An issue that was included in the first edition of Strategic CSR (Issues: Patriotism, p258), but dropped from the second edition, focused on corporate tax avoidance. Firms can legally avoid paying taxes by, for example, incorporating offshore (a P.O. Box in a non-descript building), rather than where either their HQ or major area of operations are located. The issue discussed whether this would be a liability for firms as consumers reacted to firms’ unwillingness to contribute a ‘fair’ proportion of profits to the tax base.
The issue is real, as indicated by this recent article in the NYT (http://www.nytimes.com/2011/02/02/business/economy/02leonhardt.html) that highlights the gap between the official U.S. corporate tax of 35% and the amounts firms actually pay:
“Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.”
One of the reasons why this issue was dropped from the second edition is that the extent to which consumers care sufficiently about this issue to change their behavior is unclear. This may now be changing.
The issue was revived in the UK at the end of last year by the UK charity, Christian Aid (see also: http://www.ukuncut.org.uk/). The NGO launched a campaign targeting firms that were legally (but unfairly, the charity argued) avoiding paying sufficient corporate taxes in the UK. The articles in the three urls below discuss the campaign, as well as the implications for firms:
“One lesson for companies is clear: tax is becoming an important source of reputational risk. … over the past decade campaigners have begun to focus on it with the same zeal as they apply to more immediately emotional issues such as the environment or child labour.”
The frustration of people who see corporations earning large amounts of money, but not paying any taxes, is understandable:
“It is not just that they believe companies are evading their responsibilities at a time when taxpayers face the slashing of their services. It is that it all seems so contrived. Ordinary people cannot work in Pittsburgh and pay (or not pay) tax in Bermuda, or live in Birmingham and enjoy Geneva's tax rates. Why should companies be able to do so?”
In response, the articles pose thoughtful and subtle questions about exactly how much firms should be expected to pay. The answer is not as easy as it might initially appear:
“In most developed societies, companies have the right – as do individuals – to arrange their affairs in such a manner as to minimise the amount of tax they pay. It is legal, even honourable. After all, a company that goes bankrupt because it paid more in tax than it needed to would be neither responsible nor competent. The maxim only holds true, however, so long as the degree to which you can minimise that liability passes some kind of intuition test about fairness. A big, prosperous corporation that makes large profits in a country and pays absolutely no tax there – well, that’s clearly not on. But then you have to ask the question – what is the socially responsible right amount of tax to pay?”
Ultimately, while it is pertinent to ask “What is a fair level of tax for companies to pay?” it is also worth remembering that the emotions surrounding the tax debate (especially when firms are abiding by the law) should not overshadow the total social value firms generate:
“Which do we think is going to solve poverty, companies giving governments more cash, or companies being able to thrive and create jobs? If there is an optimal balance, where is it? Is it the same in all parts of the world?”
Take care
David
Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
Corporate disclosure: The tax blame game
It’s too easy to demonise big companies that take steps to minimise their tax liabilities
By Mallen Baker
December 3, 2010
Ethical Corporation Magazine
Tax claims hit at reputation as well as the coffers
By Vanessa Houlder
1338 words
9 November 2010
Financial Times
USA Ed1
12
Companies face the people's fury over taxes
By Michael Skapinker
816 words
14 December 2010
Financial Times
Asia Ed1
11
