RSS FeedIs Tax The New Area Of Concern For Corporate Social Responsibility?
First posted on Commercial Law International on March 7, 2009 by Charles Wanguha.
In the early 1990s, Nike suffered a huge backlash from the revelation of child labour in its factories abroad. As a result, there was a drive to ensure that clothing was environmentally sound.
In early 2000, a push for carbon footprint labelling ensured that consumers were conscious of the effect of their consumption habits on the climate.
In 2009, after a Guardian expose, there has been an uproar regarding tax evasion by big corporations. These corporations, through the use of extensive webs of subsidiaries in tax havens, have managed to create a near-zero tax liability status in their country of operation. The Guardian describes it as “the triumph of technical proficiency over social responsibility”.
It is likely to spark the age-old debate about whether a corporation’s main point of existence is the creation of shareholder value. If that point of view is to be accepted, then the less tax is paid to the government, the higher the dividend or return that is passed to the shareholder.
In response, the corporations argue that in strictly legal terms they are not breaking the law or involving themselves in an illegality. In this instance, should the regulator then be blamed for the tax avoidance? And how can the regulator keep abreast of all new avoidance schemes when at the moment they face close to 200 known schemes? The corporate social responsibility debate has been pushed forward largely by the moralist argument rather than the strict legalistic interpretation of the corporate duties to society.
A corporation, like all legal persons, has a responsibility to pay taxes. In turn, the government has a duty to provide services at an acceptable level. In the example of the Johnny Walker brand, valuable royalties earned were moved from England to Holland (which had a zero rating tax on IP rights) while the production remained mostly in England. Thus, in one swoop, a huge tax gap is imposed on England tax offices. The tax gap must then be filled by the low income and small businesses who are unable to hire the services of the lawyers, accountant, and consultants that dream up these schemes.
A new incentive, similar to the carbon footprint labelling of food, has been initiated. (See more at tax ticked.) It in effect aims to reward good corporate citizenship.
If successful, the focus will return to good corporate citizenship as opposed to charitable acts easily negated by tax evasion.
