Taxation and Corporate Social Responsibility

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Taxation and Corporate Social Responsibility
Elwin Poortman, Analyst, Netherlands

The Panama Papers showed that tax avoidance takes place on a large scale. Taxation strategies of some large MNE’s involve aggressive tax planning, including transferring profits and using artificial structures in combination with tax havens to achieve lower taxes and larger profits as a result. Putting this into a CSR-context, such tactics can be seen as immoral strategies.

Taxes have a contradictive meaning:
- On the one hand, taxes are like any other costs for a company.
- However on the other hand, they are an economic contribution to the society in which the business is conducted. Therefore, aggressive tax planning can have significant burdens on a country’s well-being and that of its taxpayers, who eventually end up paying more taxes. Because aggressive tax planning often takes place within the regulatory framework, meaning that it is not illegal (by law), one has to consider to what extent aggressive tax planning aligns with the moral responsibility (CSR) of a company.

Aggressive tax planning carries reputational risks. For example, aggressive tax planning behaviour that is not accepted by consumers or media can have genuine effects on customer loyalty and sales. As a result, aggressive tax planning is slowly being replaced by active tax responsible behaviour.

The OECD and the European Commission run an extensive program to promote this incentive, and have both highlighted the following key indicators that should be embedded in a company’s tax strategy:
  1. SPIRIT OF THE LAW: Companies should comply to the letter of the law as well as to the spirit of the law. The latter refers to the moral code that is embedded in the law and aims that a company complies to this specific law by taking into consideration the initial intention of the law. This includes that company can no longer exploit legislative loopholes that for example allow them to use tax havens for tax avoidance, or artificial fiscal structures that are emplaced to create profits.
  2. INCREASE TRANSPARENCY: CSR requires openness and transparency; a responsible company reports its businesses and activities in public, and thus provides the general public with an opportunity to assess its activities. Tax payments and the overall tax strategy should be included in this framework, which therefore need to be specified and communicated publicly.
  3. COUNTRY-BY-COUNTRY REPORTING: Companies are encouraged to publish their tax payments per country in which they are active. This contributes to the company’s tax transparency and allows the general public to examine whether companies share a fair part of their profits to countries they operate in.
  4. APPLY THE ARM'S LENGTH PRINCIPLE: This means that internal transfers of commodities and services within companies are valued against market prices. This ensures that profits and therefore taxes are accounted in the country where value is created and prevents companies from shifting profits to countries with a lower statutory tax rate.
⇒ Do you think that the Panama Papers are marking the beginning of more responsible tax planning by companies, banks and financial advisors, or will all of this just turn out to have been a storm in a teacup?

Source: Knuutinen, R. 2014: CSR, Taxation and Aggressive Tax Planning, Nordic Tax Journal 2014 VOL 1

Taxation and CSR
Lillian Nabwire, Student (MBA), Kenya
It is unruly that tax evasion has become uncontrollable in our large organizations today as this bounces back to us through a poor economy. The prevailing attitude among large corporations currently seems to be that aggressive tax planning is justified:
  • Because of competitiveness considerations: “everyone does it”. But wait, is that we really want to be like everyone? Think about it!
  • Because it enhances shareholder value. Paying taxes is seen a cost that reduces corporate profits, and this negatively impacts the value of the shares.
Organizations should take responsibility and ensure taxes are duly paid. This comes handy with ethics in our organizations and any manager, CEO, representative should acknowledge the importance of paying taxes as they may fall due.
It is to the organization's advantage to avoid running away from law and to fearlessly operate knowing they are tax compliant.
Panama papers may be up to the task to result in responsible tax planning by companies but full engagement of company managers in charge is also needed. Paying taxes is what organizations should give back to society through improved economic environment.

Over Taxation to Pay Those Who Does not Work
Unre Visagie, Entrepreneur, South Africa
High taxes are responsible to force defensive behaviors.
We simply move our means of production so that more capital can create more jobs, rather than pay people to sit at home?

Taxation and CSR at Banks
zephir, engineer, France
When a bank buys planes that an airline will rent, that is not seen as a tax evasion. But in fact the bank doesn't have any use of planes in order to perform its activities. The sole purpose of buying planes is to create an asset that will be amortized by the bank which in turn will reduce the tax base of the bank. The purpose is, for the bank, to reduce its tax.
Is this moral? Who can decide? Is this an aggressive tax planning or an active tax responsible behaviour? I think the answer is far more political then technical or ethical? Will the G8, G20 seat and state the rule for the "market". Money may well be considered as a resource no more and no less than a plane. Who will explain why that is or is not the case?

Taxation and CSR in Lithuania
Valentina Burksiene, Lecturer, Lithuania
It seems that in Lithuania till now it is (and hopefully will remain) only a storm in a teacup. No interesting names of politicians were found on that list. But finding this would be useful for our parties, as in Lithuania we have election of the parliament this October.

Multinational Companies, Taxation and CSR
nadeem zia, Student (University)
In emerging economies the level of corruption is so high, the regulator has no authority to implement laws and regulations in a true sense. The word 'transparency' is still missing that's why the majority of politicians involved in the Panama leaks are from developing countries.
However, there has been some public pressure in some places like Iceland where the Prime Minister had to step down from PMship. But these corrupt politicians and MNC's have become so powerful that their impact on the society is very large. That's why country's relax their laws to favour them.
The Panama leaks may be a beginning for socially responsible tax planning but may not be enough to improve socially responsible behaviours of some immoral individuals. MNC's have always been at front foot in tax avoidance by exploiting loopholes in regulatory frameworks.

The Role of Society in Taxation and CSR
j.a. karman, ICT Consultant, Netherlands
Marvelous: "THE IMPACT OF TAX. Taxes have a contradictive meaning:
- On the one hand, taxes are like any other costs for a company.
- However on the other hand, they are an economic contribution to the society in which the business is conducted."
It has left out the definition of the society. Once it was the local area more easily covered by national governments (industrial age).
I see the governments as the entity of the society. But by now society is far more global and global companies are taking the lead and manipulate national governments (the societies). The OECD, EU and other global organisations can start a reaction for balancing those unequality of powers. The Panama-papers are just a whistle-blower. I am not sure about the effect but there is a good chance on change. An equal level for entrepeneurs at all locations would not be harmful for anybody. Small and medium businesses and startups have no tax evasion options.

Taxation and Corporate Social Responsibility‏
Mohammed kabashi - Geophysicist, Student (MBA), Sudan
Jane Frecknall Hughes and Keith W. Glaister (2009) in their article "Taxation and Corporate Social Responsibility: Evidence from UK Firms" found the following things related to taxation:
1. FINANCIAL – “issues of CSR cannot be separated from issues of profit, and indeed must be identified with the bottom line” (after Capaldi 2005, p. 414).
2. LAW – tax is primarily governed by law, so how can a firm go beyond the law in any sense? May choose not to engage in certain practices or use available incentives/reliefs?
3. CORPORATE CITIZENSHIP – duty of a citizen to pay tax – quantum, not quality - contradiction?
A. Corporate social performance – how to measure?
B. Corporate philanthropy: how can it apply? A matter of perspective? Corrupt/incompetent regime mitigates against tax payments?
4. CORPORATE GOVERNANCE – some conflict here.
5. BUSINESS ETHICS of tax avoidance.

Issues with Locating Tax Within CSR
Mohammed kabashi - Geophysicist, Student (MBA), Sudan
Here are some problems, when we're thinking about Corporate Social Responsibility in relation to taxation.
  • How widely should we interpret ‘Social’ – specific groups of people (e.g.; employees, shareholders, suppliers, contractors), people living or working near the company's place of operations, all of the people in the country in question, the world at large? Are the people in a state (society) identified with the state, distinct from it or a surrogate for it? Tax paid to the state is not the same as benefit to society. See also: stakeholder mapping.
  • CSR can also affect people by omission – setting up a business in one place rather than in others may disadvantage those others (Williams, 2007, P. 7).
  • Issue of not taking all opportunities offered. This may lead to law suits and/or a bad reputation of being ‘bad for business’.
  • Link to purpose of company – make a profit/money, provide goods/services/employment

Guidance with Locating Tax Within CSR
Mohammed kabashi - Geophysicist, Student (MBA), Sudan
Commentators do generally agree on certain concepts being relevant to CSR:
1. TRANSPARENCY/OPENNESS; is there necessarily a problem if you disclose what you do, whatever that may be, and don't misrepresent it? What is the ‘right’ amount of what is arithmetically correct?
2. COMMUNICATION; (at least) of the information to stakeholders who have a right to know.
3. ACCOUNTABILITY; Government must be accountable too about how they spend the means and invest or use them to attract investment, etc.

CSR is confounded by:
1. Lack of standard as to what companies should do in the context of CSR (NB ISO14001).
2. Several possible models and standards for reporting CSR.
3. No requirement of proof; i.e., no requirement for audit.
4. Conflict.


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