Aggressive Tax Planning and Corporate Social Irresponsibility: Managerial Discretion in the Light of Corporate Governance

29 Pages Posted: 13 Feb 2018 Last revised: 13 Mar 2018

See all articles by Ave-Geidi Jallai

Ave-Geidi Jallai

Tax Law Department, Tilburg Law School, Tilburg University

Hans Gribnau

Tilburg Law School; Leiden University

Date Written: February 7, 2018

Abstract

The purpose of this contribution is to explore the possibility of integrating tax with corporate social responsibility (CSR). Some corporate directors seem to argue that they do not have a choice with regard to tax planning, implying that a responsible tax planning strategy is not an option. This contribution shows such argument to be wrong. First, the issue of management accountability and choice will be dealt with in the context of corporate governance systems in order to find out what kinds of obligations corporate governance entail for managers. It will be shown that corporate directors enjoy sufficient discretion for making socially responsible decisions. To this end, two existing theoretical frameworks will be analysed, according to which corporate decisions should prioritise either shareholders or stakeholders interests. Both theories allow managers a choice to act with a wider interest than purely shareholder value maximisation. Furthermore, it will be argued that managerial discretion to take CSR into account does not oblige managers to aspire to some kind of ideal social responsibility but rather to stay away from corporate social irresponsibility (CSI). Therefore, corporate managers in different corporate governance regimes have sufficient room for aligning their tax planning strategies with societal expectations and avoiding aggressive tax planning.

Thus, this paper aims to make two contributions to academic theory. First, it is shown that both shareholder and stakeholder-oriented corporate governance regimes allow for managerial discretion to take CSR on board in tax matters. Secondly, the concept of corporate social irresponsibility is introduced to enhance a more balanced debate about multinationals’ tax planning practices.

Keywords: tax avoidance, aggressive tax planning, corporate governance, shareholder value, stakeholder model managerial discretion, business judgment rule, Corporate Social Responsibility, Corporate Social Irresponsibility, compliance beyond the law

Suggested Citation

Jallai, Ave-Geidi and Gribnau, Hans, Aggressive Tax Planning and Corporate Social Irresponsibility: Managerial Discretion in the Light of Corporate Governance (February 7, 2018). Tilburg Law School Research Paper No. 05/2018. Available at SSRN: https://ssrn.com/abstract=3119552 or http://dx.doi.org/10.2139/ssrn.3119552

Ave-Geidi Jallai

Tax Law Department, Tilburg Law School, Tilburg University ( email )

Tilburg, 5000 LE
Netherlands

Hans Gribnau (Contact Author)

Tilburg Law School ( email )

Tilburg, 5000 LE
Netherlands

Leiden University ( email )

P.O. Box 9520
2300 RA Leiden, NL-2300RA
Netherlands

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