Corporate tax and the common good

During the course of today's session at the French National Assembly, discussion turned to tax and corporate responsibility. Action Aid's Martin Hearson argued that company directors are conflicted between what they see as their duty to maximise shareholder value by avoiding tax and their commitment to corporate responsibility. TJN's John Christensen pointed out that much confusion arises from the mistaken belief that minimising tax payments contributes to "efficiency" (a tricky term at the best of time).

According to John, the confusion arises from the treatment of tax as a production cost (which it patently ain't) rather than as a distribution to stakeholders, which is how its shown on the profit and loss account. John therefore suggested that company laws should be adapted to require directors to maximise all distributions, not only dividend payments but also tax payments to societies that provide the capital (human, social and infrastructural) that are vital to real wealth creation.

Coincidentally today's Guardian carries a short article about an interesting idea from Hector Sants, chief executive of the UK's Financial Services Authority who wants to amend Britain's Company Act to give company directors an explicit obligation to contribute to the common good. An excellent idea: and contributing tax revenues is the correct form for making such a contribution. While TJN has no position on whether corporate donations to local projects are a good or bad thing, we do not see them as substitutes for paying tax at the correct rate, at the correct time, and in the place where the true liability arises.