Abstract
In this paper, we consider the relationships among corporate accountability, reputation, and tax behavior as a corporate social responsibility issue. As part of our investigation, we provide empirical examples of corporate reputation and corporate tax behaviors using a sample of large, U.S.-based multinational companies. In addition, we utilize corporate tax controversies to illustrate possibilities for aggressive corporate tax behaviors of high-profile multinationals to become a reputation threat. Finally, we consider whether reputation serves as an accountability mechanism for corporate tax behaviors among other mechanisms for holding firms accountable for corporate tax behaviors. Our conceptual work points to a complicated relationship among shareholder, stakeholder, and civic responsibilities in the development and execution of firm’s corporate tax strategies. Building on those insights, our empirical illustration considers corporate reputation data alongside data which reflects corporate tax behavior. Based on this work, we find no clear trend or pattern indicating that reputation is associated with or affected by certain types of corporate tax behaviors. That is, our exploratory empirical illustration suggests that corporate tax behavior does not produce broad reputational consequences that would motivate a change in firm behavior. Drawing from celebrity and strategic silence research, we then suggest that reputation may not be a well-functioning mechanism for holding corporations to account for contributing their fair share of the resources used by government for the benefit of society and offer-related theoretical insights.
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https://www.bbc.com/news/magazine-20560359, accessed May 6, 2018.
https://www.theguardian.com/business/2012/dec/08/starbucks-uk-stores-protests-tax, accessed May 6, 2018.
The Reputation Institute acknowledges that its Global RepTrack ranking is likely influenced by consumer sentiment surrounding products and services which may dilute any correlation. However, in recent years, they also indicated sentiment around Governance and Citizenship dimensions, which may be more reflective of tax behavior as an ethical business practice, to be growing. We believe that growth offsets the dilution concern. Furthermore, we collected data from the Reputation Institute’s CSR-specific reputation ranking, which includes the Governance, Citizenship and Workplace dimensions, and find that using CSR-specific measures does not reveal the relationship with tax behavior to be any clearer. These results are untabulated in our paper as they do not change our findings. Our other two sources of reputation rankings also contain CSR dimensions; however, access to per-dimension data is not publicly available.
There is not a universally accepted construct to measure tax avoidance used in the accounting literature (Hanlon and Heitzman 2010). Most measures approximate tax avoidance using financial statement data because this data is publicly available while tax return data is not. We recognize that using an absolute tax rate measure such as the CETR approximates the taxes a firm actually paid but does not speak to the taxes a firm should have paid. This is because measuring taxes a firm should have paid is impractical, particularly for multinational firms who pay taxes in a number of different tax jurisdictions around the world, all of which have different tax laws and tax rates.
We also gathered 5 years of data on each corporation’s uncovered tax benefit (UTB). This amount, found in a corporation’s financial statements, is an estimate of potential tax dollars sheltered from payment that are more likely than less likely to have to be paid in back taxes if challenged by the Internal Revenue Service. When performing the same analyses using UTB as opposed to CETR, we found very similar patterns and draw the same conclusions. While both CETR and UTB are valid measures of tax avoidance (Lisowsky et al. 2013). CETR is the more standard measure of tax avoidance used in the accounting literature and, thus, is the main focus of our analysis.
Retrieved directly from search of corporate websites, accessed as of May 15, 2018. Note U.K. law now requires the disclosure of corporate tax policy by firms with U.K. subsidiaries.
Report of Offshore Shell Games: The Use of Offshore Tax Havens by Fortune 500 Companies (2017). U.S. Public Interest Research Group Education Fund and the Institute on Taxation and Economic Policy.
Ibid.
http://corporate.exxonmobil.com/en/current-issues/us-tax-policy, accessed May 6, 2018.
Under the (prior) US tax regulation, as long as firms intend to indefinitely reinvest those profits outside of the US, they are not subject to US tax.
http://www.apple.com/ie/customer-letter/, accessed May 6, 2018.
https://www.theguardian.com/technology/2013/may/27/google-eric-schmidt-change-law-tax, accessed May 6, 2018.
http://fortune.com/2015/05/25/amazon-tax-eu-regulators/, accessed May 6, 2018.
https://itep.org/amazons-local-state-and-federal-tax-issues-explained/, accessed May 6, 2018.
https://www.theguardian.com/technology/2018/jan/24/google-ceo-were-happy-to-pay-more-tax, accessed May 6, 2018.
Many taxpayers, including multinational corporations, also participate politically in the development and passage of applicable tax laws. Corporations are especially effective in having their perspectives on tax law considered through lobbying efforts and making political campaign contributions. Thus, corporations also influence the writing of the “letter of the law” to work to their advantage, which is often at odds with the “spirit of the law” (Roberts and Bobek 2004).
Firms in Fig. 1 reporting in accordance with GRI G4 or GRI Standards that refer user to the 10-K or annual report for tax disclosure include American Express, AT&T, FedEx, General Electric, Home Depot, IBM, Pepsico, Walmart, Microsoft, Caterpillar, Coca Cola, Ford, Intel, Johnson & Johnson, JP MorganChase, Marriott, and Target. Firms that did not provide any income tax information include Kellogg, Kraft Heinz, Procter & Gamble, Visa, and Disney. Firms that aggregated both country-level and tax-type payment information include CVS, Exxon, and UPS.
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We would like to thank the editors, Craig Carroll and Rowena Olegario, two anonymous reviewers, and participants at the 2016 NYU/Oxford Corporate Affairs, Accountability, and Reputation Workshop for their helpful comments.
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Baudot, L., Johnson, J.A., Roberts, A. et al. Is Corporate Tax Aggressiveness a Reputation Threat? Corporate Accountability, Corporate Social Responsibility, and Corporate Tax Behavior. J Bus Ethics 163, 197–215 (2020). https://doi.org/10.1007/s10551-019-04227-3
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DOI: https://doi.org/10.1007/s10551-019-04227-3