Abstract
The central thesis of the paper is that multinational companies (MNC) should invest in the use of “soft” methods (socially responsible behavior) to mitigate costs in society accrued due to use of “hardcore” tax evasion tactics (transfer mispricing) to maximize profits from operations in developing countries and/or countries with weak or inefficient tax laws and tax collection institutions. Therefore, we articulate the argument of corporate social responsibility (CSR) as an indirect compensation for transfer mispricing. Our aim is not to present CSR as a solution to transfer mispricing. An analytical approach is based on a content analysis of the existing literature with emphasis on a case study. We first discuss the dark side of transfer pricing (TP), next we present the link between TP and poverty and finally we advance arguments for CSR as a compensation for transfer mispricing. While acknowledging that TP is a legal accounting practice, we argue that in light of its poverty and underdevelopment externalities, the practice per se should be a strong defence for CSR because it is also associated with schemes that deprive developing countries of the capital essential for investment in health, education and development programmes.
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This is not an empirical paper, hence no data were used.
Notes
There are two authors with last names as Asongu used in this study, namely: Asongu, J.J and Asongu, S.A. Hence, the interested reader should not construe the recurrence of Asongu as citations for only one person.
More information on the Fair Tax Mark can be found on the following link: https://fairtaxmark.net/who-we-are/
Whereas ‘relative pro-poor growth’ is growth that reduces inequality, ‘absolute pro-poor growth’ is one that reduces poverty. The former engenders sub-optimal externalities for both rich and poor households (see, Asongu and Kodila-Tedika 2015).
It is important to note that this statement also highlights a problem in the perspective that tax issues and CSR are often held as distinct by companies in their existing practices and organizational arrangements. Moreover, because stopping tax avoidance would affect the economic bottom line of companies, for many corporations, CSR plays the role of a substitute for paying tax (see Davis et al. 2016).
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Asongu, S.A., Uduji, J.I. & Okolo-Obasi, E.N. Transfer pricing and corporate social responsibility: arguments, views and agenda. Miner Econ 32, 353–363 (2019). https://doi.org/10.1007/s13563-019-00195-2
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DOI: https://doi.org/10.1007/s13563-019-00195-2