Study Into Corporate Social Responsibility And Tax Liabilities Accounting Essay

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3. Tax and CSR

The purpose of this thesis is as you know to find links between CSR and a company' management of its tax liabilities. After having thoroughly explored both the topics of CSR and that of tax via extensive literature research, we understand that it is possible to find synergies between them. Based on this review, we will assess what how CSR can be used by companies to adopt a tax behaviour that is considered being fair and responsible.

As we have seen, corporate tax has become a hot topic especially in these times of financial turmoil where companies are expected to make a contribution to governments for the recovery of the economy. In views of the issues related to MNEsbehaviour towards tax planning, it would be unfair to blame them exclusively for choosing to legally minimise their tax burden, as some governments contribute largely to th

Section III - Research

This section is dedicated to the Company' [1] approach to the management of its tax liabilities. The aim here isn稚 to discuss or assess the legality of the tax position of the Company. Rather, based on the literature review and on the case studies made, we tried to establish how the Company can adopt an approach towards tax that goes beyond tax compliance, that is consistent with CSR principles, and how it can be used to assess whether or not to undergo an approach that is likely to affect its tax liability.

We first started by briefly describing the Company' activities in order to provide an overview of how the Company is organised and how its structure and business model can help readers understand why it has adopted certain tax positions. We will also briefly describe the Company' approach to CSR.

Secondly, we will map tax issues that the Company is facing or likely to face in the future, while at the same time designing a stakeholder mapping. In this case, will be considered stakeholders those who affect the Company' tax position, as well as those who are affected by the Company' management of its tax liability. This is crucial since a stakeholder approach is a way of aligning corporate social responsibility with business principles. This provides us with understand of which stakeholders require most attention also based on risks that the Company is facing.

Thirdly we will assess how CSR principles apply to the management of the Company's tax liability by applying them to a concrete tax initiative that we researched during our internship in the Company: Tax Efficient Supply Chain Management.

We will then summarises how CSR principles can apply to the management of the Company's tax liability based on the CSR practices and tools developed in the literature review and practices identified in the case studies, by developing a grid of actions.

The Company: Presentation and Business Model

The Company, headquarted in the UK, is specialised in the rental of power generators, temperature control solutions and air compressors [2] to which we shall refer as fleet.

The Company primarily serves the construction, event management, facilities management, government services, manufacturing and industrial, telecommunications, and utility power generation and distribution markets. The Company also provides used equipment for sale.

Its operations are based on two business models:

Local Business: equipment is hired to customers who operate it for themselves, with the Company remaining in charge of the servicing and the maintenance of the equipment.

International Power Projects: the Company operates as a power producer as it installs and operates power plants. Customers are charged based on the generating capacity provided by the Company, for the electricity that is produced and for the operating costs.

During our internship, we worked on a project for the Europe and Middle East Finance Director concerning only subsidiaries within Continental Europe and the Local Business business model. This section will therefore focus on operations and tax implications of the Company' operations in this region. Nevertheless remarks will be discussed to a certain extent the International Power Projects.

The Company has grown organically the last decade through acquisitions and by entering new markets by establishing subsidiaries. It has currently 39 subsidiaries and operates in about a hundred countries.

On a management perspective, the European structure of the Company is divided in two, each managed by an Area Managing Director:

NoEur (Northen Europe) which includes subsidiaries in the UK, Ireland, Norway and Russia.

CoEur (Continental Europe) which includes subsidiaries in the Netherlands, Belgium, Germany, France, Spain and Italy.

The Business Model [3] 

The Company operates according to a hub-and-spoke model (see Figure below). Whereas hubs hold a broad range of equipment and carry out main servicing and most fleet repairs, spokes hold smaller equipment for quick deployment and a minimised handling of transport costs.

Hub and spoke business model

Within Continental Europe, each country owns its own fleet, but an estimated 20% of each country' fleet is exchanged between each other, depending on their needs based on forecasts and customer requests. Transactions between companies of a same group can lead to transfer pricing issues, which are explained in the following title.

The Company' approach to tax


In order to have a full understanding of the Company' approach to tax, interviews were made with:

Europe and Middle-East (EME) Finance Director

EME Tax Manager [4] 

Continental Europe Finance Manager

Continental Europe Asset & Service Manager

Benelux Finance Manager

Group Head of Tax [5] 

The Company' approach to tax has been based on compliance for the Local Business model [6] , i.e. paying the right amount of tax, at the right place, at the right time to the local revenue authorities. The Company' business being physical, implying physical services, in addition to the organic growth of its European structure can provide fairly satisfactory explanations as to why that is.

A company' effective tax rate can indicate the level of profitability of operations and the Company admits that it can be the source of a competitive advantage. The Company' historically high effective tax rate supports the idea that it hasn稚 been involved in strong tax planning or tax avoidance initiatives, or that it might not use efficiently tax treaties. Indeed, in 2006 the Company' effective tax rate (36%) was significantly higher than the average of the FTSE 50 [7] (25,8%) and the UK statutory corporate tax rate (30%). This leads the Company' Management to believe that tax might be managed inefficiently.

We also found out that it is only since 2009 that the Company' European Structure has hired a Tax Manager. Previously tax issues were dealt with exclusively by national finance managers whose input in tax issued was exclusively to file income statements. We must concede that we do not know whether the Company has used the services of tax consulting companies in the past.

1.2.2 Tax policy [8] 

The Company has a documented tax policy. It is however confidential and available only to key people within the Company.

Even though interviewees say that relevant stakeholders have had input to the policy, those are limited to internal stakeholders: Company managers and tax staff, and to a certain extent the Board. Members of the Company tax team agreed that it is clear to them when other employees need to consult with them. There are however no specific guidelines or principles relating to tax that are made available to all employees.

The tax strategy of the Company is 鍍o deliver the lowest sustainable tax rate consistent with the Group' commercial objectives within an appropriate risk framework" [9] . The risk framework consists in a 創o surpriseapproach. In that sense the Company ensures that it is tax compliant and able to demonstrate that all of its taxes are well controlled, as tax issues are likely to have an impact on the Company' reputation.

As we discussed in 1.1 The Business Model, subsidiaries of the Continental Europe area exchange assets (e.g. power generators) between one another by rehiring or selling them to one another. As these companies are part of a same Group, the transfer price that they charge one another must abide by certain rules [10] . The jurisdictions in which they operate require the arm' length principle to apply between transactions of entities of a same group. This principle is applied thoroughly by the Company who has a documented transfer pricing policy, drafted and update with the help of external tax consultants.

The Company' approach to CSR

The Company has no formal CSR strategy. This was reflected in several of the interviewees we carried out, some with senior employees. Some were unfamiliar with the concept of CSR. This doesn稚 imply however that the Company doesn稚 deal with the social, environmental and economic impact of its activities on society.

Due to the nature of its business, the Company' activities have a direct impact on the environment: the power generators are diesel powered, and therefore contribute to greenhouse effect. Moreover workers, in the Company' warehouse and at places where services are delivered, operate heavy machinery and handle hazardous substances, and their security can be put at risk.

Aware of these risks, the Company has a thorough and consistent Health, Quality and Safety policy (HQS), implemented by onsite HQS managers. Risks relating to operations are carefully listed and rated, and dispositions as to how to deal with these risks are carefully detailed and updated on regular basis. Moreover trimestrial reports are submitted to and discussed by the Board regarding HQS issues.

All European sites and a large majority of worldwide sites are ISO 14001 and ISO 9001 and assured. The ISO 14001 certification enables the Company to deal with its environmental impact and provided requirements that led it to adopt its Global Environmental Health and Safety system. Moreover the ISO 9001 certification ensures that the Company reviews the quality of its processes, especially when dealing with the maintenance of its fleet. For the Company, these two certifications go hand in hand: by ensuring a high quality of maintenance of its fleet, the Company ensures that machines pollute less.

The only mention of CSR that we came across when analysing corporate publications was in their annual report: a chapter of 6 pages is dedicated to summarise how the Company deals with environmental and safety issues, providing a series of indicators (e.g. evolution of emissions of carbon dioxide, frequency accident rating), in addition to stating its philanthropic actions and publicising its Code of Business Ethics.


We have shown that the Company doesn稚 have a formal CSR strategy, nor does it report on its contribution to sustainable development via sustainability guidelines. It deals nevertheless effectively with health, security and environmental issues as ISO certifications, onsite visits and personal review of processes suggest. The only clear commitment to economic contribution other than the tax charge present in its financial accounts, was a mention its philanthropic actions.


The nature of the Company' business, in regards to its Local Business, implies that tax planning is secondary to the commercial purposes of the Company' activities. Indeed, tax doesn稚 define the Local Business business model of the Company, whose transfer pricing guidelines are in accordance with the arm' length' principle. Nevertheless, tax isn稚 acknowledged as being an element of the Company' economic impact on society. The fact that the Tax staff doesn稚 see tax planning as particularly relevant to CSR supports this idea.

In regards to its International Power Projects based on a different business model, the Company undertakes projects, some in developing countries that do not necessarily imply that the Company is obliged to pay corporate tax on its revenues made in them (e.g. one week power project in a developing country). An interviewee told us however that it was his/her belief that a responsible approach would imply that the Company ought to pay taxes in every country in which it operates, which highlights the fact that the claim of local communities are to be taken into consideration by some key people within the Company.


The financial accounts provided in the Company' annual reports are the only formal source of transparency to external stakeholders. The annual report contains both the tax charge as it is in the Income Statement and the cash flow statement which encompasses the taxation payments made by the Company. However this are not reconciled clearly in the annual report. The Company doesn稚 follow GRI guidelines and doesn稚 publicise its cash tax payments to governments split per region. Moreover the Company' tax strategy isn稚 publicised and only available to key people within the Company.


The Group' confidential Tax Policy states that it is consistent with the Group' Ethics Policy [11] . The policy refers to its commitment to legal compliance, and explains that what consists in an appropriate behaviour for Company representatives. No mentions are made of the Company' approach to tax and how they apply to the Company' business principles. Furthermore, although the Company acknowledges that tax is high on the public agenda and has a 創o-surpriseapproach to tax, there is a clear lack of stakeholder engagement and reporting beyond the Company' legal duties, both internally and externally, on the Company' approach to tax.

Stakeholder mapping and risk management: a focus on tax

We have discussed in our literature review how risk management is relevant to CSR. The Company does not have a formal CSR strategy or a stakeholder approach to issues, it does however have a through operational risk management strategy and deals efficiently with Health, Quality and Safety Issues. Is the context of this thesis, we study how the Company' approach to tax management affects and is affected by stakeholders via a stakeholder analysis, and its inherent risks haven a impact on the Company. We will carry out a stakeholder mapping based on the model of Mitchell, Agle and Wood.

2.1 Issue

2.1.1 Cash flow uncertainty

Certainty on cash flows will be affected by the Company' approach to tax planning. The uncertainty about ongoing tax issues resulting in tax liabilities can reduce their stability. This risk is closely linked to reputational risk. The Company is listed therefore it will want to ensure stability of cash flows to its shareholders.

The impact of Company' approach to tax on cash flow is high, as a liability occurring and impacting profit and this will affect greatly shareholders and value of stock. The likelihood of it happening is however low, due to the Company' compliance to tax.

2.1.2 Reputational issues [12] 

As we have seen in the literature review, that there is a strong interrelation between the success of a business and its reputation which significantly depends on the general perception of the company. Even though the financial impact of a weakening of the Company' reputation is difficult to be quantified with exactitude, it is undeniable that such risk will want to be avoided, as mentioned in its tax policy. As the Company' CEO was quoted by the European and Middle East Tax Manager, 杜y biggest fear would be to wake up one morning and see the Company facing a liability that would affect its reputation.

Reputational issues can include:

Media/Press criticising the Group' tax position, labelling it as aggressive tax avoidance

Tax Justice Network criticising the Group' approach to tax, not making a ç´ aircontribution in terms of cash tax paid in countries where it has commercial operations

Increase of tax liabilities or provisions for future tax liabilities due to infringements with revenue authorities

Although the impact on the Business is likely to be high, the probability of them currently occurring is low. The Company has a very low profile and the fact that it only recently entered the FTSE 100 means that its tax practices haven稚 come yet under the spotlight or investigation by the Media/Press and Tax Justice Network.

2.1.3 Challenge of tax position

This issue is associated with the likelihood of the Company having its tax position challenged by HMRC and other revenue authorities. Although the Company has historically had a compliance approach to tax and has its transfer pricing policy thoroughly documented by KPMG tax consultants, revenue authorities are more likely than ever to investigate on its tax practices as the Company' keeps growing.

Inclusion in the Large Business Services of HMRC

Although the Company fulfils all the factors of a Large Business [13] , it is not included in HMRC' LBS. This explains why the Company has always received very little attention from the revenue authorities. The fact that it has grown quickly and organically and only joined the FTSE 100 in 2010 can also explain why is hasn稚 received more attention. The likelihood of its inclusion in LBS is nevertheless extremely high, as the Company is undergoing strong growth, both geographically and economically.

The inclusion of the Company in the LBS would imply that it will be assigned a risk rating based on which the Company will be likely to be facing tax audits and see its tax position meticulously studied. If gets a 蘇igh-riskranking the impact on the Company could be great due to heavier compliance costs, frequent tax audits and challenge of business processes. On the other this can also provide an opportunity for an open dialogue with HMRC, as a forum of discussion to understand one another' positions.

Changes in legislation

The reluctance of the UK to any form of tax harmonisation such as the CCCTB means that the Company' transfer pricing policy is still a long way from being challenged, although it is subject to control. Moreover experts do not see the UK giving up their fiscal independence any time soon.

Impact and likelihood of occurrence of tax risks tax and issues [14] 

IssueImpact on CompanyLikelihood of occurrence1. Uncertainty of cash flowHighLow2.Reputational issuesHighLow3. Challenge of tax positionMediumLow4. Inclusion in HMRC's LBSLow or HighHigh5. Changes in tax lawLowMedium

Stakeholder mapping

2.2.1 Model of Mitchell, Agle and Wood Choice [15] 

Mitchel, Agle and Wood provide us with a model which enables us to measure and evaluate which stakeholders or group of stakeholders have the greatest potential to affect the Company as a whole, and its approach to tax, by classifying them in categories.

Stakeholders are mapped following the three criteria of the Mitchell, Agle and Wood model: power, legitimacy and urgency [16] . Accordingly, stakeholder power exists when a stakeholder can get another, or the organisation to do something that would not he would not have otherwise done. Can the stakeholder impose its will on the Company? Legitimacy represents the belief that the actions of a stakeholder are desirable or appropriate within a company' accepted norms and values and by the law. Urgency includes both criticality and time urgency, with a stakeholder claim considered to be urgent both when it is critical, and when a delay in response is deemed unacceptable. By including urgency as an attribute, a dynamic component is added to the process whereby stakeholders attain salience in the minds of managers.

Stakeholder analysis


 PowerLegitimacyUrgencyType of stakeholderInternal stakeholders    BoardXXXDefinitiveTax teamXXXDefinitiveEmployeesXDiscretionaryExternal stakeholdersInvestorsXXDominantHMRCXXXDefinitiveGovernementsXXXDefinitiveTax Justice NetworkXXDominantMedia/PressXXDominantLocal communitiesXDiscretionary

Discretionary stakeholders only possess legitimacy as attribute. Their claims are deemed appropriate by the Company since they are coherent with its businesses principles and values.

Employees: A thorough investigation of the employeesview on the Company' tax position wasn稚 carried out. But tax, due to its esoteric nature, is understood is believed to be understood by a minority of key people within the Company. We strongly believe however that employees expect the Company to act as a good corporate citizen, thus by not facing tax liabilities that might affect the security of their job.

Local communities: Local communities have the legitimacy to expect from the Company that it pays its taxes in a responsible fashion, since tax is used to finance government intervention such as social security. The Company' tax policy states that it is in accordance with the Group' Ethical Policy, which states its commitment to legal compliance. However the policy doesn稚 mention how this applies to the Company' approach to tax management.

Moreover the International Power Project business models of the Company lead it to undertake projects, some in developing countries that do not necessarily imply that the Company is obliged to pay corporate income tax in them. An interviewee told us that it was his/her belief that the Company' responsibility ought to be to pay taxes in every country in which it operates, which highlights the fact that the claim of local communities of taken into consideration by some key people within the Company.

Dominant stakeholders are those who possess the attributes of power and legitimacy. They can get either another stakeholder or the Company to adopt a behaviour that it wouldn稚 have adopted otherwise, but their claims are not perceived as being urgent by the Company.

Investors: the Company' shareholders are its legitimate owners, which is why its claims are taken into consideration by the Company. Moreover since the Company is listed, it is inclined to deal with issues that may lead to future claimsby investors in order to avoid a drop of the value of its share. The investors are affected by the Company' tax position as it can affect certainty on future earnings.

Media/press: In the UK more than in any other European country, the media have started taken interest in corporate taxation, which led The Guardian to start investigating on how the constituents of the FTSE 100 manage their tax liabilities. As the information publicised in the media can affect the Company' reputation, hence its business, and the behaviour of other stakeholders, its claims are legitimate and powerful. It is however not urgent, the Company has a very low profile and the fact that it only recently entered the FTSE 100 means that its tax practices haven稚 come yet under the spotlight.

Tax Justice Network is UK' most active NGO lobbying for a fair tax contribution from companies. It lobbies strongly at the UK parliament by submitting ideas, frameworks and guidelines that would allow HMRC to take on more effectively tax avoidance. And urges companies to adopt a responsible stance on tax planning. Its claims can affect other stakeholders as we can see, and are therefore legitimate to the Company.

Definitive stakeholders possess all three attributes. In the case of tax, this means that a definitive stakeholder is by law able to influence the Company' approach to tax planning, the power to enforce such an approach and claims are deemed urgent.

The Board the Company is the final decision maker. The Board of the Company doesn稚 have strong input as such in the design of the tax policy. The broad of tax issues are managed by the Tax Team. As it works on behalf of the Company' shareholders, the Board is expected to manage all the risks that might affect the Company, while achieving excellent financial results, the preoccupation on the top of their agenda [17] .

The tax team of the Company manages the Company' tax position on a daily basis. Their duty is to manage tax risk according to the tax policy (i.e. no surprise approach to tax, lowest sustainable tax rate for shareholders within tax compliance). Their claims are urgent in the eyes of the Board.

HMRC has a direct impact on the Company' tax strategy which it can legally challenge, leading to eventual tax liabilities and changes in the Company' tax policy. The claims made by the revenue authorities are high on the tax risk agenda of the Company. The Company has received very little attention of HMRC as of today. HMRC' claims are to maximise corporate tax receipts while at the same time

Governments' input in tax policies has an impact on the Company' activities. Although governments engage is 奏ax competitionby lowering tax rates to attract businesses, it wishes to maximise at the same time corporate income tax receipts and this is shown by HMRC' and other OECD revenue authorities to tackle tax avoidance, as taxes are a means of financing public services.

The following table sums up and links tax risks and tax issues that the Company is confronted to with how they affect its definitive (blue) and dominant (red) stakeholders:

Importance to which stakeholdersInvestorsInvestors, , HMRCInvestors, HMRCHMRCGovernmentsInternal stakeholder involvedTax team, BoardTax team, Board,Tax teamTax team, (Board)Tax Team, BoardLikelihood of occurrenceLowLowLowHighMediumImpact on CompanyHighHighMediumLow or HighLowRisk…1. Uncertainty of cash flow2.Reputationa issues3. Challenge of tax position4. Inclusion in HMRC's LBS5. Changes in tax law

Case study: How can links between tax and CSR apply to the decision of carrying out Tax Efficient Supply Chain Management initiative? [18] 

During three and a half months [19] , we were given the opportunity to carry out a project for the Company, under the supervision of Europe and Middle East Finance Director and the European Tax Manager. The aim of the project was firstly to investigate and review business complexities within its Continental Europe structure (CoEur), which involved travelling to CoEur subsidiaries. Secondly, suggestions were to be made on the possibilities of rationalising and streamlining those complexities and in doing so adopting a tax perspective. The investigations carried out helped us understand the role of finance and tax within CoEur's activities and whether their implications are understood and managed by the relevant people. A report was submitted and a presentation was made on findings to the Europe and Middle East Finance Director in May 2010.

The results of our projects assessed operational inefficiencies encountered in the subsidiariesmanagement of the fleet. These findings, in addition to the fact that it is believed Company appears to manage its taxes in a suboptimal rate, due to a high effective tax rate, led to the study of a hypothetical possibility of undergoing an initiative that would help rationalise underlying business inefficiencies discussed.

The model that we studied in our exercise is one that is advertised by many tax consulting firms such as the Big Four. It is called Tax Efficient Supply Chain Management and referred more commonly as TESCM. TESCM is a business model that integrates the planning between supply chain and finance which can create opportunities in realigning both business and tax structures.

We won稚 review in this thesis the operational and managerial implications of a TESCM initiative, but how it will be perceived by stakeholders and the impact that it will have on tax issues. Although our project firstly concerned only the six CoEur subsidiaries of the Company, we argued that such an initiative would make sense only if value adding functions of all the European subsidiaries were centralised, therefore including Northern Europe.

In the exercise, Switzerland has been chosen as jurisdiction to implement centralised function deriving from TESCM initiative. We justify this choice because Switzerland is a plausible and realistic location.

4.1 How does a TESCM initiative work?

Concretely, it implies the centralisation of value adding functions present in its European subsidiaries in a jurisdiction that taxes more lightly than other, thus leading to an increase in profitability. For the sake of the exercise we chose to adopt during our project for the Company, we will discuss a centralisation taking place in Switzerland.

Without taking into consideration other advantages of centralising functions in Switzerland, the main tax advantage is its low corporate tax rate for foreign companie, thats is of about 7-8% compared with 28% in the UK % [20] , and in some regions of the country (called cantons), a 10-year tax holiday is granted, i.e. the exemption of corporate income tax.

For the Company, the following key value-adding functions were identified as follow:

Fleet management

Health, Quality and Safety



Sales & Marketing


The figure here below helps the understanding of its functioning. A new principal company would have material ownership of some or part of the fleet, as well as include the aforementioned corporate departments. The new company would provide these services to its European subsidiaries, which would in exchange of these services pay fees. Being entities of a same group, these transactions represent transfer prices that are to follow the arm' length principle of the OECD (i.e. at a price that would be fixed between two unrelated parties in a competitive market).

Source: KPMG, TESCM Hotspot Switzerland, What are the benefits of moving a business to Switzerland, KPMG, 2008, p.5

4.2 Linking tax to CSR

4.2.1 Issues and stakeholder analysis

We have seen in .2. Stakeholder analysisthat a broad range of stakeholders are affected and affect the Company' approach to tax. But how would this change if the Company were to carry out a TESCM initiative?

Important to which stakeholdersInvestorsInvestors, Media/Press, TJN, HMRCInvestors, HMRCHMRCGovernmentsInternal stakeholder involvedTax team, BoardTax team, Board,Tax teamTax team, (Board)Tax Team, BoardLikelihood of occurrenceIncreaseMedium to highIncreaseIncreaseMediumImpact on CompanyHighHighMediumMedium to highLowRisk…1. Uncertainty of cash flow2.Reputationa issues3. Challenge of tax position4. Inclusion in HMRC's LBS5. Changes in tax law

Cash flow uncertainty will increase. The initiative will lead to a fall in effective tax rate, and an improvement of operational performance and a growth in profits. In the short term shareholder value will increase. In the long run however, uncertainty of cash flow will increase as the Company will have attracted attention by its move of value adding function to Switzerland resulting in a reduction of taxable profits for the other European jurisdictions in which the Company operates.

Corporate reputation will also increase and will potentially damage the Company' reputation which will have an impact on its business performance, and therefore shareholder value. The British media and Tax Justice Network consistently attack British Company' leaving to tax establish themselves in low tax jurisdictions, [21] , and it is very likely that the Company will be labelled as ç-Žggressive tax avoidantby both the media and Tax Justice Network. The Company' reputation will also be affected by the British revenue authoritiesdecision to audit in deep the effect of a move to Switzerland on their tax receipts. This is why both the Media/Press and Tax Justice Network will be considered by the Company as definitive stakeholder. Indeed, they will have the urgency attribute since the likelihood of their actions having an impact on the Company' reputation will have increased.

Challenge risk will increase so will the probability of its occurrence. The Company' Local Business model, that was based on tax compliance, won稚 match with the Company' new approach to tax. Whereas previously tax didn稚 define the Company' business model, it would change the Company' approach, as it does not have a commercial presence in Switzerland.

Transfer pricing was used previously nearly exclusively during intra-group transaction of physical assets (20% of CoEur' fleet is swapped between subsidiaries). TESCM will lead to transactions occurring between the new Swiss subsidiaries and the European entities. The Swiss entity will charge fees to all the other subsidiaries for services it provides (fleet management, QHSE, Marketing,...)

Although the exercise here isn稚 to discuss the legality of the move, it will be qualified as avoidance by HMRC and other stakeholders, as it is inconsistent since the Company' will declare profits in a country where it has no operations. This will inevitably have an impact on the Company' reputation, its business performance, and therefore shareholder value.

The Company, if undertaking this hypothetical TESCM initiative, is even more likely to be included in HMRC' LBS. The decision to engage in TESCM will affect the Company' risk ranking which could lead to more frequent tax audits from the revenue authorities, as well to the likelihood that it will review business processes. Potential increase in tax liabilities has also an impact on cash flow certainty, which is of great concern to shareholder. Being included in HMRC can be seen however as an opportunity to engage in an open relation of cooperation with the revenue authorities, creating a platform for discussion to make interests meet.

Actions and framework

We developed a series of action or 礎ehavioursthat that Company can undertake to adopt an approach to the management of its tax liabilities that is deemed å-ªesponsible based on the learnings been made from:

the analysis made on carrying out a literature review to find links tax and CSR (accountability, transparency consistency)

practices studied in the two case studies

the Company' current approach to tax was and how carrying out a TESCM initiative can effect it as well as its stakeholders

Reading the action plan is simple:

Based on the three underlying principles of a responsible approach to tax (accountability, transparency and consistency) we summarised the Company' current approach to tax. Each action will have an outcome that will affect contribute to a responsible approach to the management of tax issues.


By drafting a series of actions, our intention was by no means to emit a judgement on the Company' tax position. Our aim was to show that by taking into account stakeholders involved in the Company' position, this could result in a win-win situation for the Companies and its stakeholders. Indeed, enhanced relationships with revenue authorities will lead to greater trust between parties and more open dialogue.

Even though lower tax liabilities influence positively shareholder value, linking tax to principles of a corporate social behaviour is likely to generate sustainable shareholder value in the long run, as stakeholder' interests will have been taken into account, which in turn leads to the integration of reputational, challenge, cash flow uncertainty issues.

Section IV Conclusions

This final section presents and sums up the learnings gathered from our work on researching links between tax and Corporate Social Responsibility that would enable companies in general, and our internship Company to adopt an approach to tax that goes beyond simple tax compliance. Accordingly, this section is made of:

General conclusions that:

Remind the aims of the thesis and assess their achievement

Remind the principles of a å-ªesponsibleapproach to tax and explain how they can apply to the Company where we carried out our internship.

Further conclusions that provide:

Explanations on the limits of our analysis ideas for future research on the subject

Our views on the links between tax and CSR

General Conclusions

The aims of our thesis were:

to understand and describe the links between CSR and taxation by establishing a series of principles based on literature review

to research and assess tax-related CSR practices based on a series of relevant case studies.

to consider how CSR principles apply to the management of the Company's tax liability by applying them to a concrete tax initiative that we researched during our internship in the Company.

to design a series of approaches or behaviours that consist is in a å-ªesponsibleapproach towards the management of its tax liabilities for the Company.

Due to the recent and late public interest in the topic, it was difficult to find synergies between Corporate Social Responsibility and a company' management of its tax liabilities. Very little literature exists on the theme, which is why we started by studying both topics separately.

Economic indicators provided us with information that helped us grasp the role of tax in the global economy. On the one hand revenue authorities engage in tax competition by lowering their corporate income tax rate which enables Multinational Enterprises (MNEs) to shop across jurisdiction for the lowest tax rate, all other things being equal. On the other hand they take on tax avoidance in order to close the tax collection gap, i.e. the gap existing between what revenues expect to collect and what they really collect.

Tax minimisation techniques, ranging from tax planning to tax evasion enable MNEs to lower their tax burden. Although tax evasion is illegal, tax law has been so far incapable of providing a clear boundary between ç-Žcceptabletax avoidance and 爽nacceptabletax avoidance. We asked ourselves whether such a boundary could be provided by Corporate Social Responsibility.

CSR consists in the contributions of companies to sustainable development by means that exceed simple compliance to the law. Therefore we argue that a company' approach to tax shouldn稚 be a question of legality, but whether its economic contribution to society is å-ªesponsible For instance, it can be deemed legal for a company to allocate parts of its profit to a tax haven and therefore not pay any corporation taxes. However is this approach responsible? How does that affect companiesstakeholders?

Furthermore, companies have traditionally sought to minimise their tax burden in order to maximise shareholder value. In doing so, a cost/benefit based on a risk approach is commonly made. This approach is inconsistent with CSR, as it doesn稚 take into account the broad range of underlying stakeholders who affect or are affected by the companiestax position. CSR depicts a more encompassing and holistic approach by taking into consideration how stakeholders are affected and affect the Company' position. By doing so, companies can broaden their field of responsibility. But how does a company measure its field of responsibility? Mitchell, Agle, and Wood' model allows the prioritisation of stakeholders based on how likely they are to affect the Company. This model can be complemented by listing the risks and issues that affect the Company' tax position.

Three words sum up the principles that can link tax to CSR:

Accountability: how a company is responsive to claims of å-ªesponsibletax paying

Transparency: the communication and reporting of tax matters to stakeholders

Consistency: the absence of contradiction between company' tax position and its commitments

The principles were applied when analysing two companies who recently were rewarded for their outstanding transparency in tax reporting: Vodafone and Anglo American. Due to the small size of our sample of, trends couldn稚 be described. But both companies had excellent approaches, which we took into consideration when designing actions and behaviour that our internship Company could adopt:

Public disclosure of tax policies and tax code of conduct

Recognition of tax as being an element of contribution to society and local communities where the company operate

Declare revenues and pay taxes in countries in which company has commercial transactions

Disclosure of qualitative and quantitative data regarding tax payments its tax issues such as disputes with revenue authorities.

Disclosure of cash tax payments made to governments split geographically and by type of tax paid

Reconciliation of accounting tax charge of income statement and the cash tax actually paid.

By drafting a series of actions, our intention was by no means to emit a judgement on the Company' tax position. Our aim was to show that by taking into account stakeholders involved in the Company' position, this can result in a win-win situation for the Companies and its stakeholders. Indeed, enhanced relationships with revenue authorities will lead to greater trust between parties and more open dialogue.

Even though lower tax liabilities influence positively shareholder value, linking tax to principles of a corporate social behaviour is likely to generate sustainable shareholder value in the long run, as stakeholder' interests will have been taken into account, which in turn leads to the integration of reputational, challenge, cash flow uncertainty issues.

The Company has shown interest in our thesis on several occasions during meetings with senior staff. We hope therefore that our work will be welcomed, as it provides a practical approach on a growing issue that all companies are facing.

Further conclusions

Since tax is only slowly starting to be debated as being a CSR issue, little studies have been made on the subject. The case studies we provide only represent a small sample, and therefore an in-depth research could provide empirical results as to what could motivate companies to add tax to their CSR agenda and what consists in 礎est practices

Moreover, we were told that as of next academic year, ICHEC students following the Mineure Gestion Durable given by Mrs Brigitte Hudlot will work on practical CSR issues in partnership with Belgian companies. This could represent the opportunity for students investigate further on the links between tax and CSR. However with tax being a sensitive topic for companies, it might be difficult to get total openness and cooperation. This is why it is necessary to approach the companies by discussing the benefits of a responsible approach to the management of their tax liabilities.

Further research could be carried out in the following fields:

Study the role the role of tax advisors in companiestax affairsthat we failed to analyse mention in our thesis.

Tax advisors play a role in tax avoidance that we did not mention in this thesis. Many consulting companies provide tax advises to company, some of which are known to be considered as unacceptable tax avoidance schemes. It would be interesting to what extent the schemes they design take into consideration CSR principles, if any, and to what extent they are involved in CSR forums and discuss this issue with stakeholders.

Is it responsible for companies to counterbalance their tax avoidance initiatives by other contributions they make to society?

Can it be deemed responsible for a company to minimise its tax burden when it leads it to opening a subsidiary in a developing country, creating job opportunities and revenue to local communities? How can the tax benefit for the company (or the amount avoided for governments) be measured against the economic contribution that represents employment for people and personal income tax receipts for governments? How can the cost of avoidance be measured compared to other contributions to society, and how can these contributions be quantitatively computed?

We would like to sum up the basic dilemma that underlies a responsible approach to tax by comparing it to another CSR issue. Unlike other CSR issues like global warming, where companies can boast proudly about their reduction of CO2 emissions, it is uneasy for them to communicate with pride their tax strategy and payments in a way that goes beyond legal requirements; the same way it can稚 be expected from them to pay more tax than what is required by the law.

It is our belief that law is so far unable of providing a clear boundary between acceptable tax avoidance and aggressive tax avoidance; in addition to the fact that tax harmonisation is still far from being achieved. Until then CSR represents the opportunity for companies to adopt a responsible approach to the management of their tax liabilities that will be welcomed by a broad range of stakeholders.