What do We Know about Tax Aggressiveness

and Corporate Social Responsibility? An

Integrative Review

Name Of Group
Evelyn Honasan Ho (1913015)
Bryan Tunandar (1913050)
Alfredo (1913054)
Agnes Monica Murdono (1913098)
01 INTRODUCTION
 INTRODUCTION
Milton Friedman (1970) is often quoted as saying the
‘business of business is business’ (e.g. see Elbra and Mikler,
2017), and that the only social responsibility business has is to
generate profit for the benefit of shareholders, provided it does
so within the confines of the law. CSR remains a topic for
debate, it is generally agreed to involve a “continuing
commitment by businesses to behave ethically while
improving the quality of life of the workforce, local community,
and society at large”. CSR was a result of the realisation that a
narrow focus on shareholders and profit was often detrimental
to social, economic and environmental wellbeing.
Since the mid-late 20th century growth in CSR via
corporate policies and reports has been exponential
(Ramasamy and Yeung, 2009). Production and management
of information relating to ethics and social responsibility is now
viewed as an implicit part of the social contract between
corporations and society. Failure to adhere to such social
obligations can bring about a loss of legitimacy with potential
to undermine the organisation's credibility (Deegan, 2002).
CSR involves consideration of many areas. Of
these, one that only came to prominence in the last
15 years and remains poorly understood, is tax
aggressiveness (Amidu et al., 2016).
Tax aggressiveness of multinational
corporations has become a much discussed and
controversial topic, particularly since the global
financial crisis with governments around the world
facing revenue shortfalls and intensified social
problems. This culminated in the OECD's Base
Erosion and Profit Shifting Action Plan which began
at the behest of the G20 in 2012/13 (G20, 2012;
OECD, 2013a, 2013b) and was finalised in 2015
(OECD, 2015).
 CORPORATE SOCIAL
02 RESPONSIBILITY AND
TAX AGGRESSIVENESS

To commence the review it is worth discussing what
is meant by both corporate social responsibility and tax
aggressiveness. CSR has been defined in many ways
within academic and professional literature. In 2008 the
lack of consensus led Dahlsrud (2008) to undertake a
content analysis which considered 37 different definitions
proposed by international researchers over 23 years from
1980. Five different dimensions to CSR were identified:
stakeholder, social, economic, voluntariness and
environmental. In addition, the analysis revealed a 97%
chance that at least three of these dimensions would be
included in any of the definitions of CSR presented in
academic literature (Dahlsrud,2008).
Notwithstanding the fact CSR was for many years
largely a normative concept, Maon et al. (2009) note that in
recent years there has been a move from ideology to
reality with business organisations now facing pressure
from numerous sources to ensure they satisfy demands to
undertake their activities in an ethical and responsible way
(Cabezas, 2015; Ostas, 2004; Preuss, 2012; Utting, 2005).
CORPORATE SOCIAL
RESPONSIBILITY AND
TAX AGGRESSIVENESS
The literature on CSR has grown substantially
since the mid- 1900s (Carroll and Shabana, 2010). Far
from being a topic at the periphery of business
research, CSR is now a mainstream area of interest
(Dowling, 2014).
Within discussions concerning CSR, yet remains
poorly understood, is tax aggressiveness. Tax
aggressiveness, is associated with strong tax
avoidance, defined by Bird and Davis-Nozemack, 2018
(in press, p. 2) as “the pursuit of transactions and
structures in order to reduce tax responsibility in a
manner that is contrary to the policy or spirit of
government legislation”. Tax aggressiveness “enables
companies to enjoy the benefits of corporate
citizenship without accepting the costs” which are then
transferred to other parties (Amidu et al., 2016, p. 15)

At this time it should be clarified that tax avoidance or
aggressiveness is not the same as tax evasion. Tax
evasion is illegal regardless of the outcome or motive
underlying the activity (Fisher, 2014). In contrast, tax
aggressiveness is against the spirit of the law and involves
transactions with “business purpose, [that are only]
pursued for tax reasons” (Garbarino, 2011, p. 284)
Bird and Davis-Nozemack, 2018 (in press) suggest tax
aggressiveness should be framed as a global sustainability
problem as it effectively erodes common social and
environmental resources. aggressiveness and CSR is of
interest for several reasons. Many have argued taxation is
the key way in which corporations contribute to the society
in which they operate (Bird and Davis-Nozemack, 2018, in
press). As businesses benefit from public infrastructure it
seems only right they contribute a “fair share” towards the
costs associated with its development and maintenance
(Cabezas, 2015). Failure to pay their “fair share” would put
business in the position of a free rider in which they
effectively benefit at the expense of society. Jenkins and
Newell (2013, p. 76), for example, argue corporate
citizenship generates an “obligation to pay tax in the
jurisdiction within which the firm is operating”.
CORPORATE SOCIAL
RESPONSIBILITY AND
TAX AGGRESSIVENESS
However, others argue this is not a fair representation
and businesses contribute to society in other ways, for
example, via job creation and innovation. Thus,
taxation and CSR remains an area of contention.
Some agree with arguments advanced by Friedman
(1970) that the only responsibility of business is profit
and maximising shareholder wealth. Under this
perspective all that is required for a company to be
socially responsible is to obey the law with respect to
taxation (Gribnau, 2015). Others contend there are, or
should be, ethical boundaries to tax planning and that
too often organisations avoid obligations by applying
the letter of law at the expense of its spirit and intention
(Gribnau, 2015). There are many ways in which
organisations can engage in tax aggressive behaviour.
For example, they can make use of subsidiaries
located in countries classified as tax havens or shelters
in which companies pay low or no tax
03 RESEARCH
METHOD
 Since the research question seeks to understand the relationship between tax aggressiveness and CSR in the academic
literature, an integrative literature review is conducted. An integrative literature review is defined as “a form of research that
reviews, critiques, and synthesizes representative literature on a topic … such that new frameworks and perspectives on the
topic are generated (Torraco, 2005, p. 356). The goal of an integrative review is to summarise and present what is currently
known about the relationship being explored, provide a critique of that knowledge and suggest a broad direction for future
research as well as specific research questions (Neuman, 2006; Torraco, 2005).
The approach, which has been used in a number of disciplines, is said to be particularly relevant where “contradictory
evidence appears, when there is a change in a trend or direction of a phenomenon and how it is reported, and when research
emerges in different fields” (Martinez et al., 2017; Torraco, 2005, p. 358) as is the case with tax aggressiveness and CSR.
04 ANALYSIS
Analysis

In this review philosophical discussion is considered

first to establish definitions of main concepts and the
scope of enquiry. This is followed by reviews of
empirical research and normative perspectives on the
topic, and a section on broad theoretical perspectives
used in the literature. Table 4 lists main themes and
sub-themes evident in the literature.
 Nature and purpose of taxation
One fundamental theme identified is the nature and purpose of taxation, whether tax is viewed as a contribution to society,
or a business expense to be minimised. Globalisation has provided numerous opportunities for multinational corporations to
engage in tax aggressiveness. Literature acknowledges corporate taxpayers need to be responsible, but that the ultimate
responsibility to raise tax rests solely with government and revenue authorities thereby separating taxation and CSR.
Taxation also serves the purpose of steering taxpayers, including corporations, toward socially desirable ends. Numerous
articles lay the blame for tax avoidance and aggressiveness on globalisation. The opportunities for corporations to exploit
jurisdictional differences in tax systems represents structural flaws in the international tax system.
 Empirical research

The empirical papers can be

Some papers find a negative
divided into two classes. The
relationship between corporate
first set of studies consider
commitment to CSR issues and
corporate tax compliance as
tax aggressiveness levels,
social behaviour that is
evidence from others reveals
inconsistent withoverall
that CSR does not act as a
societal expectations about
catalyst for better tax
responsibility.
compliance.
 Empirical research

most of these papers previous research has not reached general

focus on limited samples agreement about the most appropriate
of companies within a measure of corporate tax aggressiveness and
specific country uses different proxies for aggressive tax
practices

similar to prior empirical research into

not all CSR practices are expected
CSR issues previous research employs
to have the same influence on
different measures of CSR as the
corporate tax aggressiveness
independent variable
 Studies measuring CSR as a “global and complex
phenomenon” could produce a non-significant statistical
influence of CSR on tax aggressiveness as a consequence of
the presence of compensation effects. Finally, although most of
the quantitative approaches identified consider as control
variables the micro-determinants that have an influence on
corporate likelihood to engage in aggressive tax planning.

—Empirical research
 A second type of empirical study is based on the idea that
although it is legitimate for companies to reduce tax payments
on conventional business transactional strategies solely
focused on the minimization of corporate taxes could be seen
as promoting unsociable behavior.

—Empirical research
 Normative Perspectives
Literature concerning the legal foundations for taxation seeks to
examine the basis for how companies ought to be taxed and how a fair
amount of tax should be paid to a sovereign nation in the context of a
competitive tendency towards aggressive tax avoidance.

Although compliance with rules is not viewed as being enough for

the CSR based company ethical principles of legality governing
corporate behavior in the context of tax planning unfortunately are
themselves unclear. One key normative issue is whether payment of tax
should take place in the country where income is earned or in the
jurisdiction that has the lowest tax rate.
 Normative Perspectives
Clearly research into principles versus rules based normative
foundations of tax aggression and corporate CSR will continue.
Normative dictate, that companies should comply with black letter law
on tax, contrasts in the literature with emerging normative principles as
to what companies should or should not do in relation to tax aggression
if they are to behave ethically.
 Theoretical Perspectives
One theme that emerged upon reviewing available literature is the lack, or
at least limited use, of theoretically informed studies seeking to understand the
nature of the relationship between corporate tax aggressiveness and CSR.

Although underutilized, to the current time there are several theories that
dominate research in this area: agency theory, legitimacy theory and
stakeholder theory, with several papers using combinations of these. Accepting
the firm is a ‘nexus of contracts’ it will be necessary for business owners to
make provisions via contracting with managers to temper this behavior and
ensure opportunistic activities undertaken by management are aligned with the
best interests of the firm.
 Theoretical Perspectives
There is also limited discussion on stakeholder theory and how this relates
to CSR and tax aggressiveness by firms. Some have argued, if a managerial
perspective is taken, the stakeholders to whom a firm is most accountable
include employees, customers, and investors all of whom may benefit in some
way from the minimization of corporate taxation.
05 Discussion
Tax Aggressiveness and CSR
 One surprising omission
from the extant research is
a lack of historical
perspectives.
 In relation to future empirical studies focused on the
interactions between CSR and tax aggressiveness the literature
presents a number of challenges.

1. The first challenge 2. The second challenge

concerns the corcerns the tax
measurement of aggressiveness practices
aggressive tax as a “global
practices. phenomenon”
• Constructs such as CSR, corporate social
performance, corporate environmental
performance, and corporate sustainability
cannot be used interchangeably as though they
relate to the same object.

• Normative perspectives have dominated tax

aggressiveness and CSR research literature
Relationship between CSR and Tax
Aggressiveness
 Theoretical
perspectives
based on political
cost
06 CONCLUSION
Relationships between corporate tax aggressiveness and CSR have become a focal point for research in recent years
given ongoing reassessment of the net benefits of globalization, following the global financial crisis, and the need for
countries to fund their recovery processes. One key source of funding is corporate taxation and questions arise as to
what should be paid and where, what is paid and where, and what can academic research contribute in future towards
gaining a better understanding of tax aggressiveness and CSR. In the context of learning what academics have to say
and what remains to be explored and explained the paper considers the research question: What does existing literature
reveal about the relationship between tax aggressiveness and corporate social responsibility?

• Literature first reveals the lack of general agreement over definitions of tax aggressiveness and CSR.
• A second tendency in the literature is to observe that CSR has many dimensions and where they have discretion
managers and other stakeholders can choose which of these they highlight as important and which they downplay in
arguments about ethically correct business behavior.
Thank You