Abstract
This study uses a sample of 25 OECD countries to examine the association between CSR, national governance and tax evasion at the country level. The interaction between country-level governance and CSR relative to tax avoidance is also explored. The findings suggest that neither the ESG dimensions nor the overall CSR measure are significant determinants of tax evasion at the country level. In contrast, national governance quality is significantly and negatively related to tax evasion. Significant support is also found for the mediating effect of national governance on the association between CSR and tax evasion: in countries with weak national governance, CSR and country-level governance are substitutes; in countries with strong national governance, CSR reporting (in particular, environmental disclosures) seems to be used as a cosmetic and compensatory tool for firms to mitigate the reputational risk and public concern arising from tax evasion activities. The findings are theoretically and practically relevant as they underscore not only the importance of national governance in mitigating tax evasion but also the relevance of the mediating effect of national governance on the relationship between CSR and tax evasion. The evidence highlights the need for policymakers in countries with strong national governance to design new/strong anti-tax avoidance regulations.
Highlights
Even though tax aggressiveness is a controversial topic, it has received increasing attention in recent years from academics and tax authorities because governments worldwide are facing shortfalls in tax revenues along with increased social problems [1]
The results indicate that national governance mediates the relationship between country-level corporate social responsibility (CSR) and tax evasion, providing support for Hypothesis 3 (H3)
This study was motivated by the multidisciplinary nature of the subject of tax evasion and its determinants as well as the lack of country-level research on the relationships between CSR, national governance and tax evasion
Summary
Even though tax aggressiveness is a controversial topic, it has received increasing attention in recent years from academics and tax authorities because governments worldwide are facing shortfalls in tax revenues along with increased social problems [1]. The results are practically relevant for academics, policymakers, tax managers and the community as a whole They highlight the importance of promoting the quality of national governance (government efficiency, regulatory quality, rule of law and corruption control), including the quality of public auditors’ working environments, as national rules on CSR and national governance cannot ensure an equivalent corporate disclosure style and behaviour across countries [7]. The results further emphasise the need for policymakers in countries with strong national governance to design strong anti-tax avoidance regulations as businesses seem to use CSR activities to moderate the reputational risk and public concern arising from tax evasion activities.
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