The business trend of turning tax obligations into contributions to society

The business trend of turning tax obligations into contributions to society

The group of Lidl supermarkets He stated this week that, for every euro of profit he obtains in Spain, he generates an additional 18.6 euros for the national economy. At the same time, the employers group groups the food and beverage companies (FIAB) ensures that it generates more than 305,000 jobs in the Empty Spain, which entails establishing more than 834,000 people in those territories. Conclusions they reach through reports they hire.

They are not unique cases. It is becoming more and more common for companies, whether or not they are listed or business associations, not only to reveal how they are doing in terms of the 'purest' economic data (profit, income, expenses...), they also emphasize how much they contribute to the Treasury coffers or how much their Social Security contributions are, when, in reality, they are legal obligations that they must comply with.

Information that also covers environmental issues or issues linked to its suppliers, where the background on many occasions is the lack of uniformity and common criteria regarding the data provided.

"Companies not only have to worry about making money, but they have to measure their impact on society, they have to count it, say what comes out of their chimneys or their drains," argues Antonio Argandoña, professor emeritus of Economics and Ethics of the Company at IESE. "We are in a phase of developing this type of information, which will stay, not only about the impact they have on the environment, their workers or suppliers. They have to report all this and it is good, because you have to know What impact do they have on society?

A trend that is on the way to becoming a legal obligation, points out the director of the Social Impact Chair and professor at the University of Comillas, Carlos Ballesteros. First, for listed companies that have to prepare reports on their non-financial evolution and, from this year, for all companies that have more than 250 employees and invoice more than 40 million euros. "But one thing is that it is mandatory to inform and another that each one does it as he wants or can", he adds.

"We are advancing little by little, building the building while the bricks and the guidelines that the European Union is setting, such as the green or social taxonomy [que define qué actividades se consideran sostenibles]they are going to help us", points out Ballesteros. But the construction of that building does not follow clear rules.

"Recently, a director of an Ibex company told me that they were at a loss as to how to do it", acknowledges the Comillas professor. "He asked us to train the students."

Most of the large listed companies already report on their impact on society and assume what the purpose of this information is. As an example, ArcelorMittal justifies, when speaking of its impact on the environment, that the companies "not only represent a financial result at the end of the year nor do they contribute solely to society through the payment of taxes, but also by generating employment, maintaining a relationship of trust and proximity to local suppliers and, ultimately, boosting local economies".

Waiting to see how it has gone in 2021, in the previous year, that "economic contribution from ArcelorMittal in Spain" was 3,767 million euros. What does it include there? "Direct and indirect concepts such as workers' wages, payments to suppliers of raw materials and other supplies and services, dividends, taxes and investments in R&D and social", he lists.

There is still a lack of harmonization in this information because "we are in a moment of transition", indicates Massimo Cermelli, professor of Economics at Deusto Business School. "Companies want to communicate that corporate social responsibility is already part of their DNA. It is a cultural transition, positive for suppliers, customers, shareholders; because it is also greater transparency. But what they say has to be true," he clarifies.

"They have to align their mission with their actions, because you can't brag about what you do when you don't. It's a social or almost moral obligation to say so, but if it's not true, it can turn against you," Cermelli summarizes.

Antonio Argandoña focuses on the seriousness of both the company and the person who makes the report. "Can I trust what they say? Who has proven those results?" he wonders.

"It is relatively easy to make a regulation that measures how much is earned in a year, for example, what is the amortization criterion of a company, the real income as of December 31 and that the auditors verify it. In the economic information the criteria are very clear. But how is worker satisfaction measured? How does an independent auditor measure it? It is a problem that we are always going to encounter", assumes the Emeritus Professor of Economics and Business Ethics at IESE.

This week it has made public the impact of its Lidl activities, which in 2020 earned 172.6 million euros in Spain. The German company states that it has 17,000 direct jobs in Spain, although, if the indirect ones are added, that employment figure would rise to 139,000 people. "For each direct job it creates, Lidl generates more than 7 additional jobs to the labor market," says the company. "This means that, approximately, 1 out of every 138 existing jobs in Spain is linked to our activity".

And, in addition to employment, Lidl relies on the report commissioned from the consulting firm PwC to highlight that, in that 2020 financial year, "it paid 413 million euros in taxes." Of these, "176 million euros were borne taxes, that is, those that represent a cost for the company."

According to that report, the taxes that the supermarket chain has to pay would be equivalent to 27% of the budget allocated for scholarships and student aid from the Ministry of Education and Vocational Training or could cover half of the increase in the budget of the State Public Employment Service. (SEPE) in 2020, the year of the pandemic.

The food and beverage employer also talks about how much it contributes to public income. In his case, he affirms that his companies contributed 35,377 million euros. In this case, the report prepared by the consulting firm Kreab points out that these companies generated income for public coffers of 516,423 euros on average per municipality in Empty Spain.

It is not only the companies that want to highlight how much they contribute to the economy and employment. Also the football machinery. LaLiga presented in 2018 "a independent study" on the socioeconomic impact of the professional football industry in Spain, prepared by PwC. It was based on data from the previous season, 2016/17.

That report quantified the impact of LaLiga at 185,000 jobs, of which nearly a quarter (47,000) were jobs where the competition had a direct impact. The rest? Of other activities, such as transport or restoration. It measured that the consumption around the stadiums and the expenditure made by fans on transport and accommodation to attend matches was 1,072 million euros and represented 16,336 jobs.

LaLiga also calculated that it represented 4,100 million euros in tax contribution. There he included more than 1,000 million, both in Personal Income Tax and in Social Security contributions, and 600 for Corporation Tax. Instead, the main figure was VAT. He assured that, charged to that soccer season, the collection for this tax was 1,163 million, but not for the activity inside the stadiums. "It is fundamentally due to the consumption of attendees (bars, restaurants, transport, etc.) and the increase in household consumption derived from greater economic activity," PwC summarized in its report.

Of the last two seasons, there is no data. The competition, which ended in 2020, marked by COVID, ended with losses that LaLiga estimated at 700 million euros.

Basically, that there may be reputational damage that clients and investors punish. "Some companies do 'green or impact washing'. They clean their impact through what they communicate," says the director of the Social Impact Chair, Carlos Ballesteros. "A few years ago the consumer was not so attentive, concerned or did not have as much accessible information. Today it would be a serious reputational failure, they would lose sales and it would have an impact on their income statement and on their investors."

This ESG information (environmental, social and good governance) also stands out because "it has become fashionable", indicates Massimo Cermelli, from Deusto Business School. “ESG has become a kind of positive accreditation. Having the seal. Now they have to communicate and support it. They don't comply."

And ultimately, ethics comes in. "In the end, the important thing is that people have ethics, that companies are loyal to workers, employees or shareholders," summarizes Antonio Argandoña. "The important thing is that companies tell the truth. If they are polluting, let them say so. If the company is very clear in its explanation, if it tells you its failures, what it does not achieve even if it tries... I do believe a company that says that.

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