The Relationship Of Tax Avoidance With Corporate Social Responsibility

1498 WordsAug 17, 20166 Pages
There is an ongoing debate on the relationship of tax avoidance with corporate social responsibility (CSR) and ethical behaviour of companies. Specifically, corporate social responsibility can be defined as companies undertake the responsibility for social welfare and development (Matten and Moon, 2008). For ethical behaviour, it is referred to govern the actions of individuals and organizations in the business under contemporary standards (Epstein, 1998). Moreover, this is the difference between tax avoidance, which companies use legal methods to reduce the amount of tax, and tax evasion that is illegal reduction of taxes (Hasseldine and Morris, 2013). According to US Treasury (2009), each year the US government may lose more than $345…show more content…
The next section will examine the inconsistent between ethical behaviour and tax avoidance. The final section will summarize the main points and the orientation of the further study. This section will research the motivation of corporate tax avoidance. In the contemporary world, maximising the profit for shareholders is the most significant motivation for tax avoidance of companies (Carroll, et al. 2010). This is because shareholders provide financial capital to help the development of companies; they should receive the return on their investment (Sikka, 2010). In order to ensure the maximization of shareholder value, managers need to enhance product competition and increase sales. Likewise, according to Jensen (1986), save costs is a direct method to add shareholder value, because the tax is a major operating cost for companies. In other words, if enterprises reduce taxes, tax costs could be converted directly to shareholder value. Consequently, reducing the payment of taxes is a useful method to ensure the corporate objective of maximising profits for shareholders (Carroll, et al. 2010). Furthermore, another relevant motivation of corporate tax avoidance is competing with other companies. Cai and Liu (2009) argue that for many companies, in order to obtain the advantages in quality competition, they could to reduce the payment of taxes and use these funds to put on productions to improve the
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