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Consumer Reactions to Corporate Tax Strategies: Effects on Corporate Reputation and Purchasing Behavior

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Abstract

On the basis of an interdisciplinary approach linking taxation, marketing, and corporate social responsibility, the present research investigates the effects of media reports on aggressive and responsible corporate tax strategies (CTSs) on corporate success with consumers. By means of two laboratory experiments (N = 150, 360), we analyze the effects of the CTSs on corporate reputation, consumer purchase intention, and the consumer’s willingness to pay. Our results suggest that aggressive CTSs diminish corporate success with consumers, whereas responsible CTSs enhance it. Nevertheless, consumers are not willing to pay a price premium for products sold by responsible tax-planning companies, but rather punish aggressive tax-planning companies through a slightly lower willingness to pay. Finally, consumers’ tax morale and their attitude toward tax avoidance are important moderating variables. Given the growing level of media interest in taxation, our findings are crucial for assessing consumer-related non-tax costs and the benefits of different CTSs.

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Notes

  1. Note that these tax gaps represent estimations of the German and U.S. tax authorities. Since tax gaps are very difficult to measure, the actual amount of avoided taxes might be significantly different from the amounts outlined above.

  2. Note that most of the countries have general or specific anti-avoidance rules that have to be considered, e.g., CFC legislation, rules for business restructuring, exit taxation, thin capitalization rules, and principles of transfer pricing.

  3. Rosenbloom (2000, p. 137) defines tax arbitrage as “taking advantage of inconsistencies between different countries’ tax rules to achieve a more favorable result than that which would have resulted from investing in a single jurisdiction.” See Boyle (2005) for the consequences of international tax arbitrage for national tax systems.

  4. The headquarters of Brauerei Beck’s & Co was located in Bremen, Germany until 2002, when the brewery was sold to InBev in Belgium.

  5. We excluded six extreme observations of willingness to pay (willingness to pay of 12, 10, 10, 8, 8, and 7 euros for the Henkel product brand) that lay more than three interquartile ranges above the third quartile. An inclusion of the outliers leads to a higher willingness to pay under the control condition than under the responsible CTS condition in study 2 (M aggr = 1.84 vs. M control = 2.08 vs. M resp = 1.97); however, it does not change the significance of the results.

  6. In addition, further costs of aggressive CTSs such as investor suspicions, legal costs, and financial tax risks (e.g., unexpected tax liabilities, interest for late payments, and penalties) have to be integrated into the determination of the CTS (Friese et al. 2008; Hanlon and Slemrod 2009).

Abbreviations

ANOVA:

Analysis of variance

CSR:

Corporate social responsibility

CTS:

Corporate tax strategy

CTSs:

Corporate tax strategies

FMCGs:

Fast-moving consumer goods

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Acknowledgments

The authors would like to thank two anonymous reviewers of JBE, Henrik Sattler, Michel Clement, Siegfried Grotherr, and Christina Elschner for their helpful comments. In addition, the authors would like to thank Melanie Steinhoff and Cerrin Eschholz for their support in collecting the data. An earlier version of this paper has been part of the authors’ dissertations, which are accessible in Germany under the title “Reputative Risiken bei aggressiver Steuerplanung – Empirische Evidenz und internationale Bezüge” (Inga Hardeck) and “Essays on the Effectiveness of Advertising and Branding” (Rebecca Hertl, née Heuke).

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  1. Department of Business Taxation, School of Business, Economics and Social Sciences, University of Hamburg, Von-Melle-Park 5, 20146, Hamburg, Germany

    Inga Hardeck

  2. Custom Analytics, The Nielsen Company, Sachsenstr. 16, 20097, Hamburg, Germany

    Rebecca Hertl

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  1. Inga Hardeck
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Correspondence to Inga Hardeck.

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Hardeck, I., Hertl, R. Consumer Reactions to Corporate Tax Strategies: Effects on Corporate Reputation and Purchasing Behavior. J Bus Ethics 123, 309–326 (2014). https://doi.org/10.1007/s10551-013-1843-7

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