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Corporate Social Responsibility and Tax Issues

In this world nothing can be said to be certain, except death and taxes – Benjamin Franklin, 1789

Tax revenues are the lifeblood of the social agreement, and paying taxes is one of the most important ways in which corporations connect with society. Friedman (1973) stated that “The Corporate Social Responsibility of business is to increase its profits”. Even though most conceptualizations of CSR have abandoned Friedman’s position on the matter, the first and most clear cause of this missing link between tax and CSR is that taxation has a direct impact on profits. Conventionally tax payments have been seen as transfers from shareholders to the state. Thus, organizations have been unwilling to incorporate taxation as a CSR issue due to the possible tension with their shareholders.

CSR is measured as a window-dressing rather than substance. The fact that taxation lack the sensationalist appeal of other CSR issues such as environmental and human rights abuses may also clarify why so little attention has been placed on tax avoidance. A third set of motives is related to the political nature of CSR, and the legitimacy of this type of transnational private governance. Through their CSR policies, businesses determine what counts as a legitimate expectation of business and what doesn’t. According to this view, it is in the best interest of the TNCs that shape the CSR discourse to keep taxation outside the debate.

Corporate Social Responsibility and Tax Issues – Tax is becoming a major issue in corporate responsibility that presents fundamental risks to multinationals. The traditional defense of compliance is dead; the distinction between evasion (illegal) and avoidance (lawful) has dissolved in the eyes of governments, NGOs and citizens. Politicians, campaign groups and the media have seized on tax as a topical issue in tough economic times.

Tax is now a material issue for responsible businesses and we believe that scrutiny of multinationals’ tax decisions is likely to increase. There is always going to be a debate over the nature and structure of tax; its systems of collection; and the optimal level of taxation in societies. However, a variety of initiatives have been developed to incorporate tax as an element of CSR.

By Udyog Software Marketing Team

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