Is tax the new area of concern for Corporate Social Responsibility?

By Charles Wanguhu

In early 90’s Nike suffered a huge backlash from the revelations of child labour in use in its factories abroad there was a drive to ensure that clothing was environmentally sound. In early 2000 a push for carbon footprint labelling ensured that the consumer was conscious of the effect of their consumption habits on the climate.

In 2009 after a guardian expose there has been uproar on tax evasion by the big Corporations. The 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 operations. 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 the lesser tax paid to the government then assumingly a higher dividend or return is then passed on to the shareholder.

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In response, the corporates 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 stand at close to 200 known schemes. The corporate social responsibility debate has been largely pushed forward 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 and in turn the government to provide services at an acceptable threshold. In the instance of the Johnny walker brand while the more valuable royalties earned were moved from England to Holland (which had a zero rating tax on IP rights) while the production largely remained in England. Therefore in one swoop a huge tax gap is imposed on England tax offices. The tax gap has then to 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 then return to all round good corporate citizenship as opposed to charitable acts which is easily negated by tax evasion.

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2 comments

  • Anne Mwangi

    Yo had to mention Johnnie Walker! On serious matters,
    The question of CSR being moralistic, rather than legalistic will always be a debatable one. When issues of tax avoidance creep in, it is always about increasing shareholder value, bonuses etc. Many of the tax avoidance practices that were used by the likes of Enron and Parmalat are still in use today. Companies like Exxon Mobil, Deutche Bank etc will have fat cheques to have their ‘team’ concoct ways to avoid tax. The bottom line here is that avoidance is not against the law in any way, neither does it fall under CSR. Proponents of CSR, however, argue that ethical trading should be spread across the breadth of all company operations.There is no definite stand on this. Just my two cents

  • Charles

    Anne: Being socially responsible involves corporates being good citizens of the world. How can one be described as a good citizen while evading tax? Or does giving to charity monies obtained from tax evasion make one an exemplary institution. The international financial crisis was inspired by greed for profits and bonuses a short term gain shared by few but the losses shared far and wide.
    In addition regulation is put in place to either remedy a Malady or protect a public interest. Following the letter of the law while ignoring the spirit of the law as described above is the “triumph of technical proficiency over social responsibility”.

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