Corporate Taxation: CSR’s New Field
Does your company’s social responsibility plan align with its tax strategy? Should it? According to a 2009 survey by the Oxford Centre for Business Taxation, “the majority of respondents were not convinced that the payment of corporation tax was at present a social issue relevant to corporate social responsibility.” Frequent readers of corporate sustainability reports know they will be hard pressed to find information about corporate tax payments in sustainability documents; nevertheless, tax payments are often a corporation’s largest monetary social contribution (assuming the state serves the social good, which is debatable, but is assumed to be true for the purposes of this blog post).
Corporate tax strategy is actually a prime candidate for corporate social responsibility efforts because companies have control over business decisions that influence tax liability. Several legal and illegal tax reduction mechanisms are currently in use. The social result of such activity is staggering. According to a 2010 Global Financial Integrity study, developing countries lose $100B in tax revenue due to reinvoicing, which is the use of an offshore corporation as an intermediary (a.k.a, tax haven) between an onshore business and offshore operations or customers. The lost revenue from reinvoicing is equivalent to the total amount of official assistance provided to developing countries. Tax revenues are a critical component of a poor country’s development and are necessary to lessen the need for foreign aid. Corporate social responsibility programs within multi-national corporations can have a substantial effect on poverty alleviation through addressing this issue.
Even if a company’s tax practices are within the law, corporate social responsibility departments should weigh in on decisions because there are many circumstances where the law is open to interpretation. Transfer pricing is a good example of a particularly gray area of tax law. Corporations are incented to consider tax liabilities as expenses to be minimized and, as a consequence, are misaligned with social considerations. Truly socially responsible businesses incorporate the triple bottom line into all aspects of operation. Not even tax is exempt.