Corporate Social Responsibility and Corporate Tax Planning: Does CSR/tax payment Orientation matter?

Abstract

This study provides empirical evidence on the relationship between corporate social responsibility and tax planning. In line with the reasoning of Davis et al. (2016) and Mao (2019), firms were divided into two groups based on the connection between their level of corporate social responsibility and tax payments. Corporate social responsibility was measured using the amount of donation by a company while tax planning was measured using the cash flow effective tax rate (ETR). Using the Pooled Ordinary Least Squares regression technique and a sample of 364 firm-year observations, the study found on one hand that there is a significant negative relationship between corporate social responsibility (CSR) and corporate tax planning (CTP) among firms with CSR/tax payment substitute orientation. On the other hand, a significant negative relationship was also discovered to exist between corporate social responsibility (CSR) and corporate tax planning (CTP) among firms with CSR/tax payment complement orientation. The study therefore concludes that a firm’s CSR/tax payment orientation matters and should be considered by policy makers and regulatory agencies when making fiscal policies. The study recommends that tax authorities that want to positively shape the orientation of taxpayers should ensure that the inefficiencies in converting tax revenue to social welfare are addressed.