The Relationship between CSR and Tax Avoidance: An International Perspective
33 Pages Posted: 20 Apr 2017
Date Written: 2017
Corporate tax aggressiveness (or avoidance) is widely viewed as socially irresponsible and “unethical” (Hoi et al 2013; Sikka 2010). However, few corporate social responsibility (CSR) studies have considered tax aggressiveness as an explicit component/measure for understanding CSR activity. Based on US data, Hoi et al (2013) find some evidence that firms with excessive irresponsible CSR activities are more aggressive in avoiding taxes. However, they find no evidence of a more general relationship between CSR and tax avoidance. This finding contrasts with the Australian study of Lanis and Richardson (2012), which documents a strong negative relationship between CSR disclosure levels and tax aggressiveness (high CSR disclosure is associated with lower tax aggressiveness). Our study extends the literature by examining the CSR‑tax avoidance relationship in a wider international context using sustainability ratings data provided by Ethical Investment Research Services. Based on a large sample of firms across several international reporting jurisdictions, we find some limited evidence of a negative relationship between CSR levels and tax aggressiveness, even after controlling for firm size, industry, region, risk, financial performance and other factors. However, the association is not consistent across all tax avoidance proxies tested nor CSR metrics utilised in this study. Furthermore, when we partition the regression analysis by region, the CSR‑tax avoidance relationship was found to be significant on the Asian (including Oceania) sub‑sample, but is largely insignificant on the North American, European and UK sub‑samples.
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