Business leaders raise the bar on corporate tax behavior

Benjamin Franklin’s famous line that nothing is certain, except death and taxes, no longer holds true. Exposé after exposé have proved that it is all too easy for wealthy individuals and powerful corporations to sidestep their tax obligations. The practice has become so widespread that tax dodging is considered standard business practice by many corporate bosses.

This may now be set to change. The B Team, a coalition of forward-looking business leaders including Sir Richard Branson, founder of the Virgin Group, and Ratan Tata, Chairman Emeritus of the Tata Group, have announced a new set of principles and commitments on corporate tax. Despite some notable weaknesses, this initiative raises the bar on what constitutes responsible corporate tax behavior.  

The principles require signatory companies, which currently include Allianz, Unilever and Vodafone Group Plc, to make real changes.  For example, companies commit to publish and report on their tax strategy; not abuse tax havens; provide an explanation for any subsidiaries located in low-tax jurisdictions; and to be transparent about all the entities they own around the world.

These commitments go well beyond what is legally required of companies.  They set a new standard for companies that claim to operate responsibly — claims that ring hollow if businesses do not pay their fair share of tax.

But the principles do fall short in important ways. Notably, by leaving the pace of implementation up to the companies themselves, and by failing to require that companies publish a full financial report for every country where they do business – an important safeguard against tax dodging.

Instead, the B Team principles require companies to provide ‘information on the taxes paid at a country level, together with information on economic activity.’ If this requirement is to be meaningful, ‘economic activity’ must include country level information on revenue, profits before tax, total corporate income taxes paid, along with a breakdown of other tax payments, assets and number of employees. This should also be accompanied by information which will enable the public to gauge whether companies are paying their fair share of tax in every country where they operate.  This could include, for example, an explanation of why a company’s effective tax rate differs from a country’s statutory rate.

The B Team has an impressive history of marshaling forward-looking business leaders to weigh in on important and challenging social issues, such as demonstrating support for the Paris climate accords.  Producing the principles on tax was not easy.  The B Team convened a group of business and civil society leaders, including contributions from Oxfam, to work through contentious issues.   It’s unlikely that anyone emerged from these conversations fully satisfied, but the discussion delivered real progress.

For years Oxfam has railed against a broken international tax system that allows huge companies to dodge hundreds of billions of dollars in tax, depriving governments the world over of the money they need to invest in schools, roads, and hospitals to ensure the health and well-being of their citizens and services upon which business also rely.  

This is a problem that must be fixed by governments – and it is hoped that the first global conference of the Platform for Collaboration on Tax, taking place in New York next week, could mark the start of a new global initiative to do just that.  But business leaders have a critically important role to play by spearheading a better way of doing business as well as championing broader reforms.  

Oxfam, together with ActionAid and Christian Aid, published a report called ‘Getting to Good’ that lays out the pathway for responsible corporate behavior on tax. The B Team incorporated many of the elements from ‘Getting to Good’ in their principles.  Importantly, the B-Team principles are also aligned with the Sustainable Development Goals, which call on companies to examine how core business issues, such as wage levels and tax practices, support or undermine the fight against poverty.  Far too often companies treat both wages and taxes as costs to be reduced rather than investments in the communities in which they operate.

Companies choose whether to take the high road or the low road on tax. Corporations choose how much money to park in offshore tax havens, they choose how secretive to be about their financial structures, they choose how aggressively to minimize the taxes they pay, and they choose, when they meet behind closed doors with politicians, whether to advocate for tax loopholes to line their own pockets, or push for a more level playing field for everyone.

Too often companies make the wrong choices.  Offshore tax havens are flush with corporate cash, companies hide their tax activities in opaque and esoteric legal structures, and politicians are only too happy to accept corporate campaign contributions while expanding opportunities for tax dodging.  

The new set of principles announced by the B Team could help break this cycle.  Companies have a clear option to do right on tax. All companies should meet the basic commitments articulated by the B Team and truly forward-looking companies should do even more.  They should issue full public reporting of their tax payments and economic activity on a country-by-country basis, align their tax payments and structures to the actual economic value created by their business, and commit to an aggressive timeline to implement responsible corporate tax behavior.  

The B Team has called on civil society organizations to ensure that company signatories follow through on their commitments. Oxfam plans to heed that call. The fight for tax justice will continue in 2018 and beyond, with an important new ally in the B Team.

This entry posted by Winnie Byanyima (@Winnie_Byanyima), Executive Director of Oxfam International, on 8 February 2018.

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