On the 12th of February 2021, it was held the second session of the VIRTEU Roundtable Discussion Series, which focused on “CSR, Business Ethics, and Human Rights in the area of taxation“. VIRTEU (Vat fraud: Interdisciplinary Research on Tax crimes in the European Union – Grant Agreement no: 878619) is a high profile legal research project funded by the European Union, which aims at exploring the interconnections between tax crimes and corruption to unravel the relationships between fraud and corrupt practices in the area of taxation.
The series has been organized by VIRTEU Special Adviser Prof. Diane Ring, who is Associate Dean of Faculty, Professor of Law and Dr. Thomas F. Carney Distinguished Scholar at Boston College Law School, the project Principal Investigator, Dr. Costantino Grasso, who is Assistant Professor of Law at Coventry University and Editor-in-Chief of this Blog, and the Co-Investigator, Dr. Lorenzo Pasculli, who is Associate Head for Research at Coventry Law School.
The second session, which was chaired by Prof. Diane Ring, enjoyed the participation of two leading experts in the area of CSR and Business Ethics, Prof. Ann E. Tenbrunsel, who is Professor of Business Ethics at the College of Business Administration, University of Notre Dame, and Prof. Kish Parella, who is Associate Professor of Law at Washington and Lee University. and VIRTEU Research Associate, Dr. Dawn Carpenter, who is Lecturer of Finance at the Catholic University of America, Host of the “What Does It Profit?” Podcast and Associate Editor for the United States for this Blog.
Summary of the Roundtable (by Ololade Durodola)
The discussion involved a very distinguished panel of experts who lead studies in distinct, yet complementary areas of subject matter expertise in business ethics and CSR. They came to the discussions with such energy and passion.
Firstly, there was a fascinating introductory and welcome message by Prof. Panagiotis Andrikopoulos, who helped set the scene for a fantastic session by emphasising that to have strong societies, strong social welfare and strong national infrastructures, there was a requirement for all in the wider society to play their parts. This, he noted included companies, who, like individuals, have a moral duty to ensure all their activities are sound and are not detrimental to the welfare of the wider population, which could have a widespread impact as could be seen in the current Covid-19 global pandemic.
Prof Diane Ring started the Roundtable discussions by assessing the biggest challenges that CSR, Business Ethics and Human Rights currently pose in the global corporate world generally, and how this can be brought along into the area of Taxation. Dr Dawn Carpenter, who had worked in the financial industry, reflected that there must be the understanding that tax revenues are what actually make the world work. Taxes she emphasised, are the lifeblood of the social contract. Hence, to make the world work, there needed to be the harnessing of resources that foster the institutions, and the public society infrastructure that makes society function. Prof Ann Tenbrunsel agreed and stated how she tries to analyse why people behave in unethical ways, and how they behave in ways that deviate from their values. She queried why people and their corporations don’t realise they are in tax troubles for instance until it is too late. She reckoned it may be because it is not always in the best interests of the individuals in firms to see their own unethical behaviours, or those of other colleagues or managers around them. She noted tax evasion has ethical components that can affect all of society. Prof Kish Parella tied this section of the conversation together by further contributing in the area of corporate conduct. She analysed that there could be a better focus on incentives, which could be looked at with a form of regulation that could help sharpen the incentives, either at the individual decision-making levels or at the firm levels. Any regulatory action taken therewith could potentially help with corruption and human rights in the area of taxation. She however queried how voluntary these actions would be and what types of regulatory approaches for them are to be considered. Whether they are of the information disclosure regime or of the mandatory substantive regulatory requirement regime, which doesn’t have to be mutually exclusive as there could be a blend of the actions or there could be a slow progression from one regime to another.
What was common in the discussions by the panellists at the second VIRTEU Roundtable seminar session, was the continued referral back to information, and to what extent the types of regulations discussed incentivise information gathering by the tax authorities or individual agents within the tax industry. Another level considered was if there were mechanisms for the information gathered on taxation within firms to be broadly disseminated to stakeholders and regulators. That could then help with regulatory innovation within taxation which could be shaped as predictive requirements, linking back into how to potentially regulate corporate conduct.
There were important matters raised during the session on the roles that key players in the tax industry such as financial advisers, tax advisers and other tax decision-makers undertake. The panellists settled on the idea that there seemed to be a current mind-set in taxation that if as long as issues are legal, then it must be okay. They agreed that these types of notions and behaviours need to be transcended, and minds need to be disabused of those kinds of views. Furthermore, the discussion raised calls for areas of conflicts of interest to be addressed for there to produce changes within the tax industry. There were suggestions that to generate a change, it has to be not just marginally, but fundamentally. It got rather interesting on the panel when it was asked if tax advisers are obligated to advise their clients for instance, on both the legality and morality of the services they were providing. It was noted that there are grey areas that were potentially legal, but with great moral implications which if considered, without the correct context, could begin to lead society down a slippery slope, progressing from, if its legal just not ethical, to if it may altogether be completely illegal. There could be a blur as to when these lines may be crossed. Therefore advisers should be obligated not to cross ethical lines albeit there may be legality. This is so that they are not complicit in helping their clients avoid paying their share of taxes to their society, if that society’s lifeblood is not to be cut. This led to a reflection on two dominant frames which are substantially different – the business frame mindset and the ethical frame mindset, and how this may impact achievability.
In looking towards the future, the conversation circled back to the issue of incentives. To growing uncertainty about whether incentives can go towards the designs of reward structures or sanctions structures that could bring about change on the type of new taxation regimes that are required globally. The taxation regimes could be brought in, the discussants projected, by adopting a better approach to the implementation of the CSR ESG (Environment, Social and Governance) agenda, which could be introduced at market levels rather than just policy levels.
It was also recommended that one of the ways in which taxes impact society positively was in areas where there were visible role models; where those firms and managers who are committed to being ethical and legal, could help motivate others within their society. All of this aspiration it was noted, could be hindered however if there continues to be a lack of clarity regarding what is meant by corporate social responsibility (CSR) in taxation. The panel highlighted this because they thought there could still be the mind-set amongst some in the tax industry that CSR is solely about the environment, or perhaps about philanthropy. It was further illuminated that whilst some tax firms are talking about CSR and Business Ethics, their claims may not be matching their actions. The panel, therefore, advocated for better articulation on exactly what tax firms are talking about when they mention CSR and what their ethical motivations are.
In concluding the session, the panellists warned that firms that involve in tax and accounting engineering or tax creativity need to be made aware that their type of client services, or even over-servicing, could be extractive to societies and detrimental in the long run. Also, tax reporting behaviours that are unethical, and the slow but steady normalisation of tax crimes should not be acceptable to any society. These should be called out as tax crimes and corruption, and not be papered-over with fancy names like tax engineering or creativity. This labelling may help to bring clarity to wrongdoing, and may help individuals within firms to be reflective and potentially drive a shift in unethical behaviours. Also where there are claims of existing norms, the sources of those norms which may even have been attributed to legal precedence, need to be identified, to be tackled adequately. It was agreed that there needs to be a global consensus on what is acceptable and unacceptable behaviours in taxation, particularly in drawing connections between different areas of tax corruption and human rights, and especially in a truly global world of this time, where the flow of capital and the transferring of proceeds of tax crimes and corruption assets cross-border, have now become so much easier. These unethical practices in taxation could be even deemed unpatriotic, which is a word that may help to drive a shift in attitudes.
Brilliant questions were asked at the end of the Roundtable seminar session, which included an interesting one on if the panellists felt concerned that the scales in the area of taxation was being tilted too much in favour of CSR and Business Ethics, rather than the old ways of tax law. That this CSR approach may further favour revenue authorities who already have tremendous amounts of power, thereby overburdening firms. The panellist were very current in their response to this and many of the other questions asked from a very global audience on such a topical issue.
Overall, a really invigorating Roundtable discussion that links back to VIRTEU’s project aim of holding high-level conversations on the connections that exist between the legal and policy frameworks for corruption and tax crimes. These talks have further made it clear that tax issues are hard to solve, as tax illegality and immorality could be subtle but pervasive, with seriously obscure mechanisms that have global ramifications. The panel has done a thorough work to move the dial forward, bending the moral arc, just a little bit more towards tax justice – whether calling for advocates through individuals in firms, and in the global tax industry, through the role that VIRTEU is playing to ensure reforms, or even through more regulations. All of these positions will be of benefit to the VIRTEU project. The panellists, therefore, met the aim of the second Roundtable seminar discussions in analysing Corporate Social Responsibility (CSR), Business Ethics and Human Rights in the area of taxation.