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"'Taxes are what we pay for civilized society', Oliver Wendell Holmes1"
Paying taxes is perhaps the most fundamental way in which private and corporate citizens engage with broader society. Tax revenues are the lifeblood of the social contract, vital to the development and maintenance of physical infrastructure and to the sustenance of the infrastructure of justice that underpins liberty and the market economy (Hutton, 2002: 75). It is therefore curious that tax minimization through elaborate and frequently aggressive tax-avoidance2 strategies is regarded as one of the prime duties that directors are required to perform on behalf of their shareholders. It is more curious still that the debate about Corporate Social Responsibility (CSR), which has touched on virtually every other area of corporate engagement with broader society has scarcely begun to question companies in the area where their corporate citizenship is most tangible and most important - the payment of tax.
This is so despite the fact that a series of corporate scandals in recent years, involving such high-profile companies as Enron, WorldCom, Tyco, Yukos, Parmalat, the Big-Four global accounting firms, and major law firms, have drawn public attention to the growth of tax-avoidance mechanisms such as transfer-pricing, re-invoicing, offshore 'special purpose vehicles', corporate inversions, dubious charitable trusts and other vehicles for tax abuse.
In the case of Enron, which until December 2001 was widely heralded as the role model for the 21st century, a total of 881 offshore subsidiaries, of which 692 were incorporated in the Cayman Islands, were used as part of an elaborate strategy to avoid taxes (Johnston, 2003). Data for the period 1996-2000 show that over a five-year trading period Enron generated pre-tax profits approaching US$1.8 billion, but paid no federal income taxes and was, in fact, a net recipient of tax rebates (http://www.ctj.org - accessed 13 November 2003). A 2,700-page report by a US Senate committee estimates that it will take ten years to examine forensically the schemes operated by the company, and it has emerged that Enron paid its advisers US$ 88 million in fees in order to avoid paying US$ 2 billion in US taxes (Sikka, 2004).
Enron's strategy of minimizing its asset base and avoiding taxes on a global basis made it popular with international...