CSR and Tax Avoidance: Are They Related? A Perspective of Neo-Institutional Theory in Emerging Economy Malaysia

ABSTRACT

Grounded on the Neo-institutional theory, this paper investigates the relationship between corporate social responsibility (CSR) decoupling and tax avoidance in three CSR dimensions, particularly community, employee, and environment. A sample of 52 Malaysian listed companies for the financial years of 2009 to 2019 provides evidence that overall, CSR and tax are unrelated except for community CSR. The finding implies that companies do not view avoiding tax as immoral, lending credence to the belief that the relationship between CSR and tax is complex subject than mere ethical issue.

KEYWORDS:

• Corporate social responsibility
• CSR decoupling
• tax avoidance
• business ethic

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Syarikat Ibraco-Peremba Sdn Bhd is a wholly owned subsidiary of Ibraco group. Detail facts of the case (Civil Appeal No: W-01-177-04/2013) is obtained from IRBM website under the “list of recent tax case”. http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=5&bt_posi=3&bt_unit=7000&bt_sequ=10&bt_lgv=2.

2. According to IRBM, the Malaysian Transfer Pricing Guideline explains provision of Section 140A in the Income Tax Act 1967 and the Transfer Pricing Rules 2012. It governs the standard and rules based on the arm’s length principle to be applied on transactions between associated persons, which has taken effect on 1 January 2009.

3. The present paper disregards partially rated company to not compromise the end results. The present research also excludes governance since it is a distinct area of corporate sustainability, distinct from CSR although the two are often complimentary in terms of corporate sustainability.

4. Based on the International Securities Identification Numbering (ISIN) system in Bursa Malaysia stock exchanges. The first two numbers are designated for the security’s country of origin or issuing company’s headquarters. The second grouping, consisting of nine characters, is designated for the security’s unique identifier. The last number, referred to as a “check digit,” verifies the validity of the code and reduces the likelihood of mistakes or abuse.

5. Description of the CSR reporting indicators are taken from Tashman et al. (2019) and classified according to the CSRHub schema. https://esg.csrhub.com/csrhub-esg-data-schema.