Three linkages between corporate social responsibility and corporate tax avoidance
(Reference --- Effect of corporate social responsibility on corporate tax avoidance: evidence from a matching approach)
1. From the perspective of corporate culture theories (Kreps 1990), CSR exerts a negative effect on tax avoidance (Lanis and Richardson 2012).😢😢😢😢
Firms engaging in CSR because of the corporate culture tend to consider not only the interests of shareholders, but also the impact of their business activities on economies, societies, and environments. However, firms failing to pay adequate taxes because of their tax avoidance activity may cause the entire society to pay a high price, resulting in irreparable losses (Weisbach 2002; Williams 2007).In addition, tax avoidance is an opportunistic behavior that violates the invisible contract between firms and the society; it results in high social costs, hinders the government’s right to collect tax from firms, and sacrifices public interests (Weisbach 2002).
2. Tax payments and CSR are substitutes for one another.CSR exerts a positive effect on tax avoidance.😍😍😍😍
if firms treat CSR activities as risk management strategies (Godfrey 2005; Godfrey et al. 2009), they are more likely to engage in tax avoidance (Hoi et al. 2013). Tax avoidance may lead to serious negative outcomes, such as reputation damage, media pressure, penalties imposed by tax administrations, and even boycott from customers (Hanlon and Slemrod 2009; Wilson 2009). Therefore, CSR should be regarded as a risk management strategy that can enhance a firms’ reputation. Firms with a high reputation can avoid serious political, regulatory, and social sanctions (Godfrey 2005; Minor and Morgan 2011). Minor and Morgan (2011) suggest that CSR provides a function similar to that provided by insurance; it can help firms to reduce the risk of sanctions when facing negative events. Specifically, firms practice CSR activities in order to manage their reputation, thus reducing the expected costs related to tax avoidance (Godfrey 2005).
3. CSR is not related to tax avoidance.😶😶😶😶
Firms are willing to invest resources in CSR activities as long as the CSR activities meet the ultimate goal of shareholder wealth maximization. Previous studies have mostly maintained that CSR is advantageous to corporate performance. For example, Tsoutsoura (2004) contends that CSR can help firms to enhance their brand image and gain a positive reputation and that it can attract reputed clients, outstanding employees, and quality suppliers; therefore, CSR is beneficial for improving firms’ performance. Karagiorgos (2010) finds that despite the CSR costs, firms engaging in CSR can increase stock returns and induce stakeholders to value the firms higher. Gras-Gil et al. (2016) also indicate that firms practicing CSR can effectively use resources while pursuing performance growth.
On the other hand, firms may also engage in tax avoidance for the same reason of engaging in CSR—to achieve shareholder wealth maximization. If tax avoidance and CSR independently contribute to the maximization of firms’ value, and managers can participate in the two activities separately, then CSR is unrelated to tax avoidance (Davis et al. 2016).
Read this --- Is responsible tax behavior the next frontier of CSR?
After reading those materials, what I think is...💬
- Tax avoidance is legal but immoral
- Tax avoidance cannot build a good business reputation
- Tax avoidance is not fair to other company
- Companies have a responsibility to pay tax because of the benefits they receive through the services that tax enables states to fund
- The company does not only looking for a profit but also need to contribute to societ
Hi, I agree with you that tax avoidance is immoral and might harm the company's reputation. Because the profits earned by the government are in part attributable to the stable social development and high-quality labor. Hence it is the companies' responsibilities to return to the community.
回覆刪除However, I disagree with your last point, mentioned that the companies need to contribute to the society. I think it depends on the companies' nature and business. If it is a start up firm, I think it is reasonable for them to just look for profits. But the big firms do have an obligation to participate more in the CSR activities so as to contribute to the society and build a good reputation, which can attract more high-quality customers. It might be advantageous to long-term growth.
I also contend that CSR has nothing to do with tax avoidance. Because CSR is just an activity that companies used to build good reputation. And tax avoidance usually is very secretarial, layman usually cannot understand its rationales and practices. Hence the companies might not use CSR to defend themselves.
Hung Tak Chun 11288437
Lai Wai Ching
刪除You think CSR is just an activity that companies used to build good reputation, it is a inspiration idea , just like tutor said on the lesson - it is a window dressing. But I think as the multinational company should pay tax, as their is final aim not only making profit , but also desire a long term sustainable development and cooperate to different countries favorably,I think CSR is a long term strategy, and decrease operation rsk.
Hello, we are gp3. The opinion of ours is basically the same as that of the first group. As we do not know much about CRS, we would like to discuss them from the first and third points.
回覆刪除Tax avoidance will not only bring economic loss to the society, but also give a lot of negative effects to the industry. For example, the tax avoidance incident of Fan Bingbing and Feng Xiaogang brought an irreparable reputation for mainland China's film industry.
As for the third point, our group thinks that tax avoidance is related to social responsibility. Tax avoidance is a kind of behavior to evade social responsibility, which will bring bad influence to the whole industry. The government's tax collection on enterprises is to exercise the supervision function on themw, so that we can know whether they have falsified on their account books.
Group3
Lai Wai Ching
刪除Yes, if public know a company have falsified on their account books, the company stock market price decrease , also people will not trust the company anymore , they may boycott the company.So I think it is essential that company share information to the public, let public have know the company situation,to create a good public relationship.Pay tax can make a company become another competitor role model and take competitive advantages.
Tax avoidance somehow provokes more the CSR activities as companies gain more spare money. Government cannot prohibit such unethical practice yet companies repay by CSR activities. The problem of this is if the company is not that ethical (they do tax avoiding), their CSR activities are unethical also. Tax avoidance is a very basic common sense that every company must not execute such practice.
回覆刪除Therefore we can conclude that this CSR(window-dressing activities according what Freidman said) is just another gimmick to wipe their brand reputation brighter.
Group 4 Lee Kin FUng
刪除if company only use spare money to conduct CSR activities, that mean those company only take CSR as a promotion tools,they do not truly believed CSR, their mindset did not care ethical and justice , it is very disappointed.Although Tax avoidance is common, it does not mean it is correct , it break the law spirits.
刪除Lai Wai Ching
刪除if company only use spare money to conduct CSR activities, that mean those company only take CSR as a promotion tools,they do not truly believed CSR, their mindset did not care ethical and justice , it is very disappointed.Although Tax avoidance is common, it does not mean it is correct , it break the law spirits.