In this world nothing can be said to be certain, except death and taxes – Benjamin Franklin, 1789 [1]


Globalisation has made Benjamin Franklin’s famous assertion somewhat relative. Transnational Corporations (TNCs) operating in the global economy have a wide range of possibilities to avoid their responsibility to pay taxes. Recently, TNCs across different sectors have been involved in tax avoidance scandals, most of them related to shifting profits to tax havens or low tax jurisdictions. From technological giants; Apple, Amazon or Google, to the fashion industry; Zara, the world’s most famous coffee shop, Starbucks, or the brewing multinational SAB Miller (Reuters, 2013; Drucker, 2013; Bergin; 2012, Action Aid, 2012).

It is estimated that more than half of world trade passes through tax havens (Christensen and Murphy, 2004). Tax avoidance is especially harmful for developing countries, where governments rely relatively heavily on corporate income tax for their revenue and where state capacity to supervise and control tax avoidance practices is weaker (Jenkins and Newell, 2013).

Considering the scale of the problem, it is surprising the extent to which tax avoidance has been excluded from the corporate social responsibility (CSR) agenda. Jenkins and Newel (2013) found that in an OECD survey of 233 codes of corporate conduct, only one code mentioned taxation. Among the TNCs that are considered leaders in CSR (listed on the FTSE4Good), only four made some explicit statement related to tax policies.

But times are changing, and the issue of tax avoidance is attracting attention from the media and civil society.


Moreover, it is becoming evident that it shares some of the main characteristics of other traditional CSR issues such as labour conditions and the environment. Is tax the next big CSR issue? To answer this question, I will start by examining the relationship (or lack of relationship) between taxation and CSR.

The (missing) link between taxation and CSR

Tax revenues are the lifeblood of the social contract, and paying taxes is one of the most significant ways in which corporations engage with society (Christensen and Murphy, 2004). Current trends in CSR are aimed at targeting the core business and not just “adding” initiatives to business as usual (Action Aid, 2011). What is more core than profits? Why, then, hasn’t taxation been included up to now?

Friedman (1973) stated that “the social responsibility of business is to increase its profits”. Even though most conceptualisations of CSR have abandoned Friedman’s position on the matter, the first and most obvious cause of this missing link between tax and CSR is that taxation has a direct impact on profits. Traditionally tax payments have been seen as transfers from shareholders to the state. Hence, companies have been reluctant to incorporate taxation as a CSR issue due to the potential tension with their shareholders (Desai and Dharmapala, 2006).

Secondly, CSR is considered by many as window-dressing rather than substance. The fact that taxation lacks the sensationalist appeal of other CSR issues such as environmental and human rights abuses may also explain why so little attention has been placed on tax avoidance (Fisher, 2014).

A third set of motives is related to the political nature of CSR, and the legitimacy of this type of transnational private governance. Through their CSR policies, businesses determine what counts as a legitimate expectation of business and what doesn’t (Preuss, 2012). According to this view, it is in the best interest of the TNCs that shape the CSR discourse to keep taxation outside the debate.

The emerging link between taxation and CSR

There is a growing interest amongst NGOs and accountability activists in tax avoidance by TNCs, and momentum behind the idea of making tax part of the CSR agenda is increasing.

Tax avoidance is becoming a “sexier” topic for the media. From the coverage of tax avoidance scandals of major TNCs such as Starbucks, Google or Amazon, to permanent sections where the audience can calculate the Tax Gap between what profit companies make and what taxes they pay (BBC News, 2012;, 2014). This negative publicity is harming the image of TNCs, and some of them are taking measures to avoid it. Starbucks, for example, in response to the scandal of its virtually non existent tax bill in the UK, decided to pay tax authorities 10 million pounds in taxes and has recently announced the transfer of its European headquarters from the Netherlands to London (Gustafsson and Patton, 2014).

In the NGO arena, activist campaigns, one of the main tools civil society has traditionally used to pressure TNCs in relation to other CSR issues, are now being used for taxation. Action Aid (2012), UK Uncut (2014), and other organisations have launched several name and shame campaigns to raise awareness of irresponsible tax practices, calling for a consumer boycott.

Finally, various initiatives have been developed to incorporate tax as an element of CSR. Table 1 presents a brief summary of some of these initiatives developed by different actors: NGOs, activist networks, consultancy firms, etc.

Table 1: Initiatives to include tax as a CSR issue.



  1. Tax policy: include qualitative and quantitative information, assess tax revenue impact of major business decisions, rule out certain tax practices and responsible tax negotiations (when companies can influence the law).
  2. Mechanism of oversight at Board level
  3. Transparency: public disclosure of key tax information
  4. Code of conduct: defining acceptable and unacceptable practices


  1. Tax map: position the company’s current situation in the spectrum of tax practices, from tax evasion to principled obligation.
  2. Principles: define where the company wants to take into consideration 3 basic aspects of responsible tax: legal basis, value creation and transparency.
  3. Policy: organise policies and processes to manage tax according to defined principles
  4. Communication: defend the approach and show consistency of implementation
A certification scheme that assesses companies’ taxation practices. Firms that score at least 13 out of 20 are awarded the Fair Tax Mark.

3 types of businesses:

• Businesses that only trade in UK

• UK-owned multinationals

• Foreign-owned multinationals with subsidiaries in the UK

Two categories of criteria (currently only developed for the first type of business):

–   Transparency: accounts, company activity, company location, beneficial ownership , management

–   Tax rate, tax avoidance and tax disclosure, tax policy, average tax rate,   numerical reconciliation, narrative reconciliation, deferred taxation,  directors’ remuneration

When exploring the link between tax avoidance and CSR, it is also worth mentioning the findings of two studies that draw an interesting relationship between them. Lanis and Richardson (2012) analysed 408 Australian corporations and found that the higher the level of CSR disclosure, the lower the level of corporate tax aggressiveness (in terms of effective tax rates). Hoi et al (2013) carried out a similar study[2] comparing aggressive tax avoidance practices (tax sheltering, book-tax differences, and cash effective tax rate) with irresponsible CSR activities (using negative social ratings). They found that when excessive irresponsible CSR activities are present, the probability of tax avoidance practices is higher. Both studies find a relationship between the level of tax avoidance and the level of CSR, suggesting that corporate culture (envisioned as voluntary CSR commitments) influences corporate practices and reinforcing the argument of the need to include taxation in the CSR debate.

Further reasons to include tax as a CSR issue

As mentioned above, activist campaigns that have traditionally been linked to other CSR issues are now being applied to taxation. This parallelism between traditional CSR issues and taxation extends even further.

First of all, tax avoidance poses the same risks for the company as other social or environmental CSR issues. The first and most significant one is reputational risk, which is becoming more prominent as the media coverage and boycott campaigns increase. Companies whose success depends on their reputation should treat tax avoidance as a CSR issue that may call for the sacrifice of profits. The previous example of Starbucks is very illustrative. But apart from reputational risk, TNCs incur other risks when they get involved in tax avoidance (Jenkins and Newell, 2013; Action Aid, 2011; Desai and Dharmapala, 2006; Fisher, 2014). These include:

– Litigation costs that arise in case of dispute.

– Reputational damage may affect the company’s operations and translate into financial costs.

– Jeopardising the company’s relationship with governments and tax authorities may affect its future bidding for public contracts.

– Uncertainty about future tax liabilities can affect shareholder value.

– The manipulation of profits and accounts associated with tax avoidance is also often linked to managerial malfeasance, and it is in the common interest of a company to contain these kind of practices.

The risk therefore is not just reputational. There is a wider business case as well.


Secondly, the control and regulation of tax avoidance practices in the global economy is extremely complex. The regulation of the different categories of tax avoidance (transfer pricing, thin capitalisation and arrangement of corporate structure and ownership) is considered one of the most significant regulatory challenges faced by national governments and international organisations[3]. This challenge is also present in other CSR components, and is one of the reasons that explain the rise of corporate self-regulation. Regarding labour issues for example, controlling and regulating global value chains that operate in different countries with different labour regulations is complex. Furthermore, the regulatory capacity of developing countries is adversely affected by weak rule of law, lack of administrative capacity and weak bargaining power against the TNC whose foreign investment they seek to attract (Graham and Woods, 2006). Placing labour conditions at the core of CSR has been useful in dividing the responsibility of this issue between the state and TNCs. This does not mean that efforts from national governments and international organisations are not crucial to regulating labour conditions, but that complementing these with private regulations or commitments can contribute to dealing with the problem. The same logic can be applied to taxation.

Related to this is the idea that CSR commitments can “go beyond” the letter of the law. Although ethically questionable, tax avoidance practices – for example, creating subsidiaries in tax havens – are decisions that companies make within the current limits of the law. Therefore, their commitment in addressing this issue must go beyond narrow legal compliance. In this field, there are also examples of CSR commitments. One of them is the living wage initiative, where companies ensure that workers are paid a fair living wage that exceeds the local minimum wage, especially where this minimum wage can be considered a “poverty wage” (Action Aid, 2012).

But even if the reasons and possibilities to include tax commitments in CSR policies are significant, some obstacles and limitations must also be explored.


The first obstacle is the resistance of TNCs, especially because compliance could have a direct impact on profits and may be a source of tension with shareholders. Significant as this point is, it must be noted that all CSR issues faced similar problems initially.  For example, the increased labour costs that usually follow the improvement of working conditions also have an adverse immediate impact on profits. However, such objections are being overcome.

A second limitation is the voluntary nature of CSR commitments. Controlling and enforcing compliance of corporate policies has been a major limitation on the effectiveness of CSR policies. Therefore, regulatory efforts at the national and international level remain essential.

As it currently happens with other CSR elements, the incorporation of taxation in CSR is more likely to occur only in companies that face public scrutiny (Fisher, 2014). Most of the TNCs that have been the subject of tax avoidance scandals fall under this category, and undoubtedly if all of these were to implement responsible tax practices it would definitely make a difference. But it is undeniable that including taxation commitments will remain unappealing to a wide range of companies that do not have a direct relation with the public.

Finally, a crucial limitation is how and who determines the “fair share” of tax a company should pay. International taxation is one of the most complex issues that globalisation has brought. Determining compliance of a TNC’s operations that are subject to different legal systems with complicated corporate structures is challenging. However, some of the most damaging tax avoidance practices, such as situating tax residence or valuable intellectual property in tax havens are a deliberate decision a company makes, and are not related to the complexity of international taxation (Preus, 2012). Therefore, there is scope for including in CSR basic commitments to eliminate some of the most harmful tax avoidance strategies.

In conclusion, it is high time that the CSR agenda is reformed to include tax avoidance. Taxation and other CSR issues are very similar in terms of posing a regulatory challenge, entailing several types of risks for the TNC (not just reputational), and becoming a subject of activist campaigns. Its exclusion from the CSR agenda until now has been due to a lack of will. TNCs have been reluctant to include it precisely because it has a direct adverse impact on profits. On the other hand, NGOs have traditionally paid more attention to environmental and social abuses than to tax avoidance. But times are changing and the link between CSR and tax is going from “missing” to “emerging”. The scandals of tax avoidance are becoming an attractive topic for the media, a wide range of campaigns and initiatives from civil society are targeting the issue, and even consultancy firms are recognising the need to address the problem.

There are real obstacles to the adequate incorporation of tax issues into CSR targets, especially regarding the voluntary nature of corporate commitments. Therefore, lobbying for this inclusion should not, by any means, discourage the regulatory efforts carried out by governments and international organisations. But joining forces and pursuing commitments from both public and private actors can be a way forward to continue the fight against the complex issue of tax avoidance by TNCs.

1 Franklin, B. and Smyth, A. (1970). The writings of Benjamin Franklin.

2 Hoi et al (2013) adjusted the methodology of their study in order to address some of the limitations of Lanis and Richardson’s approach, such as the fact that effective tax rates do not accurately reflect tax avoidance or CSR disclosure is not the same as CSR activities.

3 Details about the difficulties of applying the arm’s length principle or the political opposition of establishing a global formulary apportionment to regulate transfer pricing are included in McNair, Dottey and Cobham, 2010. Regarding the regulatory efforts around transparency and tax havens more information is included in Fisher, 2014.


– Action Aid, (2011). Tax Responsibility: The business case for making tax a corporate responsibility issue

– Action Aid, (2012). Calling time, Why SABMiller should stop dodging taxes in Africa. Action Aid

– BBC News, (2012). Starbucks, Google and Amazon grilled over tax avoidance

– Bergin, T. (2012). Special Report: How Starbucks avoids UK taxes. Reuters.

– Christensen, J. and Murphy, R. (2004). The social irresponsibility of corporate tax avoidance: Taking CSR to the bottom line. Development, 47(3), pp.37–44.

– Corporate Citizenship, (2014). Tax: Time for action. A guide for companies on responding to the tax debate. Corporate Citizenship.

– Desai, M. and Dharmapala, D. (2006). CSR and taxation: The missing link. Leading Perspectives (Winter), 4(5).

– Drucker, J. (2014). Ortega’s Zara Fashions Tax Avoidance by Shifting Profits to Alps. Bloomberg.

– Fair Tax Mark, (2014). Fair Tax Mark – Because Fair Tax is at the heart of society.

– Fisher, J. (2014). Fairer Shores: Tax Havens, Tax Avoidance, and Corporate Social Responsibility. Boston University Law Review, 94(1).

– Franklin, B. and Smyth, A. (1970). The writings of Benjamin Franklin. 1st ed. New York: Haskell House.

– Friedman, M. (1973). The social responsibility of business is to increase its profits. New York.

– Graham, D. and Woods, N. 2006. Making corporate self-regulation effective in developing countries. World Development, 34 (5), pp. 868–883.

– Gustafsson, K. and Patton, L. (2014). Starbucks to Move European Base to London After Tax Fight. Available at:

– Hoi, C., Wu, Q. and Zhang, H. (2013). Is corporate social responsibility (CSR) associated with tax avoidance? Evidence from irresponsible CSR activities. The Accounting Review, 88(6), pp.2025–2059.

– Jenkins, R. and Newell, P. (2013). CSR, Tax and Development. Third World Quarterly, 34(3), pp.378–396.

– Lanis, R. and Richardson, G. (2012). Corporate social responsibility and tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 31(1), pp.86–108.

– Preuss, L. (2012). Responsibility in paradise? The adoption of CSR tools by companies domiciled in tax havens. Journal of business ethics, 110(1), pp.1–14.

– Reuters, (2013). Apple, Amazon, Google and tax avoidance schemes. Reuters

–, (2014). The tax gap

– UK Uncut, (2014)


Isabel de la Peña

Isabel is a consultant at the International Fund for Agricultural Development.