Can a 'green' company engage in tax avoidance?

The Bono paradigm means Google and Starbucks tax affairs only serve to tarnish their sustainability credentials

03 Jan 2013, 15:22

You will all have your own personal tipping point at which Bono went from being a global rock star and admirable campaigner to self-righteous parody of himself. But for me it was when U2 moved their business interests to the Netherlands to reduce their tax bill. That or the time he reportedly had a hat flown first class to Italy so he could wear it at a charity concert.

Now, I know all the arguments about it being up to governments to close tax loopholes, about the importance of competitive business tax rates, and about businesses having a duty to maximise profits using any legal means available (and if I didn't the last few months would have provided a pretty good primer). But as soon as Bono set himself up as a campaigner against poverty and for social justice he also had a duty to avoid tax avoidance, regardless of its legality. You simply cannot lecture governments on the need to better support international development measures and then take active steps to reduce your contribution to some of those self-same governments. To do anything else is nothing short of hypocrisy.

All of which, in a roundabout way, brings us to two of the breakout stars of that long-running drama, Tax Avoidance: 2012 – Google and Starbucks.

These companies have taken admirable steps to enhance their sustainability credentials and position themselves as broadly progressive, environmentally and socially responsible businesses. The other tax avoider par excellance, Amazon, is a different kettle of fish entirely, having one of the most widely criticised approaches to environmental issues and corporate social responsibility (CSR) of any major multinational. But Google is one of the world's leading investors in clean tech R&D and renewable energy deployment, and even boasts the unofficial motto 'don't be evil' for good measure. Starbucks has a more patchy sustainability record, having attracted protests in the past over the impact of its supply chain on communities and habitats, but in recent years it has embarked on a widely praised sustainability programme and has made significant strides cutting water use and sourcing ethically certified coffee.

And yet, despite these admirable characteristics, both companies have also used complex accounting techniques to drastically minimise their tax bill in the UK. These techniques are, of course, entirely legal, but given that good CSR is all about going above and beyond simple legal compliance it is hard to see how this avoidance is compatible with their erstwhile position as green and ethical business pioneers.

The arguments against tax avoidance have become well-versed in recent months, but that has not made them any less compelling. Businesses operate as part of a society and as such have an obligation to make a financial contribution towards that society to help fund the transport infrastructure, educated staff and customers, and security measures they rely on. The provision of jobs and the payment of related taxes do not meet this obligation on their own, as both the company and the society benefit from the jobs created. If a company wants to play a full and fair role in a society it has to pay its share of corporation taxes too. It can argue that they are too high, or too complicated, and it can object to how the taxes are spent – but it has to pay them.

This is not, as some critics might argue, a left wing position, the tax rates and spending priorities within the society are in many ways an irrelevance. It is simply self-evidently the case that any business wanting to make money within a society has to play by the spirit as well as the letter of that society's financial rules. To do otherwise is unfair to both the society you are seeking to operate in and the other businesses operating within the society, as some brave business leaders with impeccable corporate tax records have finally started to point out.

Ultimately, it is the successive governments that failed to tackle blatant tax loopholes that must take the bulk of the blame for the current situation, but it is also true that the most egregious perpetrators of aggressive tax avoidance deserve the public condemnation that is coming their way.

Moreover, it is now painfully apparent that those companies, such as Google and Starbucks, that have taken steps to build a reputation for ethical and sustainable behaviour will face the fiercest criticism when they are shown to have exploited tax loopholes. Call it the Bono paradigm.

Just as Bono's campaigning makes U2's tax avoidance appear more distasteful than that engaged in by other bands, 'green' companies that minimise their taxes will reap a reputational backlash when it emerges that they are not making a full contribution to the government-backed policies and programmes that are critical to addressing environmental threats.

It feels strange that it even needs saying, but any company that wants to be seen as an 'ethical' and 'sustainable' pioneer cannot engage in aggressive tax avoidance and expect to still be regarded as such. At the very least, CSR and sustainability professionals need to be aware of the reputational risks their company is running if it engages in such activity, and acknowledge the potential for their good work to be badly undermined if the media spotlight turns to their organisation. At best, they should ask if they really want to be regarded as the Bono of the corporate world.

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Previously known as the BusinessGreen Blog, James' Blog features musings, observations and occasional rants from BusinessGreen editor James Murray

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