Companies should take the lead in take tackling tax avoidance

Jun 05, 2013

The study, published in the journal Third World Quarterly, highlights the fact that many of the companies actively engaged in tax avoidance also like to assert their credentials as responsible corporate citizens.

Rhys Jenkins, professor of development economics at UEA, and Peter Newell, professor of international relations at the University of Sussex, examined the connections between tax and development, and tax and (CSR). They argue that tax strategy should be addressed as an aspect of CSR, and that with growing over tax avoidance failure to do so could potentially undermine corporate legitimacy.

They propose some key elements of a responsible tax strategy, which include: a commitment to avoid the use of tax havens in their operations; an agreement not to use artificial finance arrangements to reduce the company's tax burden; and greater transparency concerning profits and tax payments on a country-by-country basis. Contrary to current practices, corporate responsibility should also involve a company agreeing not to lobby or pressure host governments to provide it with more favourable tax treatment.

Up to now, there has been a surprising lack of attention given to tax avoidance as a CSR issue, even among those companies that pride themselves on being leaders in this area. The focus of their CSR efforts has been on environmental, labour and human rights issues.

Prof Jenkins said Starbucks, which was at the heart of the recent tax avoidance scandal in the UK, is an example of this with its commitment to using fair-trade coffee contrasting with its "ethically questionable" arrangements to minimize its corporation tax liabilities. Other companies which are usually ranked highly in terms of their CSR but have also been accused of avoiding tax include Apple, Google, and GlaxoSmithKline.

"This paper focuses on an issue that has largely been absent from the CSR agenda, despite a flurry of recent scandals engulfing major corporations that identify themselves as leaders on CSR issues," said Prof Jenkins.

"Our research shows that tax avoidance by transnational corporations is a major global issue, particularly for developing countries where the tax base is relatively weak and the capacity of the state to effectively control such practices is very limited. The fiscal crisis of both developed and developing countries has put tax avoidance more firmly on the agenda than ever before.

"We do not believe that the inclusion of commitments on tax will remove the problem of tax avoidance any more than environmental or labour rights' issues can be dealt with solely by voluntary corporate commitments. However, companies that claim a high level of social responsibility should not stand by and wait for governments and international organisations to take a lead, but should lead the way in terms of country-by-country reporting and abandoning the use of tax havens. Failure to do so could in future undermine their legitimacy in the same way that abuse of workers or environmental disasters have affected companies in the past."

Recent scandals about the widespread use of tax avoidance schemes, including the non-payment of corporation tax in the UK by , Starbucks and Amazon, have put the issue of taxation centre stage. The UK's Prime Minister David Cameron and German Chancellor Angela Merkel have also put the issue on the agenda for this month's G8 summit in Northern Ireland. But the researchers say the problem of tax avoidance by corporations in developing countries has barely been touched upon in terms of corporate responsibility. The income lost by developing countries through corporate has been estimated at between $35bn and $160bn.

Prof Jenkins said: "Until now, the CSR agenda has tended to focus on environmental issues, labour and human rights. But many of the arguments that have been used to support CSR in these areas apply equally to paying a fair share of taxes, particularly in where the capacity to collect tax is very limited. No company is regarded as socially responsible on the basis that it complies with the minimum legal requirements in terms of environmental standards or labour rights so why should a responsible company feel that all it has to do is to pay the minimum level of tax that it can get away with without breaking the law."

As part of their study Prof Jenkins and Prof Newell analysed the CSR reports and codes of conduct of 35 major transnational corporations regarded as leaders in this area and listed on the FTSE4Good. They found that most do not regard tax as an aspect of CSR. Only in 13 cases was there any mention of tax in the CSR report, while just four of the companies - Diageo, WPP, Repsol-YPF and Telefónica - made an explicit statement related to the company's tax policies.

Even fewer companies referred to tax issues in their codes of conduct - nine in total. Most of these referred to the need to comply with the law and to pay a fair share of taxation. However, they also often mentioned the need to minimise taxation in the interest of shareholder value. Some codes, for example those of Vodafone and Unilever, also referred to steps to influence government tax policies.

The paper 'CSR, Tax and Development', by Rhys Jenkins and Peter Newell (2013) is published in Third World Quarterly, volume 34, issue 3, p378-396.

Explore further: Fresh anger over Amazon's UK tax bill

add to favorites email to friend print save as pdf

Related Stories

Fresh anger over Amazon's UK tax bill

May 15, 2013

Internet giant Amazon on Wednesday came under fresh fire over its British tax status after official figures revealed it only paid £2.4 million ($3.6 million, 2.8 million euros)on UK sales of £4.2 billion ...

Google boss says company is doing 'right thing' on tax

May 22, 2013

Google boss Eric Schmidt insisted Wednesday his company was trying to do the "right thing" as it faces criticism in Britain over the amount of tax it pays, saying it was for countries not companies to decide ...

Software glitch delays 660,000 tax refunds

Mar 14, 2013

The Internal Revenue Service says 660,000 taxpayers will have their refunds delayed by up to six weeks because of a problem with the software they used to file their tax returns.

Apple, US lawmakers in offshore tax showdown

May 17, 2013

Apple and US lawmakers are gearing up for a showdown over taxes—specifically how to deal with the huge stockpile of cash held by Apple and other multinational firms offshore.

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 2

Adjust slider to filter visible comments by rank

Display comments: newest first

not rated yet Jun 05, 2013
"Jeder nach seinen Fähigkeiten, jedem nach seinen Bedürfnissen!" Karl Mark, 1875
not rated yet Jun 06, 2013
A company has a duty to their shareholders, who aren't necessary the same people as the home country. They have a duty to protect them by obeying local law, all of it, but they also are given the freedom to choose how they do it.

Further, there are a lot of countries that do not offer services commensurate with the fees demanded.

What we have here is just some special pleading, perhaps in hope of being able to sell such a program.

More news stories

Egypt archaeologists find ancient writer's tomb

Egypt's minister of antiquities says a team of Spanish archaeologists has discovered two tombs in the southern part of the country, one of them belonging to a writer and containing a trove of artifacts including reed pens ...

NASA's space station Robonaut finally getting legs

Robonaut, the first out-of-this-world humanoid, is finally getting its space legs. For three years, Robonaut has had to manage from the waist up. This new pair of legs means the experimental robot—now stuck ...

Ex-Apple chief plans mobile phone for India

Former Apple chief executive John Sculley, whose marketing skills helped bring the personal computer to desktops worldwide, says he plans to launch a mobile phone in India to exploit its still largely untapped ...

Filipino tests negative for Middle East virus

A Filipino nurse who tested positive for the Middle East virus has been found free of infection in a subsequent examination after he returned home, Philippine health officials said Saturday.

Airbnb rental site raises $450 mn

Online lodging listings website Airbnb inked a $450 million funding deal with investors led by TPG, a source close to the matter said Friday.