Much of the debate about
Base Erosion and Profit-Shifting (BEPS) and global tax minimisation focuses on
the current legal requirements to pay tax and amendments to ensure liability
and responsibility to pay tax. But this is not, first and foremost, a legal
issue. Even if the legal/illegal, avoidance/evasion dichotomies were clear-cut,
public outrage is applied to both. Indeed, clever planning may make the actions
that some call tax avoidance, tax minimisation or tax planning seem worse for
the obvious premeditation, while the complex legal arguments claiming that the
assault on the public purse is legal may merely extend the outrage to lawyers
rather than excuse the clients.
The failure to pay tax is
first and foremost a moral complaint about the corporations and their attitudes
to the communities in which they operate and which grant them a legal presence.
One might, therefore, suppose a concern for fair tax obligations would be
well-represented in the discussions and formulations of corporate social
responsibility (CSR). CSR speaks directly of moral principles requiring
businesses to do more than obey the strict letter of the law (and, indeed,
‘beyond the bottom line’).
Yet, if one turns to the major
codes, charters, compacts and guidelines for best business practice and CSR, a
striking fact presents itself. Most of these important documents say nothing –
literally nothing – about tax avoidance, minimisation or
planning. This is despite the fact that, as Christensen and Murphy (2004)
observe: “Paying taxes is perhaps the most fundamental way in which private and
corporate citizens engage with broader society.”
The codes of conduct for
corporations that fail to mention fair tax obligations include pre-eminent and
otherwise-demanding charters like the Caux Round
Table Principles, the UN
Global Compact (as well as its Principles for Responsible Investment), The Earth Charter, the Guiding Principles of the World Forum
for Ethics in Business, the UN OHCHR’s Guiding
Principles on Business and Human Rights, Amnesty International’s Human
Rights Principles for Companies, and the Equator Principles.
To be sure, some of these
codes have particular agendas (such as an environmental focus) that might serve
to push fair tax obligations onto the back-burner. Even so, the fact remains
that explicit fair tax obligations are so rare in the CSR space that the International
Standards Organization’s (ISO, 2010) analyses of both
sectoral and cross-sectoral initiatives fail to even list such
obligations as a potential CSR element in their taxonomies.
If we want corporations to
start living up to their tax obligations, then this widespread silence needs to
change. Almost all the above-mentioned codes contain principles that are
relevant to, or can be interpreted to apply to, tax obligations. For example,
the Caux Roundtable Principles include the broader community
in a business’s stakeholders, and stress that responsible businesses must live
up to the spirit and intent behind the law. Equally, the International
Bar Association showed how strong tax obligations follow from the
OHCHR’s Guiding Principles, at least in the context of
multinational’s tax obligations to developing countries.
However, potential
interpretation and glancing treatment of such obligations in other codes (such
as in the ISO’s Guidance on Social Responsibility and in the Triple
Bottom Line Approach) – are not enough. In an area that involves a
corporation directly shouldering significant costs impacting on its bottom
line, society needs to lay down clear and unequivocal commitments. The
tax-related responsibilities following from general principles needs to be
explicitly highlighted to any corporations who aims to comply with them.
All of these codes provide
aspirations to good corporate citizenship: but few make a point of saying that
good corporate citizens pay their share of tax as part of their ‘corporate
social responsibility’ or ‘social license to operate’.
We see the ‘social license to operate’ as
just one of several expressions of the responsibilities of business ‘above the
bottom line’. However, this concept enjoys currency in debates about CSR across
sectors, ranging from extractive industries to banking to the professions. It
also puts the CSR arguments more simply and strongly.
The ‘social license to
operate’ acknowledges that a corporation can only exist within a community if
it is legally recognised by that community or its sovereign representatives.
Likewise it can only have property if that possession is recognised by the
community (which also provides some protection for that property). Some forms
of property, especially intellectual property, only exists within a territory
because of the operation of that territory’s property laws.
The ‘social license to
operate’ recognises that corporations enjoy a number of privileges – from
limited liability to some very special privileges granted to particular
industries or companies such as the exploitation of mineral resources and the
lender of last resort to banks. The society also provides access to its
consumers, which are the cashflow, or lifeblood, for the likes of Google, Apple
and Starbucks. More generally, companies are entrusted with the bulk of the
economy. Finally, all organisations involve a combination of power, people and
resources to secure a range of ends. That power can be used to further those
ends but it is always subject to capture and those powers being used (abused)
against the community in which it operates. The American founding fathers
recognised the risks with governments. They were not aware of the risks of
joint stock companies which were smaller and less numerous than those of our
time (though their Glaswegian contemporary, Adam Smith, did recognise the risks
and warned against them).
Communities do not provide
all of the above benefits (let alone take the above risks) for the good of
corporations. They do it for the benefit flowing from the latter’s
incorporation. This is not to deny that corporations should seek profits.
However, companies are expected to do so in ways that benefit the community
rather than damage it. The social license to operate suggests that corporations
need to justify themselves to the communities in which they operate on the
basis of the benefits they deliver – and commit themselves to delivering them
rather than paying lip service to the ideal.
The ‘social license to
operate’ is analogous to the ‘social contract’ approach to government
legitimacy (but far more practical to implement because limited liability joint
stock companies are the product of legislation which was passed on the basis of
claimed benefits to the community and duties established and varied by
legislation.
Of the various duties
corporations might be expected to take on, the payment of tax would surely be
one of the most prominent.
Two good starting points
that are specific to taxes are the principles offered by Tax Justice
Network’s Code
of Conduct (Murphy 2007) and the OECD’s Guidelines for
Multinational Enterprises (OECD, 2011). Both codes set down the
fundamental responsibility of living up to the spirit and intentions of tax
codes. They also take care to explicitly prohibit some of the more egregious
tax-minimisation strategies, such as those surrounding transfer pricing and beneficial
ownership.
Corporations that abuse
their social license to operate by minimising, avoiding or evading tax are
putting at risk the license given to all and secure a competitive advantage
over companies that are unable or unwilling to avoid tax in the same way as
others. It is in the interests of the latter to work with taxation authorities
and civil society organisations to work through fair tax principles and
incorporate them in updated CSR principles.
Notes:
John Christensen, and
Richard Murphy. "The Social Irresponsibility of Corporate Tax Avoidance:
Taking CSR to the Bottom Line." Development 47, no. 3 (2004): 37-44.
This article was first
published at: Australian Tax Policy. http://www.austaxpolicy.com/is-paying-tax-part-of-the-social-license-to-operate/
(11 July 2016). The work profited from the
spirited discussions at the Regional Ethics Forum, the Red Chamber,
Queensland Parliament House, 27 May 2016.
