Tax Avoidance and Tax Disclosures in Corporate Social Responsibility Reports in the United Kingdom

Abstract

This study examines how a firm’s tax disclosures in a CSR report are influenced by its tax avoidance behavior. Using a sample of public U.K. firms, our empirical analysis reveals that firms engaging in higher levels of tax avoidance are more likely to provide tax-specific disclosures in their CSR reports. In addition, the tax disclosures tend to be longer, contain more justification words, and contain more soft claims than hard information. Further cross-sectional analyses suggest that the positive association between tax avoidance and tax disclosures is attenuated when firms exhibit better CSR performance as well as stronger corporate governance. Collectively, our findings provide evidence that firms appear to legitimize their tax avoidance behavior by providing more tax disclosures in their communications with stakeholders.