Tax and Corporate Citizenship

Stock Exchange report
Posted January 29, 2013

As 2013 begins and public budgets continue to suffer from a long squeeze, it seems set to be a year of mounting pressure on multinational corporations to demonstrate that they pay what politicians and the public describe as their “fair share” of tax. The demand is both for greater transparency in corporate tax affairs and for a “fair” contribution to the societies in which companies operate.

This is not a new issue. As the Financial Times recalled, President Kennedy launched an offensive against “unjustifiable” use of tax havens back in 1961. In the US, Australia and Europe, there is a growing public anger—and political embarrassment—about the use of tax loopholes by multinationals. Aggressive tax avoidance may be legal, but it is increasingly regarded as abusive in a globalised system that many members of the public perceive as rigged in favour of big business.

With continued deep cuts in public spending and calls for tax reform gathering momentum amongst governments, and with “tax and transparency” on the agenda for the G8 this year and a growing group of civil society organizations focused on the issue of tax avoidance, the issue does not seem likely to fade.

Companies that are taking a leadership role on corporate citizenship recognize that their continued success depends on the success of the societies they operate in, underpinned by public investment in infrastructure, education, healthcare and regulation. They also recognize that current tax rules have not kept pace with the realities of globalized enterprise and intangible assets.  

In 2013 corporations can expect more public, political, regulator and media attention to be directed toward their tax-planning practices, as stakeholders seek to assess a company’s actions against its stated values, and measure its contributions against the goal of maintaining healthy, competitive economies.

As corporate citizens, multinational corporations will be expected to move beyond simply stating that their tax arrangements comply with the law. The issue for the public is whether corporations are contributing a fair share. Does their tax planning reflect the economic substance of where value is really created? Or are transactions routed into shell companies and tax havens solely to avoid taxes?

Also rising up the agenda will be discussions on how to reform tax policy and legislation for fairness, transparency and workability. Opening up the debate on corporate taxation is critical for finding solutions, as all agree that the current situation is untenable.

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