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Going to Haven? Corporate Social Responsibility and Tax Avoidance

  • Burcin Col
  • Saurin Patel
Original Paper

Abstract

This study examines the endogenous relation between corporate social responsibility (CSR) and tax avoidance by focusing on a common strategy of corporate tax avoidance, i.e., establishing entities in offshore tax havens. Using hand-collected data on a sample of U.S. firms, we find that firms’ CSR ratings increase substantially in the two years after they first open tax haven affiliates. We provide evidence by using the controlled foreign corporations (CFC) look-through rule enacted by Congress in 2006 that facilitates offshore profit shifting. We find that firms that are affected by the CFC legislation increase their CSR practices in response. Overall, our results are consistent with the risk management theory, which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive CSR activities.

Keywords

Corporate social responsibility Offshore affiliates Tax avoidance Tax havens 

Notes

Acknowledgements

We thank Canadian Foundation for Governance Research (CFGR) for financial support.

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Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Lubin School of BusinessPace UniversityNew YorkUSA
  2. 2.Ivey Business SchoolUniversity of Western OntarioLondonCanada

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