The Relation between Corporate Social Responsibility and Profit Shifting of Multinational Enterprises

Abstract

We examine the relation between corporate social responsibility [CSR] and international profit shifting. We find consistent evidence that CSR is adversely related to profit shifting within European and US multinational firms. Additional results document that less profit shifting occurs in European multinational firms that show high performance in the social or corporate governance dimensions. For US multinational firms, we find that the CSR performance is negatively related to profit shifting, particularly if a multinational firm faces fewer reputational concerns or competitive threats. Moreover, we can also confirm a negative relation between high commitment to CSR and tax avoidance by investigating effective tax rates taken from consolidated financial accounts. Our evidence suggests the existence of a corporate culture in which CSR and tax payments act as complements.

Keywords: Profit Shifting, Corporate Social Responsibility, Tax Avoidance, Corporate Governance

JEL Classification: H25, H26, M14