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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
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 companyç-´ 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 çˆ½nacceptabletax 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 companyç-´ approach to tax shouldnç¨š 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 doesnç¨š 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 Companyç-´ position. By doing so, companies can broaden their field of responsibility. But how does a company measure its field of responsibility? Mitchell, Agle, and Woodç-´ 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 Companyç-´ 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 companyç-´ 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 couldnç¨š 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 Companyç-´ tax position. Our aim was to show that by taking into account stakeholders involved in the Companyç-´ 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 stakeholderç-´ 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.
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 ç¤Žest 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 canç¨š 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.
Interview consisting in exchange of emails with Mrs Freedman, Judith, Professor of Taxation Law and Director of Legal Research at Oxford University Centre for Business Taxation and Joint Editor of British Tax Review. Emails received on 17/03/2010 and 26/03/2010.
Interview with Mrs Van Grieken, Marie-Cé¦-ile, General Secretary at ICHEC-ESSF and Responsable Mineure Fiscale/Master2, ICHEC Brussels Management School, February 2010 (exact date could not be retrieved)
Interview with European and Middle East Director, The Company, (exact dates could not be retrieved, since interviewee provided information on a regular basis from February 2010 to April 2010)
Interview with European and Middle East Tax Manager, The Company, 09/04/2010
Interview with Continental Europe Finance Manager, The Company ,05/03/2010
Interview with Continental Europe Asset & Service Manager, The Company, 03/03/2010
Interview with Benelux Finance Manager, The Company , 16/02/2010