SPOTLIGHT: TAX AND DEVELOPMENT
Corporate responsibility and paying taxTTHHnas Scheiwltler •••- ' Susan Symons ' nrewatertiouseCoopers*
Children in a crèche near Landau
colliery in South Africa, Anglo
American mining group says two
thirds of its tax payments are made
in developing countries.
Some major businesses are starting to
view taxation as a mainstream [>art of
their corporate social responsibilities.
Others should follow their example.
ii'we look back 20 years or so, we can seehow aspects of corporate responsibilityhave developed and become embeddedin the mainstream. Health and safety is agood example. Today, workers' heaith andsafety is a core and well-regulated aspectof good business management, with clearbenefits in employee welfare and reductionof working days lost. But this was not alwaysthe case. Twenty years or so ago, health
and safety was only just beginning to beconsidered as a core business responsibility,following some high profile industrialaccidents, with campaigning groupsarguing that tougher regulation and betterbusiness practices were required.
Today we see that paying tax is alreadybeing looked at as an element of corporateresponsibility, so it is interesting to ask thequestion: how might this develop in thefuture? The recession and the financialcrisis have deepened the lack of publictrust in business and led to much widerpublic interest in what tax companiespay. Campaigning groups are active, with
numerous reports from non-govemmentand non-profit organisations in the past yearor two calling for more transparency andregulation over companies' tax affairs. Andsome corporations are taking leadershippositions and treating tax as an element oftheir approach to corporate responsibility.
There is no universally agreed definition of"corporate responsibility". For the leadingcompanies in the area, we suggest it issimply about how their business adds value.now and in the fixture, for shareholders,but also for other stakeholders, includingemployees, customers, government and thewider community. Johnson and Johnson,
OECD Observer No 276-277 December 2009-|anuary 2010 27
the US-based wortdvnde consumerhealthcare group, state this clearly in "OurCredo", a set of operating principles thatthey have followed for over 60 years. Inthe Credo, they put their responsibilityto shareholders after that to customers,employees and communities, believing thatif they follow these principles, tbe businesswill survive and shareholders will receive afair long-term retum.
Paying tax into public finances is clearlypart of how business contributes to society.Looked at simply, companies affect thecommunity in three dimensions-social,environmental and economic. Paying tax isdearly part ofthe economic dimension, andhow companies contribute to the creationof prosperity and to stability. Taxes provideessential public revenues for governmentsto meet economic and social objectives.Other aspects ofthe economic dimensioninclude creating jobs and employment, andgenerating business for suppliers.
However, we would argue that taxes inthis context involve much more than justthe corporate income tax on companies'profits: they also include all the other taxescorporations pay. such as employer taxesand property taxes, and those they generateand administer through their economicactivity, such as VAT, and employeetaxes deducted through the payroll. Ourwork, using our Total Tax ContributionFramework, has shown that on averagein the UK, companies bear nine differenttaxes, and collect four others; and thatcorporate income tax is less than half (47%)of their tax cost. In Switzerland, the averagefigures are 18 taxes bome and 10 taxescollected; corporate income tax is 30,2% oftaxes bome (see references).
What campaigners wantSome ofthe groups campaigning on taxwould like to see a change in reportingstandards to require multinationalcompanies to report their tax affairs inmuch more detail in their audited accounts,essentially a profit and loss account, assetsand tax charge for every country where
they operate, known as country-by-countryreporting. The campaigners want thisbecause they believe it would give greatertransparency to tax avoidance and allegedprofit shifting by multinationals, particularlyout of deveioping countries.
These proposals would clearly involvea great deal of cost and effort for manycompanies, which business may beconcemed about. Also it is not clear whatthe benefit would be for users of financialstatements through such detailed reporting,or whether tbe proposals would achievetheir aim of increasing tax revenues indeveloping countries. Nevertheless, suchproposals dearly reflect a lack of public trustin corporate behaviour and show that tax isa complex area, and difficult for the non-taxexpert to understand.
Greater transparency has been a themeof many previous corporate responsibilitycampaigns. The extractive industrieshave been at the forefront ofthe country-by-country reporting campaign. Miningcompanies often operate in resource-richdeveloping countries, and there is naturallymuch interest in their tax and otherpayments to government, as part of theirlicence to operate and the price for naturalresources.
It is therefore interesting to see how somemining companies have already taken onthe challenge of greater transparency on tax.In their Report to Society. Anglo American,the UK-based global mining company,discuss their payments with government(including tax) alongside other aspectsof their corporate responsibility. AngloAmerican report their total tax contributionby country as part of their economicvalue added, or the economic dimension,induding all the different taxes that they payand collect, such as corporate income tax,royalties, employer's sodal contributions,and employee taxes deducted through thepayroll. They explain how all these taxes aregenerated across the life-cycle of a miningproject, and show that two thirds of their taxpayments are made in developing countries.
This type of reporting is quite different fromthe country-by-country proposal, whichfocuses solely on corporate income tax andthe tax charge in the financial statements.Arguably, it better reflects how taxes are partofthe economic benefits that companiesbring to sodety.
We believe that paying tax has alreadystarted to develop as a corporateresponsibility issue. We suggest that largecompanies, if they have not already doneso, should start to think about where taxfits into their approach and strategy oncorporate responsibility. Not all companieswill want to be a leader in this area, but notto have a position could well be a risk.
We also suggest that more companiesneed to take up the challenge of greatertax transparency and how better tocommunicate their tax affairs. Whilethere could be risk in providing moreinformation, there may also be value incorporate reputation.
'Thomas Scheiwiller and Susan Symons arePricewaterhouseCoopers partners based in Zurich andLondon respectively. They have spent over 20 yearsadvising clients and have combined their expertise toconsider corporate responsibility (Thomas) and payingtax (Susan).
An^o American (2008), Report to Society, seewww.angioamerican.co.uk
Johnson and Johnson (1943), Our Credo, seewww.jnj.com
Pricevt/aterhouseCoopers AG [2009), Tolol TaxContnbutior) Study: How much do major companiespay m Switzerland?
PricewaterhouseCoopers LLP (2008), Total TaxContribution Study for The Hundred Group ofFinance Directors.
The Task Face on Financial Integrtt/ and EcOfxxnicDeveiopment (2009), Country-by-Country Reporting:Holding multinational companies to accountwherever they are. available atwww.finanüattaskforce.org
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