DAVOS, Switzerland, Jan 27 (IPS) – All of the rhetoric about corporations’ social responsibility, promoted in the international arena and adopted by the World Economic Forum (WEF), suffers from a structural flaw because it pays little attention to corporate tax evasion, say activists.
Despite the recent headline-grabbing cases of tax fraud — by the likes of Enron, WorldCom and Parmalat — boards of directors and the WEF itself do not consider tax non-compliance as part of the corporate social responsibility agenda in the business world, said Swiss expert Andreas Missbach.
This is a serious matter, considering that “aggressive tax avoidance” by transnationals means “huge tax revenue losses for developing countries,” an estimated 50 billion dollars that is essential for overcoming poverty, said Bruno Gurtner, an economist with the Swiss Coalition for Development Organisations.
The issue of Corporate Social Responsibility (CSR) is on the agenda of the 34th annual WEF, under way this week in the Swiss alpine resort of Davos, bringing together heads of state, corporate executives and experts to discuss the state of the world economy.
Missbach pointed out that on the WEF website there are 86 pages which refer to Corporate Social Responsibility, but only three pages on tax avoidance.
Nor is tax avoidance mentioned in the WEF’s “Partnering Against Corruption Initiative”, he added, “despite the clear evidence that much tax avoidance is linked to illegal transactions, banking secrecy, offshore trusts, fraud and illicit capital flight.”
It is also conspicuously absent from the debate in Davos over corporate governance, said Missbach, a delegate for the Bern Declaration, a non-governmental organisation that campaigns against financial and banking secrecy.
A report prepared by the auditing firm PricewaterhouseCoopers identifies corporate governance as an “important area of concern for institutional investors,” who are left unprotected when scandals like Enron and Parmalat erupt, he said.
Included in the governance focus are issues like “reducing corruption, collusion, nepotism, inadequate disclosure and insufficient transparency of financial statements, inadequate enforcement of existing rules, and a lack of clear separation of company ownership and management.”
“Nonetheless, the related areas of compliance with taxation obligations, not using aggressive tax avoidance techniques and transparency of reporting of tax planning measures are not mentioned in the PricewaterhouseCoopers report on good governance,” said Missbach.
For the past several years CSR has been included in the ongoing discussions of intergovernmental and civil society organisations. In regards to human rights, corporate social responsibility merited a prolonged debate in the United Nations Sub-Commission for the Protection and Promotion of Human Rights, a body of independent experts.
Finally, the Sub-Commission approved a draft resolution on the responsibilities of companies in the human rights area.
The text, applauded by the world’s leading human rights groups, will be up for a vote during the March-April sessions of the Commission on Human Rights, the maximum human rights authority of the UN.
But, says Missbach, few people seem concerned about tax evasion despite the recent scandals that called attention to the mechanisms used to avoid fiscal responsibilities, such as transfer-pricing, re-invoicing, offshore “special purpose vehicles”, corporate inversions, dubious charitable trusts and other vehicles for tax abuse.
He cited the example of the U.S. energy firm Enron, whose executives were regular attendees of the Davos Forum, until the fiscal debacle that erupted in December 2001. But until then, the corporation was held up as a model for the business world to follow in the 21st century.
Enron had 811 offshore subsidiaries, including 692 in the Caribbean tax haven of the Cayman Islands, which were used as part of an elaborate tax evasion strategy.
Between 1996 and 2000, Enron’s pre-tax profits were 1.8 billion dollars, but it paid no taxes in four of those five years.
“Aggressive tax avoidance by transnational companies results in huge tax revenue losses for developing countries and in under-investment in social and physical infrastructure,” noted Gurtner.
The estimated 50 billion dollars lost in this way every year is nearly equivalent to the official development aid given annually to the developing nations by the wealthy member countries of the Organisation for Economic Cooperation and Development (OECD), he said.
Moreover, he added, “it is the same amount that is required by the World Bank and by the UN to achieve the Millennium Development Goals.”
The Bern Declaration and the Swiss Coalition for Development Organisations form part of the Tax Justice Network, an international alliance that arose out of meetings at the 2002 European Social Forum in Florence and the 2003 World Social Forum in Porto Alegre.
“Multilateral political initiatives to strengthen national tax regimes have been consistently thwarted over the past eight decades by the persistent and powerful lobbying of business and wealthy individuals,” said John Christensen, the London-based international coordinator of the Network.
“The current shape of the globalised economy makes it difficult if not impossible for national tax regimes to collect corporate taxes fairly. Many multinational corporations have structured their affairs in such a way as to avoid taxes in virtually every jurisdiction in which they operate,” he added.
By Gustavo Capdevila –
Source: Inter Press Service News Agency
Photo credit: World Economic Forum via VisualHunt.com / CC BY-NC-SA
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