breach of a fiduciary duty. I am simply noting that a decision to pursue or forgo tax savings is generally a business decision for the board of directors. Accordingly ... Delaware law is clear that there is no separate duty to minimize taxes, and a failure to do so is not automatically a waste of corporate assets."

Update (14 November 2012) - Professor Bainbridge has commented on Seinfeld: see here.

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