Corporate responsibility should start with tax compliance.
Click on the video link to see TJN Director John Christensen explaining tax and corporate responsibility (4:06 minutes long.)
See our full report entitled Ten Reasons to Defend the Corporation Tax.
Tax is the return due to society on its investments – the roads, educated workforces, courts and so on – from which companies benefit. If they avoid or evade tax, they are free-riding off benefits provided by others.
It is essential to move away from viewing tax compliance merely from a legal perspective – whether the corporation has broken the law or not – but from an economic perspective: whether it is free-riding off others. If they are not paying their way, they are being irresponsible – and there is a problem that needs fixing.
From a business perspective, tax may feel like a cost. But from a country’s perspective, tax is not a cost but a transfer, from one sector to another. All the evidence shows that tax cuts (or tax hikes) have no general effect on economic growth or on anything that one might call ‘competitiveness.’ There is no economic, legal or even moral reason why companies should get special subsidies from taxpayers.
Even from a business accounting perspective, tax is not a cost, but a distribution out of profits. That puts it in the same category as a dividend – a return to the stakeholders in the enterprise.
What is more, it is well established in the laws of most countries that corporate directors do not have a duty – fiduciary or otherwise – to minimise tax at all costs. Corporate directors have duties to promote the success of their companies, but within those duties they have wide leeway to consider the social impacts of their decisions.
From an economic perspective, tax is properly due to the state in which a company generates its profits, not to those states to which it can relocate its profits for tax purposes. Aggressive corporate restructuring through tax havens to dodge tax are not compatible with true corporate responsibility.
This change of perspective requires large-scale cultural change: not least in the accountancy and legal professions. The Big Four accountancy firms play a particularly important role here. They help governments write tax laws – while also designing strategies to help their clients avoid those laws. They lobby on multinational corporations’ behalf to get tax laws changed in their favour. The Big Four seem to have taken on the role as standard-bearers for a world view that sees tax as a cost and so anything to minimise it must be a good thing. Journalists who need complex tax stories explained will typically call up a member of the Big Four – and will often imbibe this anti-tax world view.
Highlights
Sept 2013 – Formal legal opinion: UK company directors have no fiduciary responsibility to shareholders toavoid tax. Opinion here. Guardian article here.
March 2014 – TJN response to The UK Law Commission’s consultation on the fiduciary duties of investment intermediaries
Jun 2013 – Delaware: no duty on corporate bosses to dodge tax. Original article here.
Dec 2012 – The predatory practices of accountancy firms. Prem Sikka, Guardian.
May 2010. Smoke and Mirrors: Corporate Social Responsibility and Tax Avoidance, Prem Sikka, Essex University, April 2010. Summary here.
March 2006 – Taxing Issues, Sustainability. A report on corporate responsibility and tax. Document available here.
2004 – Paper: The Social Irresponsibility of Corporate Tax Avoidance: Taking CSR to the bottom line, Society for International Development
Stories before 2014
Sept 9th, 2013 – Formal legal opinion: UK company directors have no fiduciary responsibility to shareholders to avoid tax. Opinion here.
Jun 28, 2013 – Delaware: no duty on corporate bosses to dodge tax. Original article here.
Jun 26, 2013 – Tax justice and a short history of the decline of corporate responsibility. Main reference here. (Mostly with a U.S. focus.)
Jun 5, 2013 – The fig leaf of shareholder value covering corporate tax avoidance, removed. (Mostly with a UK focus.)
May 30, 2013 – On Apple, Google, responsibility and tax. Originals here and here.
Oct 17, 2012 – It’s official: companies do not have a duty to shareholders to avoid tax. Original here.
Oct 10, 2011 – Christian Aid: Tax and Sustainability – a framework for businesses and socially responsible investors
Oct 7, 2011 – Christian Aid: Investors should make tax an ethical issue
Sept 2011 – Does a company’s responsibility to society start with paying its taxes? The Guardian
Sept 2011- Two studies showing that corporate irresponsibility and tax aggressiveness go together
July 2011 – ActionAid : Tax avoidance ‘as big an issue as sweatshops,’ core Corporate Responsibility issue. Originals here and here
Dec 2010 – Tax and corporate integrity: an accreditation scheme
Nov 2010 – FT: Tax is now a source of reputational risk
Oct 2010 – Not being evil? Google pays 2.4% tax rate
Oct 2010 – UK financial leaders say they want to be ethical
July 2010: TJN submission to the IASB
June 2010 – Topsy-Turvy: KPMG tops corporate responsibility list
June 2010 – Corporate tax and the common good
June 2010: Christian Aid surveys top multinationals
May 2010. See Prem Sikka’s paper Smoke and Mirrors: Corporate Social Responsibility and Tax Avoidance, Essex University, April 2010. See a brief summary here.
Update: May 2010: See this example, entitled “Transparently Dishonest,” of an accountancy firm, PWC in this case, working directly against the interests of corporate reponsibility in the tax area, in this 2006 article by CTJ’s Bob McIntyre.
Update Feb 2009: The Guardian’s new series on tax, tax avoidance and evasion, and tax havens, contains a lot of new material, and asks a lot of questions, on corporate responsibility and tax. They may have coined a new term too: taxwash.
2008 – Prem Sikka 2008 article on Britain’s Private Finance Initiative
2004 – Paper: The Social Irresponsibility of Corporate Tax Avoidance: Taking CSR to the bottom line, Society for International Development
