Corporate tax, inequality and international development

1st March 2016

Corporate tax, inequality and international development

By

By Dr Jason Hart, Centre for Development Studies, University of Bath (UK)

Inequality is now established as an issue of global concern. Within the SDGs it is to be addressed through achievement of a range of targets that includes growth in income of the poorest 40% of the world’s population.

Deregulation and the consequent increase in the scale of corporate tax avoidance have occurred in tandem with a widening gap between rich and poor. The two trends are closely connected. The ease with which multinational companies now side-step their tax liabilities has resulted in ordinary citizens bearing a greater proportion of the costs of government. In the period 1950-2010, the percentage of US federal government revenue from corporate tax reduced from around 30% to less than 10%.

Many tax-avoiding companies embrace a corporate social responsibility (CSR) agenda: typically taking steps to uphold human rights and promote environmental sustainability. Paying tax is rarely viewed as a CSR issue – a fact that illustrates the impact of powerful interests upon the deployment of language. While all countries are adversely affected by corporate tax avoidance, countries in the global South are especially disadvantaged. Many multinationals not only avoid paying tax to developing country governments but also extract special privileges, such as tax holidays, with the promise of investment. Moreover, by minimising their tax payments in the global North they squeeze national budgets: making it hard, politically and financially, to maintain spending on overseas aid.

PR gains
Despite undermining governments in the global South through tax avoidance, many multinational corporations are eager to fund INGOs and UN agencies involved in international development. The funding they provide is not usually large – certainly a fraction of the tax they would pay were loopholes eliminated. Yet for their money they gain considerably in PR terms through association with efforts to improve the lives of the poor. Little wonder that development agencies focused explicitly on children have been particular recipients of corporate largesse.

Curtailing tax avoidance requires global action on regulation. Also vital will be the building of popular pressure and norm setting. Expanding the notion of CSR so that proper payment is deemed foundational to the exercise of corporate responsibility is one aspect of this effort. Civil society organisations have a valuable role to play in advocacy and in mobilising public opinion. Organisations such as UNICEF and Save the Children, which currently ‘partner’ with some of the world’s largest tax avoiding corporations, have so far not taken up this role. However, as the connection between corporate tax avoidance, inequality and developmental failure becomes more apparent, the risks of reputational damage to such agencies can only increase.

www.bath.ac.uk/cds