How companies respond to Media Criticism for Tax Avoidance Strategies

Abstract: Purpose : The aim of this paper is to examine how companies which are subject to criticism for their tax avoidance strategies respond to such criticism by analyzing tax related disclosures in organizations’ annual reports as well as corporate social responsibility reports. Design/Methodology/Approach: A qualitative research design was applied using content analysis on annual and corporate social responsibility reports which were collected from the companies’ archives. The reports were selected in terms of the time that the tax avoidance scandal was exposed on media. Therefore, a three-year timeframe of reports was studied, one year before the scandal, the year of the scandal and one year after. The interpretation of the results was done using legitimacy theory. Findings : Three different disclosure strategies have been identified, namely accepting, challenging and influential strategies, which companies use in different ways A variation of responses to media criticism among the companies have been observed which indicates that there is not a framework of answering to media criticism for tax avoidance strategies. The study also illustrates that there is lack of disclosure strategies within the corporate social responsibility reports. Limitations/Implications: The data were collected only from annual reports and CSR reports; other corporate releases were not taken into consideration. The selected companies include one European company and five U.S. companies Originality/Value: The paper contributes to the understanding on how multinationals who are key actors use different response strategies for aggressive tax management as well as provides important information to tax administrators. Furthermore, a theoretical basis on linking corporate response strategies to media criticism based on a legitimacy framework is provided, which could facilitate managers in dealing with the public criticism when their legitimacy is threatened.