Perhaps 'good’ companies should pay more tax than law requires?

Professor Esther Reed

Multinational companies may have a moral duty to pay more tax than the letter of the law strictly requires of them, according to a new Christian Aid report about tax and theology. This will be an uncomfortable conclusion for many defenders of tax avoidance, who often imply that what is legal is also morally sound.

The report rejects this logic, pointing out that owning a slave and using child labour have in the past been legal. It argues that the morality of tax practices depends on their impact on human beings.

In her contribution to the publication, Tax For The Common Good, theologian Professor Esther Reed of Exeter University argues that tax avoidance is not right if it damages other people’s ability to live decent lives.

“Respect and care for the poor ranks higher in Jesus’ list of priorities than adherence to the law,” she says. “Global corporations may properly be expected to exceed minimal compliance standards on taxation, where failure to do so undercuts the conditions required for the flourishing of all.”

Such conditions are paid for by tax, she points out: “Taxes are paid for the sake of order and an infrastructure that puts out fires, keeps the streets safe, ensures legal safeguards for businesses and employees, makes sure that food and water are safe, educates children and more.”

Dr Reed’s argument echoes a point made by Margaret Hodge MP, Chair of the Public Accounts Committee of the House of Commons. When Google gave evidence during 2013 and insisted that its tax practices were entirely legal, Ms Hodge replied: “You are a company that says you ‘do no evil’, but I think you do do evil, in that you use smoke and mirrors to avoid paying tax.”

Another author of the report, Canon Dr Angus Ritchie, meanwhile argues from the Bible that both individuals and companies have moral duties to pay tax, based on their ability to do so.

Dr Ritchie, who is Director of the Centre for Theology and Community, says: “Businesses are parasitic if they make use of the resources and infrastructure of a country without contributing to it through taxation.”

He highlights the “tragedy” of many developing countries, from which companies extract resources such as minerals and oil without any apparent benefit for the vast majority of their citizens. “There is an urgent moral issue here and both governments and multinational companies must recognise their moral responsibilities to act in ways that are for the good of the countries in which they work,” he argues.

Dr Ritchie also criticises the view that wealth is generated by companies and then requisitioned by governments. “The ‘cake’ of wealth is not in fact generated by business and partially consumed by the state,” he argues. “Rather, the state and citizens are co-producers of that wealth in the first place, which already generates a prima facie entitlement to a ‘slice’ in order to continue to provide the environment and the public goods in which enterprise and commerce are possible.”

But Dr Ritchie recognises that governments themselves are as capable as the private sector of being corrupted and doing harm. He therefore argues that all citizens should have some private property, as protection against the excessive power of the state and also of other people – and that this is a reason for redistributive taxation.

Dr Rowan Williams, Chair of Christian Aid, says in his foreword to the report that greater tax justice will mean that some developing countries need less aid. “We at Christian Aid believe that [tax justice] is crucial to the goal of setting many nations on the path to greater self-determination and ending their reliance upon aid,” he says.

Christian Aid launched its tax campaign in 2008. Tax for the Common Good says: “In 2008, Christian Aid estimated that developing countries were losing as much as US$160bn each year from tax dodging – more than they receive in aid. That figure is based on an estimate taken from work carried out in the 1990s, claiming that transfer mispricing accounts for 7% of global trade each year.

“The US$160bn figure is disputed by some who question that underlying methodology. However, almost all estimates indicate that there is a significant problem, and the OECD agrees that developing countries lose more money each year in tax dodging than they receive in aid.”

Source: Christian Aid