With revenues now well publicized, companies are increasingly scrutinized when it comes to taxes. International accounting and consulting firm Baker Tilly suggests that this is now a serious corporate social responsibility issue.
The Australian Greens’ recently proposed “tycoat tax”, which would target mining companies and other large organizations with a 40% tax on “super profits” to provide a windfall of $ 338 billion to Australian coffers over ten years, once again put the spotlight on. on corporate taxation. Now the international network of accounting and consulting Baker Tilly has posed the question of whether corporate tax should be viewed as a moral issue?
The emergence of corporate social responsibility (CSR) as a key business concept in recent years can be easily highlighted by tracing the activities of companies in the field of consulting, both through research reports and internal actions. PwC, for example, recently announced a $ 12 billion in global investment in what it has dubbed its “New Equation” strategy, with a pivot towards ESG advice and sustainability, a key pillar in its evolution.
Simply put, companies are now under unprecedented pressure from the public and other stakeholders to act responsibly on issues of environmental sustainability, governance and social welfare and employees. However, one area of CSR that has garnered less attention to date in the consulting arena is the concept of tax morality.
In a recent article, Baker Tilly – which is roughly the tenth largest global accounting and consulting network in terms of revenue – raised the question, starting with a quote from Australian business and media mogul Kerry Packer, once surrendered to a government corporate tax investigation; “I am not exempt from tax in any way. Of course, I minimize my taxes. If somebody in this country doesn’t minimize their tax, they want their head read.
It has been all too common a refrain from corporations to tax critics that they don’t break any laws. Yet while lowering taxes was once considered the best practice, those days may be numbered. Baker Tilly suggests that a company accused of being a bad corporate tax citizen now risks seriously damaging its reputation in the community as well as the warmth of investors, in the same way that those who fail on other ESG issues are currently observing this.
The question is whether this reputational threat will be enough to bring about change from within, without relying on legislation? Baker Tilly global corporate tax leader Ines Paucksch says that if businesses aren’t just paying taxes to governments, the aggressive tax planning of the past is on the way out. “Companies always want to limit their tax liability and the tax-to-global income ratio remains an important KPI. But they want to pay it off on a fair basis.
According to figures cited by Baker Tilly, countries around the world lose $ 427 billion in taxes per year from businesses filing in low-tax jurisdictions. Yet the problem is presented as a double-edged sword, with neoliberal governments claiming that lower tax rates generate greater local investment. This approach has seen the average corporate tax rate drop from 40% in 1980 to around 24% today. Either way, many governments seem helpless to act.
Androulla Soteri, Director of Taxes at Baker Tilly, suggests that with growing public expectations and scrutiny, part of the problem may be resolved. “I predict that in the future, in terms of tax services, we are going to have a lot more clients who will come and tell us, we want to have a moral tax policy. These companies want to be completely transparent and never want to appear in the headlines labeled as a company that does not pay its fair share of tax.