Is corporate tax morality set to become a CSR cornerstone?

22 September 2021 Consultancy.com.au 3 min. read
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With revenues now well publicised, corporations are under ever greater scrutiny around taxes. International accounting and consulting firm Baker Tilly suggests it’s now a serious corporate social responsibility issue.

The ‘tycoon tax’ recently proposed by the Australian Greens, which would target mining companies and other large organisations with a 40 percent tax on ‘super profits’ to deliver a $338 billion windfall to Australian coffers over ten years, has once again put the spotlight on corporate taxation. Now, international accounting and consulting network Baker Tilly has asked the question of whether company tax should be seen as a moral issue?

The emergence of corporate social responsibility (CSR) as a key business concept in recent years can be readily highlighted by tracing the activities of firms within the consulting realm, both through research reports and in-house actions. PwC for example, recently announced a $12 billion global investment into what it has dubbed its ‘New Equation’ strategy, with a pivot towards ESG consulting and sustainability a key pillar of its evolution.

Is corporate tax morality set to become a CSR cornerstone?

Simply put, corporate entities are now under unprecedented pressure from the public and other stakeholders to act responsibly on issues around environmental sustainability, governance, and employee and social welfare. One area of CSR however which has to date attracted less attention from within the consulting realm is the concept of tax morality.

In a recent post, Baker Tilly – which is around the tenth largest global accounting and consulting network by revenue – has raised the issue, opening with a quote from late Australian business and media tycoon Kerry Packer once delivered to a government corporate tax enquiry; “I’m not evading tax in any way, shape or form. Of course, I am minimising my tax. If anybody in this country doesn’t minimise their tax, they want their heads read.”

This has been an all-too-common refrain from corporates to tax criticism, that they’re not breaking any laws. Yet, while tax minimisation was once considered best practice, those days may be numbered. Baker Tilly suggests that a company accused of being a poor corporate tax citizen now risks serious reputational damage in the community as well as heat from investors, in the same manner that those failing on other ESG matters are currently finding.

Reputational risk

The question is, will that reputational threat be enough to drive change from within, without relying on legislation? Baker Tilly’s global leader for Corporate Tax, Ines Paucksch, says that while companies aren’t just giving away tax to governments, the aggressive tax planning of yore is passing. “Companies still want to limit their tax liability and the tax ratio on their worldwide income is still an important KPI. But they do want to pay it on a fair basis.”

According to figures cited by Baker Tilly, countries worldwide are missing out on $427 billion in tax annually from companies reporting in low-tax jurisdictions. Yet, the issue is framed as a double-edged sword, with neoliberal governments claiming that lower tax rates deliver greater local investments. This approach has seen the average corporate tax rate slip from 40 percent in 1980 to around 24 percent today. Regardless, many governments seem impotent to act.

Androulla Soteri, Director of Tax at Baker Tilly, hints that with growing public expectations and scrutiny, the issue may partially resolve itself. “I’d predict that in future, in terms of tax services, we’re going to have a lot more clients coming in saying to us, we want to have a moral tax policy. These companies want to be fully transparent and don’t ever want to be appearing in the headlines labelled as a company that isn’t paying their fair share of tax.”