Globalisation has made Benjamin Franklin's famous assertion somewhat relative. It is estimated that more than half of the world trade passes through tax havens . The leading transnational corporations (TNC) across different sectors have been involved in tax avoidance scandals, from the technological giants, Apple, Amazon or Google, to the fashion industry, Zara, the world’s most famous coffee shop, Starbucks, or the brewing multinational SAB Miller.
Considering the scale of the problem, it is surprising the extent to which tax avoidance has been excluded from the corporate social responsibility (CSR) agenda. Jenkins and Newel found that in an OECD survey of 233 codes of corporate conduct, only one code mentioned taxation. But times are changing, and the movement for putting tax on the CSR agenda is gaining momentum.
The (missing) link between taxation and CSRCurrent trends in CSR are aimed at targeting the core business and not just adding initiatives to ‘business as usual’. What is more core than profits? Why hasn’t taxation been included up to now then?
Friedman stated in 1970 that “the social responsibility of business is to increase its profits”. Even though most conceptualisations of CSR have abandoned Friedman’s position on the matter, the first and most obvious cause of the continued exclusion of tax avoidance from the CSR agenda is related to the fact that taxation has a direct impact on profits. Companies have been reluctant to incorporate taxation as a CSR issue due to the potential tension with their shareholders. Other secondary causes point to the fact that taxation lacks the sensationalism of other CSR issues such as environmental and human rights abuses, or that due to the political nature of CSR, it is in the best interest of the TNCs that shape the CSR discourse to keep taxation outside the debate.
Nonetheless tax avoidance is quickly becoming a “sexier” topic for the media. To avoid harm to their brand image, companies are adopting significant measures. Starbucks, for example, in response to the media scandal of its non-existent tax bill in the UK, paid 10 million pounds in taxes and is transferring its European headquarters from the Netherlands to London.
The emerging link between taxation and CSR
In the NGO arena, several ‘name and shame’ campaigns have been launched to raise awareness of irresponsible tax practices, calling for a consumer’s boycott. Moreover, various new initiatives to incorporate tax as an element of CSR have been developed:
ACTION AID 2011
ACTION PLAN FOR BUSINESS
1. Design a tax policy2. Oversight at the Board Level.
3. Transparency: public disclosure of key tax information.
4. Develop a code of conduct.
CORPORATE CITIZENSHIP 2014
TIME FOR ACTION
1. Tax Map: position the company’s current situation in the spectrum of tax practices.
2. Principles: define the tax principles.
3. Policy: manage tax according to defined principles
4. Communicate: defend the approach and show consistency.
FAIR TAX MARK 2014
Firms that score at least 13 out of 20 are awarded the Fair Tax Mark.
- 3 types of businesses (Businesses that only trade in UK, UK-owned multinationals and Foreign-
owned multinationals with subsidiaries in the UK)
- 2 categories of criteria (Transparency and Tax Rate, Tax Avoidance and Tax Disclosure).
Further reasons to include tax as a CSR issueApart from the use of activist campaigns traditionally linked to other CSR components, the parallelism between these traditional CSR issues and taxation extends even further.
As with human rights or environmental violations, tax avoidance poses a reputational risk for TNCs. A risk that is becoming more prominent as the media coverage and boycott campaigns increase.
Taxation of TNCs is one of the most complex issues globalisation has brought. This regulatory challenge is also present in other CSR components (i.e. labour conditions in TNCs that operate across different countries with different labour regulations), and it has been one of the reasons for the rise of corporate self-regulation. Placing labour conditions at the core of CSR has been useful to share the responsibility of this issue between state and businesses. The same logic can be applied to taxation.
There are evident similarities between taxation and other CSR issues and the link between CSR and tax is going from “missing” to “emerging”. Tax avoidance is becoming an attractive topic for the media and a wide range of campaigns and initiatives from civil society are targeting the issue. Lobbying for including tax in CSR should not, by any means, discourage the efforts to increase public regulation, but joining forces and pursuing commitments from both public and private actors can be a way forward to continue the fight against the complex issue of tax avoidance.
The full argument on which this blog is based is posted on the International Centre for Tax and Development (ICTD) website.
Isabel de la Peña, MA Globalisation and Development
Prior to joining IDS, Isabel worked as a consulant doing evaluation of development projects in Latin America.
* Franklin, B. and Smyth, A. (1970). The writings of Benjamin Franklin.