Finding better ways for businesses to make a social contribution

Joe Wright, 27 May 2015

International tax avoidance and tax planning, where companies lower their tax base by changing domicile, is a vexing issue. Multinationals like Amazon, Starbucks, Google, and Apple have all been accused of not paying their fair share. According to Forbes, Apple ‘claims tax residence nowhere.’ The complicity of countries like Luxembourg, where the LuxLeaks scandal last November revealed over 340 multinationals had negotiated extremely low tax rates with the government, sometimes under 1%, has undermined the tax systems of other countries.

Aggressive strategies have given big business a bad name, especially since the recession when public services in many countries have been cut. Tax avoidance polls very highly as an issue the public considers ‘morally wrong’.

But business hasn’t always garnered such an unfavourable reputation. In the 1900s, Cadbury’s became famous for its public works after George Cadbury built Bournville, a whole town with comfortable housing and parks to ‘alleviate the evils of modern more cramped living conditions’. The Joseph Round Tree Foundation describes Bournville as, to this day, ‘one of the nicest places to live in Britain’. Port Sunlight in Merseyside is a similar creation by the soap manufacturers, the Lever brothers, built in the late 1800s. These and similar projects were essential at times of great social degradation to improving working and living conditions for employees. They have left the companies with a tremendous legacy.

Corporate Social Responsibility (CSR) is a very loose modern equivalent, where companies self-regulate their compliance with the law and enforce ethical standards, sometimes funding charitable works. But the schemes are rarely well publicised and the charitable works normally, sometimes unfairly, viewed as having ulterior motives. Partly because of the reputation garnered by aggressive tax avoidance.

CSRs have helped keep the notion of business playing a greater social role alive, but it could be used to much greater effect, especially if taxation aggressively used by the government as an incentive. It is a similar approach espoused by the Conservative campaign guru, Steve Hilton, who suggested taxes should be lowered in equal measure to companies paying the living wage.

The same could be applied to CSR by offering companies a way of putting more of their money to direct use. There would be an added incentive of being able to engage in issues that directly impact people. Housing is once again one of the biggest issues facing the government today. Companies could contribute to the housing stock by funding building programmes or donating land in return for tax cuts. For global companies seemingly detached from their country of operation, investing in a community might better anchor them to an area.

The obvious question is why should companies be rewarded for public works? Pragmatism. It is becoming ever more apparent that tackling tax avoidance requires a level of cooperation between countries that doesn’t yet exist, even between members of the EU. With the resources companies have to fight the government at every corner on tax, the onus is on policymakers to be clever. So as well as pursuing multinationals for what they owe in Britain, government should consider better ways to incentivise bigger social contributions too.