What do stakeholders expect from corporate taxation?

A fascinating new paper was published earlier this month in the Journal of Business Ethics, titled “Corporate Tax: What Do Stakeholders Expect?“. It is authored by Carola Hillenbrand, Kevin Guy Money and Chris Brooks at the University of Reading and Nicole Tovstiga at the University of London.

The abstract reads:

Motivated by the ongoing controversy surrounding corporate tax, this article presents a study that explores stakeholder expectations of corporate tax in the context of UK business. We conduct a qualitative analysis of in-depth interviews with representatives of community groups (NGOs/think tanks and special interest groups), as well as interviews with those representing business groups (business leaders and industry representatives). We then identify eight themes that together describe “what” companies need to do, “how” they need to do it, and “why” they need to do it, if they wish to appeal to a wide group of interested parties. We discuss our findings based on the corporate social responsibility literature and propose novel ways for community groups and business groups to connect on the topic of corporate tax, suggesting opportunities and themes for dialogue and potential steps to co-create solutions in a stakeholder society.

Right down my alley. In short: different groups have different expectations when it comes to corporation taxes. As I have written elsewhere, including in a new paper with Maya Forstater, these differences in expectations lead to a polarised debate about corporate taxation with a “missing middle ground”.

What’s interesting about this paper, to me at least, is not so much the findings on perceptions themselves. Maybe they will be surprising to people outside the tax world, but most people inside the tax world will find the results eerily familiar. Rather, it is the strong confirmation of “accepted wisdom”. Sometimes, the most important job of research is to test whether such “accepted wisdom” is really true.

And the paper really does a great job of evidencing the different expectations of stakeholders, in a succinct manner, with a strong empirical basis in the UK context. The survey a broad range of stakeholders (n = 61) from community groups (NGOs, think tanks and interest groups) and business groups (business leaders and industry representatives) through qualitative interviews. They look at a variety of dimensions of expectations including level of tax payments, transparency, inequality, ethics, social responsibility, etc.

The results are summed up in two massive tables and accompanied by a lengthy discussion. But here’s my TL;DR recap:

Issue/Group Community group Business group
Desired principle of corporate tax Pay where local presence, size and capacity is, and where businesses actually operate. Like today, but with more
legal clarity and certainty
Business interests Driven by profit ahead of wider societal, community and ethical interests (which is bad) Businesses do and should act on behalf of owners, though there is increasingly wider ethics/integrity concerns
Political (in)equality As powerful societal players, big businesses get special treatment. There’s inequality within business world; SMEs and those not operating in low-tax countries are disadvantaged
Listening Companies don’t listen to community groups
(they should)
Businesses could improve listening and communication
Public debate Should include all stakeholders; today, community groups are excluded Community groups excluded from public debate fairly because they don’t understand tax rules and need education
Transparency More! Businesses try but some issues are too complex for public

In short, this is a very strong illustration of the polarised perceptions of community groups and business groups when it comes to corporation taxes.

The authors sum up:

Overall, our findings suggest that stakeholders tend to sympathize with views held within their own network and tend to iterate well-established narratives within such networks.

This aligns well with Maya’s and my point:

When arguments are strongly divided, each group tends to judge that their own arguments as based on evidence and justice in the public interest; while viewing ‘the other side’ as speaking from their own self-interest to protect individual and organisational short-term goals.

In addition to a good analysis of stakeholders perceptions, the authors add a discussion of how to deal with the issues they identify, in particular diverging expectations.

Unfortunately, they only discuss it from the side of companies: what companies can and should do about it. That the authors don’t address what community groups (their other key stakeholder) can do, or what the two groups can do together, is a missed opportunity, but alas. This part of the paper is clearly shaped by the fact that this is a business ethics journal and a business ethics article.

The authors propose the following model for thinking about the “whywhat and how” of corporate management of community groups’ expectations on corporate taxation:

Capture 2.PNG

Again, there is a lengthy discussion in the paper of this. My TL;DR:

  • Why engage: Integrity and ethics are opportunities to address social license to operate and to demonstrate corporate value.
  • What to do: Assess tax payments and strategy in relation to community expectations and in cooperation with community groups.
  • How to do it: Engage proactively with community groups, communicate tax more and better, be more transparent.

I am not sure how actionable these ideas really are, or if they bring much new to existing corporate social responsibility ideas. While these seem like nice ideas, the authors do not address in any great detail how their proposals would actually work given the chasm in perceptions illustrated by their own interview results. For instance, business groups’ views that community groups “don’t understand tax” would seem an obvious hindrance for companies to engage more proactively with those community groups.

Nonetheless, I do find the framework interesting as food for thought and as a starting point for further discussion.

All in all, I think it is an interesting paper, though I am sure many in the tax community will not be surprised the least bit by the results or the proposals to remedy polarisation. Still, the value of evidence to confirm, and also in some cases challenge, conventional wisdom should not be underestimated. Moreover, my summary here is of course simplified and the analysis itself provides more nuance, further information and intriguing discussion. I do encourage anyone with an interest in corporate taxation and public debates to go read it. It’s openly accessible over at Springer.

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