The relationship between corporate social responsibility and tax avoidance

Dissertation for receiving Master degree (M.A)

Tension: Accounting

Dissertation abstract (including summary, objectives, implementation methods and results obtained):

Investigating the relationship between corporate social responsibility and tax avoidance of companies admitted to the Tehran Stock Exchange was determined as the subject of the present research. For this purpose, following the regression models of Hui et al. (2013), the relationship between corporate social responsibility and tax avoidance has been measured. The data required for the models were collected from companies that offered their shares in the Tehran Stock Exchange during the research period from 1387 to 1391 - for 5 years - and the transactions related to their shares were not interrupted for more than three months. Thus, 140 companies were selected as a statistical sample.

The results of this analysis indicate the existence of a direct relationship between tax avoidance and irresponsible social responsibility activities in some cases. Also, there is no direct relationship between tax avoidance and possible irresponsible liabilities of social responsibility.

Statement of the problem

This research seeks to investigate the relationship between corporate social responsibility and tax avoidance of companies listed on the Tehran Stock Exchange. Tax avoidance, which reduces the outflow of cash from the company to the government, has been seen as a value for shareholders in the past. The general perspective of tax avoidance implies that opportunistic managers who seek to avoid paying taxes seek financial abuses by creating lack of transparency in financial reporting and mostly do this for their own interests. Transparency in financial reporting facilitates monitoring of managers' performance by shareholders. However, despite the lack of transparency in financial reporting, shareholders' control and supervision over managers will decrease. Also, opportunistic managers use other methods and techniques to pay less taxes, which will incur costs for company owners. Therefore, this research seeks to examine the relationship between fraudulent financial reporting and fraudulent tax reporting.

Information causes the efficient and optimal allocation of resources in the capital market economy. Disclosure and organizations and institutions created to facilitate disclosure between managers and investors play an important role in solving these problems. It is clear that regulators and investors agree to have high quality financial reporting because the prevailing belief is that the quality of financial reporting directly affects the capital markets. SEC Chairman Arthur Leavitt (1998; 80) states that: "I firmly believe that the success of capital markets is directly dependent on the quality of accounting and disclosure systems. Disclosure systems are those that are established according to high quality standards and assure investors of the reliability of financial reporting - and without investor confidence, markets cannot grow."

Despite the value of the benefits of social responsibility and social accountability, many companies act contrary to these goals. This decision reflects the potential costs created by social responsibility and social accountability.

The following three criteria are used to measure tax avoidance:

CETR: effective cash tax rate.

LCETR: effective long-term cash tax rate

PBTD: permanent tax difference

This research seeks to provide answers to the following question:

Is social responsibility related to tax avoidance?

In this research, an attempt is made to answer the relationship between social responsibility and tax avoidance by using the factors affecting tax avoidance.

1-2- Research objectives

The purpose of this research is to examine the relationship between corporate social responsibility and tax avoidance of companies listed in the Tehran Stock Exchange.

1-3- The importance of the research topic and the motivation for choosing it

companies In order to get resources, investors must be able to meet their expectations and also according to the law, they must pay the government's rights, one of the most important of which is tax. Based on this, since the return of the owners decreases with the payment of taxes, this issue leads to a decrease in the motivation of investors to buy shares and invest.. The management's lack of attention to reducing the costs caused by the imposition of taxes and the lack of effort in determining the taxable income will cause the transfer of resources from the owners to the government. With this description, the expectation of the owners is that in order to prevent the transfer of their wealth to the government, the management will carry out activities that identify the accounting profit more conservatively, in the meantime, the company's stock price will not only not decrease, but also increase. For this purpose, company managers are looking for ways to meet investors' expectations, so that they can reduce the tax payable by the economic unit and prevent the reduction of the company's efficiency.

In general, the objectives of the research are:

- Providing solutions to reduce agency costs

- Reducing the duration of processing tax cases

- Reducing government costs for collecting taxes from taxpayers, especially large taxpayers

1-4- Research questions and hypotheses:

Research questions:

This research seeks to provide an answer to the following question:

Is social responsibility related to tax avoidance?

Research hypotheses:

The hypothesis based on the research conducted by Hui et al. (2013) is formulated as follows:

Tax avoidance is related to socially responsible activities.

Tax avoidance is related to possible debts caused by socially irresponsible activities.

Note: Since in this research tax avoidance is calculated with three separate methods, and also three variables are considered for socially responsible activities, nine conditions are tested for each hypothesis; which will be explained in detail in the rest of the research.

1-5- Research models

The models that are considered to test the hypotheses of this research are taken from the multivariable regression models of Hoy et al.'s research (2013), which are fully mentioned in the third chapter. Here, the models used in the research are summarized as follows:

C

AGGRESSIVEit = ?0 + ?1 CSRit + ?2 POS_CSRit + ?3 ABS_DAit + ?4 IOit + ?5 CASHit + ?6 ROAit + ?7 LEVit+ ?8NOLit + ?9 ?NOLit+ ?10 FIit + ?11 PPEit + ?12 INTANGit + ?13 EQINCit + ?14 R&Dit + ?15EMPit+ ?16 ?SALEit + ?17 SIZEit-1 + ?18MBit-1+ ?it

where:

AGGRESSIVEit: tax avoidance is estimated using the following three methods:

variable name

symbol

How to measure

Cash effective tax rate

CETR

Cash paid for tax

Profit before tax deduction

Long-term cash effective tax rate

LCETR

Total cash paid for tax during 3 years

Total profit before tax deduction during the same period

Permanent tax difference

PBT

Declared tax - tax according to the assessment sheet

Total assets of the first period

Effective cash tax rate:

The cash paid is the amount that is paid to the finance department after the final assessment sheet; However, every company considers a percentage of its profit before tax deduction as performance tax (25% in Iran) and thus the ratio of the said reserve to the profit before tax deduction is 1.4 or 25%, but the ratio of the amount paid after the final assessment sheet to the profit before tax deduction can be greater, equal or less than 1.4.

The effective long-term cash tax rate:

According to the rate formula Effective cash tax that shows positive, negative or no deviation from tax for the current year, the average effective cash tax rate of the last few years of the company can also be obtained and determine tax evasion or not and have a more complete judgment about the company's situation.

Permanent tax difference:

According to the above formula, it can be seen that the tax deviation is measured in relation to the assets of the first period because the more If the tax avoidance is higher, the amount added to the assets of the first period (company capital) will be higher and vice versa. In this research, the above three determining parameters in the field of tax avoidance will be measured in regression.