Paul L. Caron

Monday, May 4, 2015

Thomas Reviews Avi-Yonah's Corporate Taxation and Corporate Social Responsibility

Jotwell Kathleen DeLaney Thomas (North Carolina), Do Corporate Managers Have a Duty to Avoid Taxes? (Jotwell) (reviewing Reuven S. Avi-Yonah (Michigan), Just Say No: Corporate Taxation and Corporate Social Responsibility, 12 NYU J. L. & Bus. __ (2015):

The recent wave of corporate inversion transactions, in which domestic companies essentially move their headquarters abroad to lower their U.S. tax bill, is just the latest in a decades-long trend of aggressive tax avoidance behavior by corporations. From the government’s perspective, inversions and other tax avoidance strategies erode the U.S. tax base and impose a costly enforcement challenge on Treasury and the IRS. But from the perspective of corporate managers, aggressive tax planning may simply be part of the corporation’s duty to maximize shareholder value. Reuven Avi-Yonah questions this latter proposition in Just Say No: Corporate Taxation and Corporation Social Responsibility. He offers a compelling argument that corporate managerial duties are not hopelessly at odds with the goal of promoting better corporate tax compliance.

Avi-Yonah frames the issue of corporate tax avoidance as one of corporate social responsibility (CSR). If it is legitimate for corporations to engage in activities that do not directly benefit shareholders—for example, involvement in philanthropic causes—then it should be legitimate for corporations to act as good tax citizens. On the other hand, if CSR is outside of the scope of legitimate corporate functions, then presumably corporations should seek to minimize their tax liability as much as possible. ...

Avi-Yonah moves beyond the theoretical and also offers some practical reasons to question the premise that shareholder profit maximization requires aggressive tax avoidance. For example, he points out that, historically, corporations were able to compete and maintain attractive share prices without resorting to abusive tax strategies. Further, he argues, there is not clear empirical evidence establishing a link between lower effective tax rates and higher share prices. ...

Avi-Yonah’s article doesn’t attempt to address how we might encourage corporate managers to police themselves with respect to aggressive tax planning. But he offers an important and unique perspective on how policymakers might address corporate tax avoidance more generally. Perhaps, as Avi-Yonah suggests, the lines between acceptable and unacceptable tax planning should be drawn by those armed with the relevant information—the corporate managers themselves. What’s still unclear, however, is how to make the leap from saying that paying more corporate tax is legally acceptable to convincing managers that paying more corporate tax is desirable. Avi-Yonah’s article raises the possibility that difficult questions such as this one may be better addressed by corporate law rather than by the tax law.

Scholarship, Tax | Permalink