Can Corporate Tax Dodgers Be Socially Responsible?

April 7th, 2011 by Phil Mattera

In much the same way that Wisconsin Gov. Scott Walker reinvigorated organized labor, General Electric is reigniting the movement for tax justice. The revelation in a March 25 New York Times front-page story that GE arranged things so that it owes nothing to the Internal Revenue Service on its $5 billion in 2010 U.S. operating profits—in fact, it expects to claim a refund of $3.2 billion—has sparked a firestorm of protest.

GE, of course, is not the only high-profile corporate tax dodger. The new US Uncut campaign is also targeting Bank of America, Verizon and FedEx. Other offenders include Google and Amazon.

What tends to get overlooked in the furor over big business tax avoidance is that the companies involved are usually ones that profess to adhere to the principles of corporate social responsibility.

Take General Electric. Like many other large firms, GE tries hard to present itself as a good corporate “citizen.” It has a website dedicated to the subject, and its board of directors has a Public Responsibilities Committee. GE also publishes an annual Citizenship Report.

In the 44 pages of that report, taxes are mentioned only in passing—and then mainly to cite the total amount GE pays to governments worldwide. It uses a figure of $23 billion, but that is over the course of a decade, whereas the other numbers in the report tend to be annual ones. Nor does GE compare the number to the more than $160 billion it earned in profits during the ten years.

GE goes on at length about its commitment to “Community Building,” stating that “Governments and national institutions are vital to progress. The quality of public institutions is therefore crucial.” Yet when it comes to explaining what it does to support a strong public sector, the company changes the subject. It highlights its charitable contributions, its investments in “human capital” and its involvement in environmental and trade policy issues.

GE, like many other companies, is able to get away with this because issues such as fair taxation and tax compliance are largely absent from the discourse of corporate social responsibility (CSR). Given the lack of a standardized definition of what is and is not socially responsible, corporations can pick and choose. We thus end up with cases such as Wal-Mart, which maintains its Neanderthal labor practices while touting environmental initiatives as evidence of its high level of ethicality.

Selective business ethics is especially problematic when it comes to taxes. Business apologists say that corporations have a duty to their shareholders to minimize tax payments and that there is nothing wrong with using all legal means to do so. But how far does that go? The Times pointed out that GE’s tax department has a staff of 975 dedicated to finding every last trick, and the company spends millions each year lobbying for even more loopholes.

What about Wal-Mart’s use of a device known as a captive real estate investment trust to avoid billions of dollars in state income taxes by essentially paying rent to itself and then deducting the cost? And how about those companies that create paper subsidiaries in offshore tax havens? A 2010 study published in the journal Corporate Governance found that even companies that move their legal headquarters to such havens go on claiming to be socially responsible.

Another obstacle is that the governments that are victimized by business tax dodging often fail to take strong measures, thus reinforcing the idea that it is not a significant offense. In the United States, criminal tax prosecutions of large corporations are few and far between. In a rare instance last December, Deutsche Bank paid $553 million in fines and admitted to criminal wrongdoing for helping U.S. customers make use of fraudulent tax shelters. Deutsche Bank, of course, professes a strong commitment to corporate social responsibility.

One place where CSR-spouting corporate tax dodgers are starting to be challenged is Britain. Over the past few years, human rights groups such as Christian Aid have criticized tax avoidance and evasion by transnational corporate operations in developing countries, arguing that these practices keep those nations stuck in a poverty trap. More recently, the UK Uncut campaign (which inspired US Uncut) has targeted tax dodging in Britain itself by corporations such as the European cellphone giant Vodafone. Cyberactivists hacked into Vodafone’s CSR website to post messages about the firm’s dubious tax practices.

Actions such as these help cut through the corporate obfuscation and make it clear that the failure of a large company to comply with a shared responsibility such as taxes is socially irresponsible.

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