SAVING THE PLANET BY CUTTING CORPORATE TAXES: A COMPARATIVE CASE STUDY ANALYSIS.

Author:Mann, Roberta
 
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  1. INTRODUCTION 240 II. RESEARCH METHODOLOGY 243 III. WHAT IS CORPORATE SOCIAL RESPONSIBILITY? 244 A. How Do Corporations Engage in CSR? 250 B. How Do Shareholders View CSR? 253 C. How Do Employees View CSR? 257 D. How Does Society View CSR? 258 IV. TAX COMPLIANCE AND CSR 261 V. CORPORATE TAX SYSTEMS IN THE UNITED STATES AND AUSTRALIA 268 A. U.S. Corporate Tax System 268 B. Australia's Corporate Tax System 270 VI. COMPARISON OF U.S. AND AUSTRALIAN MNCS ON SUSTAINABILITY METRICS 274 A. Coal Sector 274 1. United States 276 2. Australia 277 3. Summary of Coal Company Reports 278 B. Retail Sector 278 1. United States 279 2. Australia 281 3. Summary of Retail Company Reports 282 C. Technology Sector 282 1. United States 283 2. Australia 286 3. Summary of Technology Company REPORTS 287 CONCLUSION 288 I. INTRODUCTION

    2017 was a terrible year for wildfires around the world. (1) Australia, New Zealand, the United States, Canada, Europe, Chile--even Siberia--all experienced significant fire activity. (2) 2018 was the fourth warmest year on record, following 2016, 2015, and 2017. (3) Scientists attribute increasing wildfire activity, drought, and higher temperatures to climate change. (4) Yet, all around the world, governments weaken environmental protections. (5) In 2017, the United States withdrew from the Paris Climate Agreement. (6) In 2014, Australia repealed its carbon pricing scheme. (7) When governments fail to protect the environment, other economic actors have the opportunity to play a greater role. This Article addresses the questions: should multinational corporations play a role in saving the planet? Can corporate tax cuts encourage multinational corporations to save the planet?

    Some multinational corporations (MNCs) have a greater economic impact than some countries--for example, in 2015, Walmart (8) had larger revenues than Australia. (9) Large economic entities like MNCs can therefore help protect the environment by engaging in environmental corporate social responsibility. A growing literature has developed on the topic of enforcement crowding out altruism, (10) and we argue that this literature may apply to the idea of corporate social responsibility (CSR). If the government requires social responsibility, by imposing a carbon price or by otherwise increasing tax liabilities to pay for social goods, does that reduce the corporate social response? Similarly, would reducing regulations and corporate tax liability increase the social response?

    Until 2017, the United States and Australia had significant differences in their corporate tax rates. Since 2017, the United States has moved closer to Australia in its corporate tax rate and also in its international tax system. Like the United States, Australia has recently reduced its corporate tax rates. (11) In both the United States and Australia, corporations use tax strategies to reduce their effective tax rates (ETRs).

    The United States and Australia both face environmental challenges and government responses to those challenges have been lacking. Investors increasingly expect corporations to perform on environmental, social, and governance metrics. Therefore, we argue that our examination of CSR activities by MNCs is both timely and significant. Using a case study approach, we examine corporate tax burdens as a factor in firms' investment in sustainability, using sustainability metrics as a proxy for environmental CSR. According to analysis by the N.Y.U. Stern School of Business, in 2017, MNCs in the retail industry faced a relatively high ETR (34%), while enterprises in the coal (5%) and information technologies sectors (16%) faced lower ETRs. (12) In 2018, the retail industry average effective tax rate declined to 21.66%, while the coal and information technology sectors had effective tax rates similar to 2017. (13) We therefore compare selected MNCs headquartered in the United States and Australia on ETR and CSR metrics within these three different industry categories. We will examine corporate sustainability reports and data on ETRs of the companies and attempt to draw conclusions on characteristics of companies that score well on environmental CSR and how these companies are affected by the legal and tax systems under which they operate. We will compare the U.S. and Australian systems, identify best practices, and offer recommendations for encouraging sustainability investments by corporations.

    This Article undertakes a doctrinal legal research approach together with comparative legal research methodology and an examination of published company reports in three industry groups to compare corporate ETRs and environmental CSR for selected companies head-quartered in the United States with comparable companies headquartered in Australia. The authors consider that this comparison makes a worthwhile contribution to the literature due to the scarcity of such comparative research, the recent changes to the nominal corporate tax rate in the United States and moves to reduce the corporate tax rate in Australia, as well as the economic and social significance of environmental CSR, particularly in light of environmental challenges faced by both countries.

    The Article begins with a short explanation of the research methodology used, and then moves to a general definition of corporate social responsibility, followed by a comparison of corporate social responsibility in each jurisdiction. Next, the Article examines research by both U.S. and Australian scholars on tax compliance and social responsibility. It continues with an examination of the corporate tax systems in both jurisdictions. Finally, it concludes with an evaluation of the environmental social responsibility actions taken by specific companies in the United States and Australia.

  2. RESEARCH METHODOLOGY

    This Article begins with discussion and analysis of the legal and policy concept of CSR in the United States and Australia and the legal rules relating to corporate taxation in the United States and Australia using a doctrinal legal research methodology. The Article then takes a comparative legal research approach to these issues.

    Doctrinal legal research is often described as "the systematic exposition, analysis and critical evaluation of legal rules and their relationships." (14) As such, it involves a study of existing and proposed developments in legislation, case law, and academic commentary. This research approach traditionally involves the examination in a systematic way of existing law. It can, however, be enhanced and made richer through a comparative legal research methodology. This may explain why the examination of the law of other countries has been a common feature of doctrinal research in the last 40 years. (15)

    Comparative legal research has been defined as "the science or practice of identifying, explaining, or using the similarities and differences between two or more legal systems or their constituent parts." (16) We argue that the United States and Australia make good comparators because they are both sophisticated democracies, have well developed corporate tax systems, and an established concept of CSR as discussed in Part III. These countries also have a common legal heritage, the English common law.

    In Parts IV and V, we draw out significant differences between the two jurisdictions when we compare the taxation of MNCs headquartered in the United States and Australia. We selected three industry categories to examine for sustainability efforts for their distinctively different ETRs as demonstrated in Part VI: retail, coal mining, and information technology. The U.S. companies selected are Walmart Stores, Inc., CONSOL Energy, and Google. The Australian companies selected are Wesfarmers, Whitehaven Coal Limited, and Isentia. We chose these companies because they are all publicly traded, have multinational operations, and are listed in the specific industry categories in the N.Y.U. Stern ETR database that we have chosen to analyze. We analyze the publicly available corporate reports for each of these companies to assess their engagement in CSR.

  3. WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

    Corporate social responsibility is defined in many ways. Although most definitions of CSR include environmental, social, and governance elements, (17) there is a spectrum of views on CSR. According to one view, CSR is limited to socially beneficial corporate actions that do not directly produce financial benefit to the corporation or its owners. This strict view may face legal constraints--under the shareholder primacy theory, corporate management has a fiduciary duty to maximize profits, and if CSR reduces profits, that constitutes a violation of fiduciary duty. (18) However, shareholder primacy, while considered a fundamental tenet of corporate law, has little legal authority and might be viewed as a norm rather than a legal obligation. (19) Corporate managers and directors can almost always escape sanction for alleged failure to maximize profits by asserting the business judgment rule. (20) The business judgment rule, applied in both the United States and Australia, provides corporate directors with some protection from liability based on a breach of directors' duties on the grounds of failure to maximize profits, provided that the board acted in good faith. (21)

    The strict or pure view of CSR excludes any actions that benefit the owners of the corporation. (22) However, for several reasons, it is difficult to assess whether corporations engage in pure CSR. (23) Behaving in a socially responsible manner may benefit shareholders in non-financial ways. As noted in the Harvard Business Review, "if investors have some objectives other than money, there is no reason why a company's board should ignore them and pursue only profit maximization. The fiduciary duty a board has to a company's shareholders is to maximize their welfare, not just the value of their pocketbook." (24) Moreover, whether...

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