K20 - Regulation and Business Law: GeneralReturn

Despite a decades-long discussion about corporate social responsibility ("CSR"), there is little known about the evolution and meaning of the EU law on CSR and its perception by various stakeholders. The two objectives of this paper are: (i) assessing the evolution to the current EU law on CSR and (ii) making a case study about the perception of CSR by businesses from the luxury fashion industry supposed to be the leading CSR force, namely their ambassadors - CEOs and employees facing the clientele in Pařížská street in Prague. In order to address these two objectives, holistic and interdisciplinary research of economic, legislative and academic sources as well as a case study, entailing interviews and mystery shopping was performed. The exploration of the yielded data employed Meta-Analysis, content analysis, teleological interpretation, etc. The critical and comparative review of the evolution of the EU law on CSR shows piecemeal trends and a lack of permanent consent. This leads to the fragmentation and ambiguity, which is matched by the findings of the case study. The perception of the EU law on CSR is done differently by various CEOs of luxury fashion businesses, and there is an inconsistency between their attitudes and those of their employees facing the clientele. Such inconsistency undermines the effectiveness and efficiency of the CSR regime and needs to be corrected.
Implications for Central European audience: Although the sustainability projected in CSR is critical, the EU law has undergone a complex and fragmented evolution leading to a partially mandatory framework. The understanding and application of such a framework about CSR and its reporting is a challenge. A Central European case study of luxury fashion industry businesses shows piecemeal trends and a lack of consent, and this even among CEOs and frontline employees of the same business. The implication of such an inconsistency is a decrease in the effectiveness and efficiency of the CSR regime, a devaluation of the CSR awareness and the need for corrections.

In 2019, the Czech Republic implemented some of the provisions under Council Directive (EU) 2016/1164, also called the ATAD (Anti-Tax Avoidance Directive). Since then, professionals in the field have been following the impact of this directive on tax legislation and accounting. However, this paper aims to show that in addition to the tax rates and the profit after tax, the ATAD will also impact financial management, specifically investment decision-making. The paper analyses a model situation based on the implementation of these regulatory measures and focuses on the effects of the new EU legislation on the interest tax shield and the overall borrowing costs. The methodology used in the paper is described in more detail in section 2 (“research commentary”) and is based on comparing the net present value of an investment financed with debt capital before and after the ATAD implementation. The calculations use the accounting data of an existing company including information that is not available to the public. This example is used to demonstrate the point by calculating the net present value with regard to the impact of the interest tax shield based on the method of financing. The calculations in the paper follow the applicable rules used in the Czech Republic before and after the ATAD came into force. The results confirm that the net present value (NPV) of investments have decreased. Due to the default parameters set for the calculation, the results also show a comparable decrease in the NPV when the investment is financed with debt capital. With comparable conditions and initial parameters (i.e. zero down payment and identical borrowing costs), the decrease in the NPV is higher when the investment is financed with a bank loan. The analysis shows that investment planning under the new legislation will be more complex and will have to take into account the financial results of the whole firm and whether the borrowing costs are tax deductible. All in all, this analysis suggests that economic calculations have to focus more on the details and the wider context of the tax deductibility of interest.