Tilburg University promotie PhD Defense

Promotie A.G. Jallai LLM

Datum: Tijd: 14:00 Locatie: Aula

Good tax governance: International corporate tax planning and corporate social responsibility - Does one exclude the other?

  • Locatie: Cobbenhagen building, Aula (ingang via Koopmans building)
  • Promotor: prof. mr. dr. J.L.M. Gribnau
  • Copromotor: dr. C.A.T. Peters

Tilburg University volgt de maatregelen van het Rijksinstituut voor de Volksgezondheid en Milieu (RIVM) rond het coronavirus. Mede op basis van de aangescherpte richtlijnen bieden we voor onze promoties een livestream aan. Deze plechtigheid kan online worden bijgewoond via deze livestream.

Samenvatting (in het Engels)

International corporate tax planning and corporate social responsibility (CSR) are topics that might not seem to have common ground at first sight. The aim of this research was to prove the contrary. This research addressed international corporate tax planning from various perspectives, such as regulation, ethics, business, and society.

International corporate tax planning is in the eye of a storm: the societal and political expectations in relation to corporate tax planning are changing. Not all forms of legal tax planning are considered (socially) legitimate anymore. Corporate tax planning is a complex issue: on the one hand, it is common corporate practice to keep costs low. On the other hand, corporations have to contribute to society and common goods by paying (corporate income) taxes as any other member of society. It goes without saying that it is the state’s responsibility to ensure a fair tax system, however, the issue with the corporate tax practices now is that powerful multinationals are in position to potentially (ab)use the system by profiting from society without contributing to it. Having said that, it should be clear not all kinds of corporate tax practices are (socially) illegitimate per se.

Legal tax planning can be carried out in various forms. Based on a degree of social legitimacy this research distinguished between tax planning, tax mitigation, tax avoidance and aggressive tax planning. Even though all of the different kinds of behavior described by these concepts are legal, not all of these practices are socially legitimate, because, in the case of tax avoidance and aggressive tax planning, multinationals fail to contribute their fair share to society.

As a result of legal tax planning that is not always socially acceptable, discussions of morality have entered the picture. Taxes provide funds for governments to offer essential public goods and to redistribute wealth among citizens. In other words, taxes enable the government to provide a (legal) framework for the functioning of society and the economy. Enforcing contracts for instance supports trust in markets without which corporations could not operate. Taxes also contribute to the well-being of corporations in other ways, as the state fosters innovation, encourages investment for sustainable growth, boosts worker productivity, and stimulates the efficient use of scarce resources. This is done with subsidies paid for by taxes but also by tax (dis)incentives, such as regulations regarding investments in R&D. Based on that, it can be said that taxation is an essential precondition for the sustainable development of society and markets.

Thus, taxes build a basis for a society. The obligation to pay taxes originates from the law, but in a society morality also guides individuals’ behavior. The legal system should codify public morality; however, it will never be able to do so exhaustively. Therefore, legal rules in a complex society inevitably leave room for different interpretations and choices with regard to the use of the system of tax rules. This suggests that, in case legal rules fall short, morality should fill the gap. This research linked morality to CSR, which can be seen as a tool for multinationals to balance conflicting interests in a moral way.

Some might believe that various other legal obligations, such as corporate governance rules, restrict corporations from opting for a moral business practices if it decreases shareholder value (in the short term). However, as long as managers act in the best long term interests of the corporation, they do not breach their fiduciary duty when engaging in good tax governance, which consists of substantive (paying fair share; developing tax codes of conduct) and procedural (transparency) elements.