One of the most interesting debates going on now in the CSR universe is about fair tax payments. So far it has been mainly focused in the UK, where it was revealed that companies like Starbucks, Google and Amazon pay little or no tax on their earnings, but it echoes all around the globe with a growing number of stakeholders looking to hold companies accountable for their tax (avoidance) strategies.
Last week, my colleague Harry Stevens made the case why companies like Google or Starbucks shouldn’t be blamed for minimizing their tax bill. Today, I’d like to make the case for why they should. Actually, this is not so much about Google or Starbucks as it is about the inclusion of tax fairness in the CSR agenda, or in other words, why you can’t call yourself a responsible company and minimize your tax bill to the lowest possible amount at the same time.
I’ll try to answer this question by looking at four of the main arguments used by those who believe legal tax avoidance and CSR have nothing to do with each other.
Schmidt is right that this is capitalism, but just like there are different search engines or browsers, there are also different types of capitalism. I believe Schmidt can see the differences between capitalism that is guided by short-termism and led to the 2008 financial meltdown, and sustainable capitalism that abandons “the pernicious orthodoxy of short-termism” and seeks to maximize long-term economic value.
Bottom line: There is no contradiction between paying a fair share of taxes and being a capitalist – it is just about the type of capitalist you want to be.
Apparently these techniques are indeed legal, but here are couple of other things that are legal, such as: cutting down trees in rainforests, sourcing blood minerals from Congo, working with suppliers in China that release hazardous materials into rivers or with factories in Bangladesh that put their employees in jeopardy, or not paying for externalities. Yet, we have expectations from companies that call themselves responsible to do more than just comply with the law in these cases – after all, it is widely assumed that CSR begins where the law ends. So why should tax payments be any different?
Bottom line: While tax systems should be revised, legality is no excuse for not doing the right thing, no matter if you’re talking about natural resources, working conditions or tax payments.
Now, Friedman (followed by others like Prof. Aneel Karnani) made this claim with regards to corporate social responsibility (CSR) activities in general, not paying more taxes. It only shows that basically there is no difference between CSR activities and tax payments when it comes to fiduciary duty and you can’t separate between the two – if one is acceptable then so is the other and vice versa.
Bottom line: Tax fairness is no different than other CSR issues when it comes to fiduciary duty, and hence there’s a good chance that the courts won’t interfere in the case of paying more taxes than required by the law as long as there’s a potential benefit to shareholders.
I’m not familiar with any research about the business case for paying more taxes, but looking at what happened with Starbucks, for example, you can clearly see the risks of inaction – losing customers, jeopardizing relationships with important stakeholders, hurting the brand, and so on. These risks can eventually translate to shrinking sales and shareholder value. The other side of the coin is the creation of shareholder value in companies that will take action to pay their fair share of taxes.
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons the New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.
Raz Godelnik is an Assistant Professor and the Co-Director of the MS in Strategic Design & Management program at Parsons School of Design in New York. Currently, his research projects focus on the impact of the sharing economy on traditional business, the sharing economy and cities’ resilience, the future of design thinking, and the integration of sustainability into Millennials’ lifestyles. Raz is the co-founder of two green startups – Hemper Jeans and Eco-Libris and holds an MBA from Tel Aviv University.