Focus on taxing corporate profits needs to widen if we are to encourage ethical and sustainable business behaviours
Governments need to look beyond profit as the basis of taxing companies and consider their impacts on the environment and society if we want businesses to support a sustainable future.
A new paper from ACCA Where next for tax and ethics in the 21st century? argues that the current focus of most tax systems across the world on financial profits is too narrow.
Its author, Jason Piper, Head of Tax and Business Law at ACCA, argues that: ‘If behaviours that have negative impacts such as profligate use of water, energy or carbon-intensive resources are taxed directly, then there will be an incentive for businesses to find models that consume the least of these assets.’
Another example cited in the paper is that of businesses harming the local environment without bearing any costs of clean-up or remediation.
Piper says: ‘Corporations could be taxed on a basis that tries to reflect their overall impact rather than just their financial results. Up to now profit has been seen as the best basis for taxing enterprises. But now it may be the time for change: where financial results should not be the only yardstick of success and therefore not the only the way tax on corporates is levied.’
‘Taxing profits without considering how those profits are made favours those businesses that can take advantage of negative externalities - outcomes of business behaviour that are not reflected in measured results - to reduce their operating costs.’
‘Critics often attack taxes as potentially destroying business, but companies will adapt and survive provided that taxes are properly designed and fair between competing businesses.’
Qualified tax advisers and financial professionals have to operate under an ethical code. However the paper says their role should go beyond advising businesses on what is unlawful and undesirable and should extend to identifying necessary changes to make the tax system work for the wider good of society.
Mike Suffield, Director of ACCA’s Policy & Insights, said: ‘As ACCA has noted previously in Public trust in tax: Building trust in tax for a sustainable future published September 2023, as societies’ expectations of business and governments evolve, so does the role accountants can play in building sustainable economies. New sustainability reporting and assurance standards will support a shift to more sustainable taxes as well as reinforcing the role that businesses play in society beyond simply paying taxes.’
Read Global policy on taxation of companies: principles and practices
Editor’s Notes
Along with Where next for tax and ethics in the 21st century ACCA has updated it Global Policy on Taxation of Companies: Principles and Practices. First published in 2014 the 2024 edition has been updated to reflect developments in regulatory environment, business models, particularly the expansion of digital, and broader factors shaping the public debate on taxation.
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