What are the relationships between corporate social responsibility (CSR) and corporate tax payments?
The article by Davis et al. investigates the relationship between corporate social responsibility (CSR) and corporate tax payments, determining whether they act as complements or substitutes. Recent anecdotal evidence suggests a disparity between stakeholders of different public companies regarding whether corporate tax payments are deemed socially responsible. Current figures show that ‘60% of finance directors in the UK do now regard tax as an ethical issue’, however, a survey of tax directors ‘were unanimous in saying that the payment of corporation tax is not at present a social issue relevant to CSR’, highlighting the disparity. The Global Reporting Initiative (GRI) set guidelines for the reporting of sustainability and view that taxes ‘contribute to the sustainability of the larger economic system’. However, even with guidelines, many organizations choose against disclosing tax information or, actively express their desire to lobby against taxes. This view represents a negative link between CSR and corporate tax, and is based on companies believing that taxes divert resources away from ‘innovation and economic development.’ The diversity in perspectives motivates the question, are CSR activities and corporate tax payments complement or substitutes?
To investigate this question, Davis et al. “examine the relation between measures of corporate social responsibility and both corporate tax payments and lobbying activity.” The evidence provides insight into whether managers or other influential stakeholders of socially responsible firms regard the payment of taxes as complementing the CSR activities. Davis et al. believed that the extent firms engage in CSR and tax avoidance, is likely to reflect how engaging in one, affects the cost and benefits of the other. A positive relation indicates the two acting as compliments, demonstrated by a firm viewing the payment of taxes in the same way they view CSR activities. Conversely, a negative relation indicates substitutes, a likely outcome of firms believing taxes to be detracting from social welfare, as a result of reduced innovation and job growth.