Thinking outside the box on corporate tax practice

More research on corporate tax morale.

By Sara Jespersen.

Multinational corporate tax payments – a persistent conundrum.

Corporate tax practice of multinational corporations (MNC) have been the topic of intense debate in the media and among policy makers in recent years. Most recently the news broke that Amazon would pay zero tax on their more than 11 billion profit in 2018. The OECD have coordinated a large project on the topic and involved countries around the world in discussing attempted solutions to the issue of “base erosion and profit shifting” which is the technical term for states finding it challenging to tax the profits of MNCs.

Not only policy makers and media have taken an interest in the topic. NGOs have played a large part in agenda setting and mobilizing citizens’ concern in the topic of MNCs tax payments. Last year an interesting book was published on the topic of “The “new” politics of Tax Justice” edited by Richard Eccleston and Ainsley Elbra.

However, the issue is far from resolved. A few weeks ago, at a seminar here at Copenhagen Business School renowned tax law scholar Rita De la Feria confirmed that when it comes to MNCs and the creation of economic value – we simply do not know where it actually takes place geographically. Which under the current rules and norms for international taxation makes it very difficult to ensure an appropriate taxation of MNCs corporate profit as this is closely linked to economic value creation. At the same time, research tells us that MNCs are increasing responsible for the global profits (see table F3 in the Appendix tables here). This is a challenge for policy makers, but highlights the relevance and importance of tax research.

Still much to gain from rethinking corporate tax as a social and institutional practice

Maybe we can learn something from rethinking the boundaries of the topic? Move it beyond a technical/legal debate about the formulas and boundaries of corporate accounting practices to identify economic value on paper. Lynne Oats already reconceived “tax as a social and institutional practice” building on the work done in the related field of accounting challenging its mere technical nature. Further interesting work in this vein can be mentioned the book “the new fiscal sociology” edited by Isaac William Martin highlighting the importance of context for the tax phenomenon. Much more is to be learned about notably the role of corporate taxation in relation to business in society, the fiscal contract between business and the state, and the institutions and social structures that embed the economic activities of MNCs. For example how the notion of corporate social responsibility relates to corporate tax practice.

A recent integrative review by Whait, Christ, Ortas and Burritt (2018) of the literature on CSR and tax aggressiveness find that little research approach the topic from a historical, theoretical or qualitative approach. Further very little research exist on the MNCs that do not consider themselves particularly “aggressive” in their tax affairs, but rather would perceive themselves as responsible. Fortunately, there appear to be developments in practice that indicate that we also have more material available to engage in this type of research.

Developments in practice

Just in the past year, three interesting developments are worth mentioning that express how corporations, the media and policy makers approach the topic of corporate tax practice from different angles:

In 2018 a grouping of MNCs developed and endorsed the B-team’s “Principles for responsible tax”. The B-team is “is a not-for-profit initiative formed by a global group of business leaders to catalyse a better way of doing business, for the wellbeing of people and the planet”. The founding and endorsing companies count just over ten at the moment, but with a call for further business to join the conversation and sign up to the principles. This appears as an example of multinational corporations expressing their willingness to appear more responsible and linking their tax practices to issue of ensuring stable and sustainable societies.

In Denmark, a survey of Danish top 100 companies’ performance on tax governance published for the second year released this month . Findings show only relatively small progress in the picture overall and more than half score zero points on the rating that this journal has developed for the purpose. The fact that the survey publishes the second year in a row is interesting in itself. It appears as a part of the increasing interest from a variety of stakeholders in the topic of corporate tax governance. It indicates a more mainstream interest in the topic from a corporate governance perspective. Corporate tax is traditionally viewed as a cost to be minimized. However, this survey and the demonstration that there is movement in the practice related to tax governance gives relevance to conceiving corporate tax as a social and institutional practice. Group Tax Directors are experiencing increased interest in their work and area of responsibility and this translates into new practices and ways of communicating corporate tax policy.

On the international front, the OECD public consultation on the topic of tax morale closed this month. What was particularly interesting from the OECD’s presentation of the topic at a conference in January this year is that they find that we know very little about business tax morale. How important it is in what situations. We know more about individuals’ tax morale. For example, that it appears to be higher in countries that tax more. Findings from OECD’s consultation will be interesting to follow. I for one will be looking out for how the OECD, as primarily a forum for policy makers, will make use of this input.

A promising research agenda:

Investigating the emerging relationship between corporate tax practice and CSR holds much potential for learning more about MNCs and their relation to society. It might not solve the conundrum of how to ensure their effective and fair taxation at first sight, but being open to conceiving corporate tax as a social and institutional practice might deliver valuable insights and move us towards a more sustainable relationship between business and society.


About the author

Sara Jespersen is a PhD fellow at Copenhagen Business School. Her research is on the emerging relationship between responsible business conduct and corporate tax planning of multinational enterprises. In a complex governance context there are now signs of corporations’ self-regulation and the emergence of voluntary standards. She is interested in what this means for our understanding of corporations as political actors and the notion of political CSR.

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Photo

Photo by TJ Dragotta on Unsplash.

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