G8, tax avoidance and sustainability

The G8 summit recently concluded in the UK, and one of the key action items supported by some of the world’s leading economies is reducing corporate tax evasion and avoidance.  Before you stop reading, let me assure you that this post will not be an experience akin to having lunch with your accountant – and being stuck with the bill.  The global economic climate of so-called austerity coupled with increased public perception and involvement are, at the very least, giving a platform for this important issue to be voiced.  Why does tax compliance matter?  It matters because governments cannot continue to pay for education, healthcare and infrastructure without corporate contributions.  It matters because developing nations often suffer a great deal more, and have fewer resources to collect than more advanced economies.  It matters because Starbucks voluntarily paid more tax in the UK due to the public outcry, even though it was legally obligated to pay a lesser amount.  Oh, the double-edged sword of fickle social media relationships.  Marketers strive to build engaging brands with emotional appeal only to have consumers tell them how to run their businesses.  That’s enough ranting for now.

If global governments do not address the legal loopholes in the current corporate taxation system, the effects will multiply on the ground with cutbacks to important government programs.  In other words, corporate tax avoidance is not sustainable.  Google, Amazon and Starbucks have been in the news recently for taxation issues.  The hard-working finance departments of global companies are paid handsomely to minimize tax exposure within the established legal framework.  Perhaps some of those wages should be used to pay a company’s fair share of taxes.  The responsibility rests with governments and business to work together, streamline the corporate tax system and eliminate global tax havens.

When discussing sustainability, it helps referring to John Elkington’s “triple bottom line”: People, Planet and Profits.  It’s not enough for organizations to pursue profit – although it’s certainly a vital goal since most businesses cannot exist if unprofitable in the long-run.  Corporate strategy must also consider what’s best in the environmental and social realms.  The environment, of course, rightly receives immense media attention but the focus of this post is on the social or people category of sustainability.  Since taxes contribute to helping communities through government social programs like healthcare, education and support for new entrepreneurs, it is imperative for the ongoing viability of these programs that corporations pay their fair share of taxes.  Corporations in Canada, and globally, benefit from a well-educated workforce with access to healthcare and a plethora of other programs.  But these come at a cost, and we all need to contribute.

It is not an easy road ahead for world governments.  The challenge begins as delegates return home from the G8 summit in Northern Ireland.  Most countries have complex tax systems with distinct regional discrepancies – just ask anyone registering a corporation in the state of Delaware.  Pressure from business lobbyists to maintain the status quo will certainly be immense.  

Just because you can legally do something, doesn’t mean you should.  Dr. Sue Bridgewater, a marketing expert at Warwick Business School states (as reported by the BBC), “The issue arises when we feel that a company has crossed a line and what it does to be tax efficient is morally, if not legally, inappropriate."  As government lawmakers look to the future, and individuals keep governments and business accountable, there is hope on the horizon that global tax avoidance is quickly becoming taboo.