Friday, June 04, 2010

Tax and corporate responsibility: another new paper

Recently we pointed to a brief new paper on tax and corporate responsibility. Now another, more in-depth paper has emerged from Prem Sikka at the University of Essex, entitled Smoke and Mirrors: Corporate Social Responsibility and Tax Avoidance. As it states:

"The payment of democratically agreed taxes represents a litmus test for claims of social responsibility."

This paper contains far too much good stuff to summarise here: but we provide just a few short excerpts.

All creation of wealth requires co-operation of a variety of competing capitals. Shareholders provide finance capital, employees provide human capital and the state on behalf of society provides social capital in the shape of education, healthcare, transport, security, legal system, subsidies and support for corporations, and public goods. Each capital expects to receive the requisite return on its investment. Shareholders receive return in the form of dividends, employees in the form of wages and salaries, and the state collects return on social capital in the form of taxes to enable it to finance a particular kind of social order.

Quite so. And then there is this:

Since some are inclined to endorse tax avoidance with the claims that company directors‘ prime legal responsibility is to promote the success of the company for the benefit of the shareholders and their interests must somehow override the interests of other stakeholders (Henderson, 2001; KPMG, 2007), it is appropriate to scrutinise such claims.

And then the kicker:

"There are no laws which require directors to specifically increase profits by avoiding taxes, or by eroding return on the investment of social capital. . . . Shareholder wealth maximisation is an idealised standard of conduct for
company directors rather than a legal mandate."

Sikka also explores the systemic pressures:

"The talk of ethical conduct does not stymie the systemic pressures to produce ever rising profits and the executive quest for higher financial rewards. Even if one organisation restrains itself, the superior profits of a competitor exert pressure to explore ways of matching or exceeding that. Thus the tendency to increase profits through avoidance of taxes remains embedded within the social system."

There's a long section on KPMG, for example, which contains this line:

"several client presentations were made on chalkboards or erasable whiteboards and written material was retrieved from clients before leaving a meeting."

Read on . . . A report that has now been added to our growing TJN web section on tax and corporate responsibility.


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