We demonstrate that government revenue equivalent to the tax contribution of just one MNC is associated with significant increases in access to the determinants of health (i.e. drinking water, sanitation, and education) in six countries. Thus, we demonstrate how Vodafone has contributed to progress towards the SDGs in six host countries in SSA. The benefits include almost 400,000 people accessing clean water and nearly 700,000 accessing basic sanitation. These figures demonstrate the substantial impact MNCs can have for several reasons: 1. Government revenue in low-income countries is minimal, and any additional income will be relatively large. As shown in Table 2, the tax contributions from Vodafone alone accounted for 1-4% of government revenue in 2018 in these six countries. In the UK, Vodafone's contribution accounted for 0.16% (47)(57). 2. Important interventions which would substantially reduce mortality in low-income countries include public health measures such as clean water, sanitation, education and primary health care, which are less costly than in high-income countries (52).
The DRC demonstrates a different trend to the other five countries: whilst access to basic sanitation and additional school years increased steadily over the period studied, access to basic drinking water fluctuated over time, with a comparatively low average of 5,774. This difference is due to changes in the level of governance. At very low levels of coverage, the government plays a significant role in effectively using resources. Other contributing factors could be subnational, including regional conflicts (58).
Thus, tax contributions have massive potential to progress towards the SDGs in low- and lower-middle-income countries. Corporations, governments, consumers, investors, and international organisations could play a role in supporting this progress. We discuss these below.
We do not have access to the previous tax year reports 2007, 2008, 2009, 2010, and 2011. Therefore, we have assumed the contribution for these years was the same as the average. Equally, the reported revenues were not analysed for misalignment. Misalignment is defined as inconsistencies between reported profit and actual economic activity (59).
Multinational corporations and the Sustainable Development Goals
While governments are crucial to driving progress towards the SDGs, businesses are vital players in the global economy. They can positively or negatively impact the progress with their policies and practices. Indeed, Barnett argues that all law-abiding MNC activities have a social component because they improve the economic conditions of society (60). Many companies are engaging with the SDGs, but Oxfam suggests that before business enterprises try to do good, they should first do no harm by reviewing their supply chains, employment policies, and tax planning arrangements (61). A review of corporate governance and tax avoidance literature finds that many firms pay above the average statutory rate and resist opportunities to reduce their tax burden. In contrast, others aggressively avoid tax (62).
Tax abuse erodes access to rights. Business enterprises must not undermine a state's ability to meet their human rights obligations, especially as it may be easier to avoid and evade tax where host country governance is poor, which is precisely where the tax revenue is most needed. Moreover, activities to support rights locally, for example, a clinic or school, while laudable, do not offset a failure to promote rights nationally by paying taxes.
Given the legal and ethical controversies surrounding tax abuse, the International Bar Association's Human Rights Institute (IBAHRI) has suggested vital considerations. It recommends business enterprises adopt and commit to human rights throughout all operations, including due diligence measures and impact assessments on tax planning practices and the financial flows and tax revenues generated in different jurisdictions. It advises against negotiating special tax holidays, incentives and rates that prevent governments from fulfilling their human rights obligations and promote transparency through public reporting on a country-by-country basis.
Certain aspects of corporate governance reduce the chances of tax abuse, such as robust governance structures, an independent audit committee, and separation between ownership and management, as in publicly traded companies. Drivers of abuse include an incentive structure based on after-tax profits that induce risk-taking by those who benefit. Indeed, individuals in crucial positions may drive tax abuses in whichever firm they work (62). Media coverage of tax abuse and the subsequent introduction of stronger taxation laws, including the OECD's two-pillar approach (63), has resulted in increased scrutiny of MNCs' tax practices, see the Global Governance section.
Tax and Corporate Social Responsibility
The idea that business enterprises have a responsibility to society beyond profit is not new. But it has received more attention over the last few decades as excessive profits have raised concerns that companies prioritise shareholders over other stakeholders in society (64). There is an ongoing debate about what CSR is, what it achieves, and what it could achieve. In general terms, it covers the areas of responsibilities that a company has to the society and the environment where they operate and incorporates these needs into their decision making, as the sole principle of maximising shareholder wealth may not benefit all stakeholders (38). The broad reasons for engaging with CSR include moral responsibility, sustainability, regulations, and reputation. One study examined three MNCs (Toyota, Ford and General Motors) who experienced ethical scandals regarding reputational impact. The researchers found that pre-emptively incorporating CSR considerations into their supply chains would have resulted in a competitive advantage in the long run (65).
However, CSR activities are often ad-hoc with little social impact, but rather are charitable activities in response to society's expectations that companies be good global citizens (38). Visser argues that CSR has historically and categorically failed to create positive social change because society does not lead. In many cases, CSR is undertaken to mask the harmful effects of multinational corporations on the global community. CSR may have a visible impact through small projects at the micro-level. Yet, as economic inequality is rising and many people still live in extreme poverty, Visser recommends that businesses move to systemic or radical CSR, touted as the pinnacle of CSR. Radical CSR calls for changes to the systems that underpin capitalism as we know it and taking steps to ensure that the world conducts business to benefit global society, rather than a select few, thus avoiding grievous social, economic, and environmental harm.
Some argue that businesses should develop CSR standards on Taxation (39). However, because fair tax impacts human rights and drives progress towards the SDGs (66), we argue it should be outside the CSR framework, and it is integral for any law-abiding MNC, whereas CSR gestures are discretionary. In addition, it serves to improve reputation and, thus, relationship with broader society; doing so may create a financial return, but this is debatable. Therefore, we agree with Oxfam that businesses should first not harm by ensuring tax transparency and fair tax payments before doing good with CSR activities.
Increasing tax avoidance increases profits for shareholders in the short term and increases executive bonuses (if based on after-tax profits). However, the long-term impact may be harmful, and the risks include reputation and litigation. Empirical studies show that businesses that engage with CSR hedge against negative public opinion if tax abuses become public (67). There is an association between companies that rank highly on CSR indexes and corporate tax abuse among companies listed on the Chinese stock exchange. This finding aligns with the view that CSR is a substitute for tax payments (68). These findings are in keeping with the school of thought that it is possible to compensate for tax abuse with CSR or that tax abuse is justified to pay CSR expenses (69). However, there is a question of sovereignty and national development policy and planning. Companies may decide CSR strategies, without consultation, that are not aligned with national development priorities and not well regulated by governments. Nonetheless, the relationship between CSR and corporate tax avoidance varies; for example, a study in Australia find companies which engage with CSR are less likely to engage in tax abuse (70).
We agree that it is a government's, not a business's, responsibility to redistribute tax revenue from profits and use them to respect, protect and fulfil human rights and progress towards the SDGs. The private sector's role is to support governments to meet their obligations and pay their fair share of tax. But, equally, governments must request the right amount of tax, but no more, to further develop the vital infrastructure that businesses and citizens need to thrive.
Businesses have started to publish regular CSR reports; for example, of the 500 largest MNCs listed on the USS stock exchange, only 11% posted in 2011 compared to 85% in 2017 (71). However, in an era in which the international community increasingly calls for multinational corporations to combat rising global inequality, brands experience difficulty using CSR to stand out from the crowd. Therefore, cutting edge methods are required to increase brand value. (72). Fair and transparent tax practices can demonstrate how an MNC tackles global inequality. There is a financial incentive because companies' stock market prices fall when tax abuse is made public (73). In addition, boycotts have included Starbucks in the UK and Burger King in the US, related to tax abuse scandals (74). Scrutiny by the public and protests have moved tax issues up the agenda to the boardroom (75). In addition, 68% of participants of a Dutch pension fund preferred their pension fund managers to invest responsibly, even if this resulted in lower returns (76).
Investors increasingly incorporate CSR considerations into investor portfolio decisions as responsible and sustainable investing increases in popularity. For example, the United Nations Secretary-General convened an extensive global network of institutional investors to develop the Principles for Responsible Investment (PRI). The PRI signatories publicly commit to incorporating CSR issues into investment analysis and decision-making, pursue standardised reporting, and encourage all investors to adopt the principles (77). Signatories to the PRI had $80 trillion of assets under management in 2019. The three most prominent institutional investors (Blackrock, State Street Global Advisors and the Vanguard Group) are signatories.
Long term institutional investors are more risk-averse and may guide their investees towards tax compliance (62). Fiduciary duties of investors require that they invest prudently and in their client's best interest. Integrating fair tax factors into investment strategies depends on whether the investor believes that these will materially affect the portfolio's performance. We believe this case study supports incorporating fair and transparent tax into the decision algorithm of investors.
Host country responsibilities
Under international human rights law, countries must respect, protect, and fulfil human rights within their territory and jurisdiction. This duty includes protecting both their citizens and business enterprises against infringements by other actors, and they must use all available tools at their disposal. Tools include legislation, policies, regulations and adjudication, which should be anchored in the constitution (22). Governments may need to invest in the revenue authorities and review tax incentives and treaties to counter tax abuse and maximise public finances. Every country that receives overseas development aid should invest in its revenue authorities to decrease its dependence on aid (78). Governments try to balance the need to provide an attractive environment for corporations with ensuring that all large taxpayers contribute to the public purse. This is complicated by competition for the same foreign investment and the resulting pressure to use tax incentives or waivers to attract investment. However, incentives reduce the amount of corporate tax revenue and drive a race to the bottom.
Home countries of MNCs
Countries that facilitate tax abuses violate their international human rights obligations. General comment number 24 (regarding extraterritorial obligations in the context of business activities) declares that they are required to take steps to prevent human rights violations abroad by corporations (79). Some countries bear more responsibility for tax abuses than others (4). The IBAHRI highlights the damaging impact of tax abuse, and those obligations include 'doing no harm' to economic, social, and cultural rights abroad. They highlight the key areas conducive to tax abuses. These include transfer pricing and other cross-border intra-group transactions, the negotiation of tax holidays and incentives; the taxation of natural resources; and offshore investment accounts. Secrecy jurisdictions or tax havens and enablers (accountants and lawyers) cost governments $500-600 billion annually because of their role in facilitating tax abuses (80,81). Home countries should consider the obligation to 'do no harm' to rights to include an obligation for states to assess and address the domestic and international impacts of corporate tax policies. Suppose a business enterprise receives state support, for example, an export credit guarantee. In that case, there is an additional onus on the home country to ensure that the supported business does not engage in tax abuse. Additionally, countries promoting transparency and technical assistance for low-income countries to increase their domestic revenue capacity will become an essential component of future development agendas (5).
Collectively, states are the trustees of the international human rights regime and collective action through multilateral institutions could play a critical role in the field of tax (78). While the gap in global governance regarding taxation is significant (82), there are initiatives to address this. For example, the UN Committee on the Rights of the Child (UNCRC) has asked Ireland to explain her plans to ensure that its tax policies do not contribute to tax abuse by Irish domiciled companies, impacting the realisation of children's rights in host countries. For the first time, the UNCRC will examine the effect of a country's tax policies on children living overseas (83). In November 2021, the European Union adopted new rules requiring multinational companies to publish their OECD reporting data country by country. This move has been controversial, as advocacy groups argue low-income countries are negatively impacted by the deal and excluded from the decision-making process (84). Opponents of higher tax rates argue that this move would hamper economic growth, while other experts contend this would benefit low-income countries (7,85). However, this will reveal publicly the extent of profit shifting and the countries which lose out. Increasingly, companies are publishing taxes country by country voluntarily. This path has been carved by the extractive industries transparency initiative (EITI), a global standard for oil, gas, and mineral resources. Among other criteria, it requires transparency on how revenue from extraction makes its way along the supply chain to the government and the economy. This initiative came about due to concerns about the 'Resource curse' where countries with abundant natural resources had lower development and economic growth than countries with few natural resources. Whilst the EITI is voluntary; it has led governments in the EU and Norway, Canada, and Ukraine to pass laws now requiring country by country reporting regarding the extractor sector (86)(87). We believe extending public country by country reporting beyond this sector will create a fairer tax system for all.