Society expects companies to take into account the economic, environmental, and social effects of their operations and activities. The concept of corporate social responsibility (CSR) refers to the operations or actions of companies that are above or independent of the limits or minimum requirements set by legislation.
The economic purpose of a company and its responsibilities towards shareholders and debtors, first and foremost, is a natural starting point in reviewing the responsibilities. Also other stakeholders such as employers or public entities as tax collectors have economic requirements and expectations. Responsibility in the context of tax issues has become the topic of greater attention, with a number of stakeholder groups actively reviewing the approaches that companies take to their tax strategies and tax planning activities.
In this article CSR is reviewed especially in the context of taxation. Does CSR have any significance and importance in the context of tax law and especially income taxation? Does CSR set limits on the tax planning of companies, or is there an obligation to pay any more taxes than what has to be paid according to the law and the tax treaties? While the concept of CSR is not a legal one, neither is the approach for these questions in this article only a legal one.
Attitudes towards taxes are often contradictory. On the one hand, taxes are like any other costs for a company, but on the other hand, they are an economic contribution to the society in which the business is conducted.
The phrase “aggressive tax planning”, as opposed to regular or “acceptable” tax planning, has been used on several occasions recently. Taking a purely technical approach to tax planning is unlikely to protect companies from charges of irresponsibility and associated reputational damage. Aggressive tax planning can be characterized, for instance, by an intensive use of legal and financial tools, establishments in foreign tax havens, unbalanced capital structures and transfer prices, or a disingenuous use of tax treaties.
Still, aggressive tax planning is not a legal concept so there is no legal definition for it. Instead, the question is more or less about where to draw the line of moral acceptability, which runs on the inside of the tax planning area. From the CSR point of view, aggressive tax planning can be defined as actions taken by taxpayers which are in the line of requirements of tax law, but which do not meet the reasonable and justified expectations and requirements of the stakeholders.
In personal income taxation, Finland had used the dualistic income tax model, known as the Nordic model, since 1993. The basic idea is that taxation of earned income is progressive, whereas taxation of capital income is proportional. Here, the model is reviewed from different perspectives: What kind of tax policy background does it have and how is the distinction between types of income argued for on theoretical grounds? How has the borderline of earned and capital income been drawn in tax legislation, and how is it drawn in the court cases, in particular in those related to tax avoidance? The dualistic model has often been criticized using equity arguments, but there are still strong arguments for the model. In any case, the model has not always worked too well in practice. The distinction has required special tax legislation as well as given rise to many court cases.
Taxes have become an issue of corporate social responsibility (CSR), but the role of taxation is to some extent an ambiguous and controversial issue in the CSR framework. Similarly, another unclear question is what role investors who are committed to sustainable and responsible investment (SRI) see taxes as having on their environmental, social, and governance (ESG) agenda. Corporate taxes have an inverse relationship with the return of the investors: taxes paid directly affect what is left on the bottom line, reducing the return of investors. However, investors are now more aware of tax-related risks, which can include different forms of reputation risk. Corporate tax planning may increase the returns, but those increased returns are riskier. This study focuses particularly on the relationship between SRI and taxation. We find that tax matters are considered to be on the ESG agenda, but their role and significance in the ESG analysis is unclear.