06 CSR


Corporate social responsibility and taxes

Albert Sagués

The concept of Corporate Social Responsibility springs from an increasingly insistent claim on companies from Society. The result is now a certain degree of openness and transparency connected to corporate activities, especially those of large transnational companies, which cannot ignore this pressure from society and must deal with it in one way or another.

Before we go on, it is important to remember (or explain) the definition of Corporate Social Responsibility. As it is a social demand, the best way to illustrate it is to use the definition provided by the social encyclopaedia Wikipedia:
Corporate Social Responsibility (CSR), also called Corporate Conscience, is a company’s sense of responsibility towards the community and environment in which it operates (labour, social action, environment, clients and suppliers, and good governance and transparency) by means of voluntary and disinterested involvement beyond that which is laid down in the current law. http://en.wikipedia.org/wiki/Corporate_social_responsibility

Now that we have defined CSR, there is no doubt that the tax factor, the taxes paid by companies, represents a fundamental part of the social commitment, which is at the core of CSR.

We often read in the media news about companies creating business structures that tend to minimize or eliminate the payment of taxes by means of complex business networks established in the so-called ‘Tax Havens’.

The creation of these structures is carried out within the strictest legal framework, by taking advantages of applications or stretching interpretations of the law to the limit. We can speak of ‘tax optimization strategies’ and ‘tax avoidance schemes’ which are, a priori, valid and legal options. We are not talking about tax evasion, which is illegal and may incur criminal charges.

To attempt to pay less tax or to avoid paying tax is legal if one can find a way to do it without breaking the law. And it is precisely the large corporations which generate huge profits which end up finding these legal ways, although from society’s point of view, these tactics may be considered to be unethical or even immoral.

This practice is not new. In fact, it is as old as tax itself and many tax avoidance practices can be found openly on the Internet (see the structure that is popularly known as ‘double Irish arrangement’, which Apple Inc. and other companies, as well as some football players, have been using for years: http://en.wikipedia.org/wiki/Double_Irish_arrangement).

Social movements and consumer pressure have recently forced some companies to change their tax strategies, (the case of Starbucks in the United Kingdom is one of the most recent). This is likely to spread to other companies in the future.

The practice of tax avoidance has also been brought to the attention of Governments and supranational organisations, such as the European Union, and even international organisations, such as the OECD.

Let’s not be fooled. There is no way to stop this practice. There will always be ways to avoid tax, there always have been and there always will be, because there is too much money at stake.

With Corporate Social Responsibility in mind, and with the aim of transparency and responsibility in tax matters, many companies voluntarily publish their tax returns in the various countries where they carry out their economic activities.

This is a first and positive step, but it is not enough. From the standpoint of social responsibility, there is certain information that companies can share with society without disclosing corporate strategies that may endanger company business.

For example, publishing the sales generated in a country, the taxes paid in that country and the tax rate would be a very simple way to verify, in each case, how much money companies pay in tax on the business carried out in the country and the profits they declare. This can then be compared with the tax rate applicable in the country.

It is surprising to see how, for example, in Spain a leading company in the sale of computers, tablets and smartphones declared in 2012 sales of €142 million and losses of €22 million, while at a consolidated global level it is the most profitable company in its sector.

It is in situations like this where the idea of Corporate Social Responsibility becomes uncomfortable. Transparency in company communications with regards the tax paid by countries, compared to the sales and profits generated, would put the spotlight on more than one company and would give very valuable information to their clients and to society.

Albert Sagués

Albert Sagués

Teacher of the Tax System Programmes, UPF Barcelona School of Management

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