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The Ethical Imperative of Curbing Corporate Tax Avoidance

Published online by Cambridge University Press:  23 December 2013

David Scheffer
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Extract

If the future of human rights is dependent on the capacity of the state to fulfill them, then one must focus on how the private sector interfaces with public values—an interface that directly affects how billions of people survive both economically and with dignity. During the last few years reports about multinational corporations shielding phenomenal profits from meaningful taxation have troubled governments and individual taxpayers alike. But there has been little effort to associate such tax avoidance schemes with corporate abdication of responsibility for advancing critical societal goals. Instead, much of the ensuing debate has centered on how to tax corporate profits fairly and more efficiently. While the ideas being marketed in this area are enlightening, there has been less discussion about why corporate taxation is a worthy public goal or what corporations should do voluntarily. The linkage between corporate tax avoidance and “corporate social responsibility” (CSR) has not yet been clearly drawn, but the moment has arrived to bridge the gap. That task may necessitate changing, fundamentally, the ethical framework within which corporate officers, boards of directors, shareholders, tax advisers, and stakeholders in general operate.

Type
Essay
Information
Ethics & International Affairs , Volume 27 , Issue 4 , Winter 2013 , pp. 361 - 369
Copyright
Copyright © Carnegie Council for Ethics in International Affairs 2013 

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References

NOTES

1 See “Tax paid by some global firms in UK ‘an insult,’” BBC News, December 3, 2012, www.bbc.co.uk/news/business-20559791; “Apple ‘among largest tax avoiders in US’—Senate committee,” BBC News, May 21, 2013, www.bbc.co.uk/news/business-22600984; David Kocieniewski, “Tax Benefits From Options as Windfall for Businesses,” New York Times, December 29, 2011, www.nytimes.com/2011/12/30/business/tax-breaks-from-options-a-windfall-for-businesses.html?pagewanted=all; “UK watchdog blames Google for blatant tax evasion,” Business Standard, June 13, 2013, www.business-standard.com/article/news-ani/uk-watchdog-blames-google-for-blatant-tax-evasion-113061300657_1.html.

2 See, e.g., Carroll, Archie B., “A Three-Dimensional Conceptual Model of Corporate Performance,” Academy of Management Review 4, no. 4 (October 1979)Google Scholar, p. 500 (“The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.”).

3 OECD, Addressing Base Erosion and Profit Shifting (OECD Publishing, 2013), dx.doi.org/10.1787/9789264192744-en.

4 OECD, “Declaration on Base Erosion and Profit Sharing, Adopted on 29 May 2013,” pp. 2–3, www.oecd.org/mcm/C-MIN%282013%2922-FINAL-ENG.pdf (“RECOGNISING that beyond the existing problem of tax compliance, governments lose substantial corporate tax revenue because of international tax planning that has the effect of artificially shifting profits to locations where they are subject to a more favourable tax treatment; . . . ENCOURAGE efforts to develop proposals [as identified in the OECD report on Addressing Base Erosion and Profit Shifting] on possible: . . . more effective anti-avoidance measures. . . . Anti-avoidance measures can be included in domestic laws or included in international instruments. Examples of these measures include General Anti-Avoidance Rules, Controlled Foreign Companies rules, Limitation of benefits rules and other anti-treaty abuse provisions.”).

5 The White House Office of the Press Secretary, “G-8 Leaders Communique,” news release, June 18, 2013, www.whitehouse.gov/the-press-office/2013/06/18/g-8-leaders-communique.

6 OECD, Action Plan on Base Erosion and Profit Shifting (OECD Publishing, 2013), dx.doi.org/10.1787/9789264202719-en.

7 Theophilos Argitis and Scott Rose, “G-20 Nations ‘Fully Endorse’ OECD Action Plan on Tax Evasion,” Bloomberg.com, July 20, 2013, www.bloomberg.com/news/2013-07-20/g-20-nations-fully-endorse-oecd-action-plan-on-tax-evasion-1-.html; Andrew E. Kramer and Floyd Norris, “G-20 Backs Plan to Curb Tax Avoidance by Large Corporations,” New York Times, July 19, 2013, www.nytimes.com/2013/07/20/business/global/g-20-nations-back-plan-to-curb-corporate-tax-evasion.html?hp.

8 G20 Leaders' Declaration, Saint Petersburg Summit, 5–6 September 2013, www.g20.org/news/20130906/782776427.html; see also Tax Annex to the St. Petersburg G20 Leaders' Declaration, September 2013 (ibid.), where the Action Plan is described, and at www.voltairenet.org/article180115.

9 Milton Friedman, “The Social Responsibility of Business is to Increase its Profits,” New York Times Magazine, September 13, 1970.

10 Jane G. Gravelle and Thomas L. Hungerford, “Corporate Tax Reform: Issues for Congress” (Congressional Research Service, December 16, 2011), p. 3, www.cfr.org/united-states/congressional-research-service-corporate-tax-reform-issues-congress/p26926 (“Despite concerns expressed about the size of the corporate tax rate, current corporate taxes are extremely low by historical standards, whether measured as a share of output or based on the effective tax rate on income.”).

11 “Starbucks ‘paid just £8.6m UK tax in 14 years,’” BBC News, October 16, 2012, www.bbc.co.uk/news/business-19967397?print=true.

12 “Apple, leverage and tax avoidance,” Financial Times, May 2, 2013, www.ft.com/cms/s/0/b5d2bd7e-b326-11e2-95b3-00144feabdc0.html; see also Nelson D. Schwartz and Charles Duhigg, “Apple's Web of Tax Shelters Saved It Billions, Panel Finds,” New York Times, May, 20 2013, p. A1 (“Overall, Apple's tax avoidance efforts shifted at least $74 billion from the reach of the Internal Revenue Service between 2009 and 2012. . . . [U.S. Senator] John McCain of Arizona . . . said: ‘Apple claims to be the largest U.S. corporate taxpayer, but by sheer size and scale, it is also among America's largest tax avoiders.’”).

13 See Sikka, Prem, “Smoke and mirrors: corporate social responsibility and tax avoidance,” in Hanes, Kathryn, Murray, Alan and Dillard, Jesse, eds., Corporate Social Responsibility: A Research Handbook (New York: Routledge, 2013), pp. 54–55 Google Scholar; Steven Rattner, “The Corporate Tax Dodge,” New York Times, May 23, 2013, p. A45, opinionator.blogs.nytimes.com/2013/05/23/the-corporate-tax-dodge/ (“A study by the Congressional Research Service found that subsidiaries of United States corporations operating in the top five tax havens (the Netherlands, Ireland, Bermuda, Switzerland and Luxembourg) generated 43 percent of their foreign profits in those countries in 2008, but had only 4 percent of their foreign employees and 7 percent of their foreign investment located there. . . . As a consequence, the effective corporate tax rate in the United States fell to 17.8 percent in 2012 from 42.5 percent in 1960, according to the Federal Reserve Bank of St. Louis. . . . That's just not fair at a time of soaring corporate profits and stagnant family incomes.”); Vanessa Houlder, “Figures shed light on tax avoidance haul,” Financial Times, April 28, 2013 (“Much recent attention has focused on tax havens and individual companies such as Google, which has faced public outrage in countries where it has paid little tax despite doing billions of euros of business. But the global debate is beginning to focus on developed countries such as the Netherlands and Ireland, which have sucked up corporate investment by helping—entirely legally—companies avoid hefty tax bills at home.”).

14 United Nations Global Compact, “The Ten Principles,” last modified April 22, 2013, www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html.

15 UN Human Rights Office of the High Commissioner, Guiding Principles on Business and Human Rights: Implementing the United Nations ‘Protect, Respect and Remedy’ Framework (New York: UN Publications, 2011), www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf. Contents of the publication were developed by the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie, and annexed to his final report to the Human Rights Council (A/HRC/17/31).

16 UN Human Rights Office of the High Commissioner, Guiding Principles on Business and Human Rights, pp. 18–19 (Principle 19).

17 United Nations Human Rights Council, “Promotion of Protection of all Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development,” Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie (A/HRC/8/5), April 7, 2008, para. 55 at p. 17, daccess-dds-ny.un.org/doc/UNDOC/GEN/G08/128/61/PDF/G0812861.pdf?OpenElement.

18 See Scheffer, David and Kaeb, Caroline, “The Five Levels of CSR Compliance: The Resiliency of Corporate Liability under the Alien Tort Statute and the Case for a Counterattack Strategy in Compliance Theory,” Berkeley Journal of International Law 29, no. 1 (2011), pp. 334Google Scholar, 336–337.

19 Sikka, “Smoke and mirrors,” p. 55. For a comprehensive discussion of organized hypocrisy, see pp. 53–84 (ibid.).

20 Scheffer and Kaeb, “The Five Levels of CSR Compliance”; see also David Scheffer, “BP shows the need for a rethink of regulation,” Financial Times, May 28, 2010, p. 11.

21 See, e.g., Porter, Michael E. and Kramer, Mark R., “Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility,” Harvard Business Review (December 2006), pp. 78–93 Google ScholarPubMed.

22 Rhys Jenkins and Peter Newell, “CSR, Tax and Development,” Third World Quarterly 34, no. 3 (2013).

23 See also Donaldson, Thomas and Dunfee, Thomas W., Ties That Bind: A Social Contracts Approach to Business Ethics (President and Fellows of Harvard College, 1999)Google Scholar.

24 Jenkins and Newell, “CSR, Tax and Development,” p. 387.

25 Ibid., p. 388.

26 See U.S. Senate Committee on Homeland Security and Governmental Affairs, “Subcommittee to Examine Offshore Profit Shifting and Tax Avoidance by Apple Inc.,” news release, May 20, 2013, www.hsgac.senate.gov/subcommittees/investigations/media/subcommittee-to-examine-offshore-profit-shifting-and-tax-avoidance-by-apple-inc; “Tax Avoidance: A General Anti-Abuse Rule – Commons Standard Library Note,” June 20, 2013, Standard notes SN06265, www.parliament.uk/briefing-papers/SN06265; Fiona Fernie, “George Osborne's new plans to tackle tax avoidance,” BBC News, March 27, 2012, www.bbc.co.uk/news/business-17525977.

27 See David Kocieniewski, “G.E.'s Strategies Let It Avoid Taxes Altogether,” New York Times, March, 24, 2011, www.nytimes.com/2011/03/25/business/economy/25tax.html?pagewanted=all; Jason J. Fichtner and Jacob M. Feldman, “The Hidden Costs of Tax Compliance,” (Arlington, Va., Mercatus Center at George Mason University, 2013), pp. 12–14, mercatus.org/sites/default/files/Fichtner_TaxCompliance_v3.pdf.