Universität zu Köln

Willkomm, Sina (2023). Essays on Corporate Tax Avoidance, Sustainability, and Tax Transparency. PhD thesis, Universität zu Köln.

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Abstract

This thesis strives to broaden the understanding and knowledge of corporate tax avoidance by analyzing this corporate practice in the context of sustainability issues and the related topic of tax transparency. The three essays shed light on the role and consequences of corporate tax as a sustainability component and the ability of qualitative tax disclosures to reflect and alter a firm’s tax behavior. Thus, the results allow for inferences about the merits of advancing the integration of tax in the area of sustainability (for instance, through sustainability disclosures or sustainable investing regulations) or implementing tax transparency regulations, which could be of interest to legislators and regulators who aspire to curb tax avoidance. Chapter 2 addresses the research question of whether multinational enterprises [MNEs] consider corporate taxes to be part and parcel of corporate social responsibility [CSR]. While prior studies have mostly focused on tax avoidance at the group level, we provide empirical evidence on the relationship between CSR and profit shifting as a specific and important form of tax avoidance. To this end, we employ unconsolidated financial data of subsidiaries of EU and US MNEs. Our findings suggest that profit shifting and CSR are negatively related. Additional analyses show that higher performance in the social or governance dimension is associated with fewer profit-shifting activities. For US MNEs, we find that the negative relationship between CSR and profit shifting is especially pronounced if the group is less exposed to reputational risks or competitive threats. Collectively, our findings are in line with corporate culture theory. A firm that takes responsibility for CSR issues considers taxes to be complementary, so profit shifting is incompatible with such a firm’s corporate culture. Thus, we conjecture that measures fostering CSR bring the additional benefit of reduced profit-shifting activities. Chapter 3 extends the preceding chapter by considering the linkage between corporate tax and CSR and, thus, sustainability from the investor perspective. The study examines the influence of institutional investors committed to sustainable investing on the tax avoidance of investee firms. Corporate taxes have been increasingly discussed in the domain of sustainable finance and sustainable investing. I find that institutional investors that have signed the United Nations [UN] Principles for Responsible Investment [PRI] reduce investee firms’ tax avoidance, in contrast to non-sustainable institutional investors. The results suggest that this impact has evolved concurrently with efforts promoting taxes in the context of sustainable investing. Supplemental tests show, among other results, that familiarity with sustainability principles due to a longer PRI membership time enhances the effect of sustainable institutional ownership on tax avoidance. Overall, sustainable institutional investors view taxes and sustainability as complements, analogous to firms, as shown in Chapter 2. The findings imply that further measures supporting the integration of tax responsibility into sustainable finance can foster the reduction of tax avoidance exerted by the considered investor type. Chapter 4 examines the effectiveness of qualitative and public tax disclosures in reflecting firms’ tax behavior and curbing tax avoidance. We investigate the unique UK tax strategy disclosure regulation that mandates large UK firms and MNEs with a UK presence to publish information on their tax strategy for financial years starting after September 15, 2016. Using a large sample of hand-collected reports, we find that firms that previously engaged in higher levels of tax avoidance deliberately provide lower-quality tax disclosures by omitting prescribed information on tax planning, providing less information on some matters, and using uncertain language. Moreover, we find robust evidence of a decrease in affected UK firms’ tax avoidance in the post-regulation period relative to unaffected peers. Overall, the findings suggest that qualitative tax transparency regulations can be a suitable instrument to alleviate corporate tax avoidance. However, legislators or standard setters should acknowledge that tax-avoiding firms seem to exploit the leeway in formulating textual tax disclosures.

Item Type:	Thesis (PhD thesis)
Creators:	Creators Email ORCID ORCID Put Code Willkomm, Sina UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-703108
Date:	14 June 2023
Language:	English
Faculty:	Faculty of Management, Economy and Social Sciences
Divisions:	Faculty of Management, Economics and Social Sciences > Business Administration > Accounting and Taxation > Professorship for Business Administration and Business Taxation
Subjects:	Economics Management and auxiliary services
Uncontrolled Keywords:	Keywords Language Steuervermeidung; Nachhaltigkeit; Steuertransparenz; CSR; nachhaltige Geldanlagen; UK Tax Strategy Reports; UK Finance Act 2016; Steuerstrategie; Unternehmensverantwortung; PRI; nachhaltige Investoren; nachhaltige institutionelle Investoren German tax avoidance; sustainability; tax transparency; CSR; corporate social responsibility; UK tax strategy reports; UK Finance Act 2016; tax strategy; sustainable finance; PRI; sustainable investors; sustainable institutional investors English
Date of oral exam:	14 June 2023
Referee:	Name Academic Title Overesch, Michael Prof. Dr. Müller, Maximilian Prof. Dr.
Refereed:	Yes
URI:	http://kups.ub.uni-koeln.de/id/eprint/70310