Article Review

Question

Please follow this questions.
Develop a critical evaluation of a journal article.

Name of article: Smoke and Mirrors: Corporate social responsibility and tax avoidance

Journal name; Accounting form 34 (2010) 153-168

1. Consider and discuss the following questions:
a. What is this research about? In what ways does it engage with a significant problem (empirical or theoretical)? What in your view motivates this research?
b. What is the main research question? What theoretical (or philosophical) approach does the author take to answer the research question?
c. What methods are used in the empirical section of the paper? Consider the appropriateness of the methodology for the research question posed.
d. How well are the findings or conclusions explained and justified? (To what extent do you find the argument persuasive?
e. What further research projects could derive from this article?
f. What is the main contribution of this article?
1500 words

Answer

Title: Evaluation of a journal article

Summary

This paper is a critical evaluation of the article titled “Smoke and mirrors: Corporate social responsibility and tax avoidance”. The paper starts with an explanation on what the article is about as well as the motivation for conducting the research. The article is about the tendency by large companies to engage in organised hypocrisy that culminates in tax avoidance and evasion. On the one hand, the companies provide neatly authored CSR manuals in which the companies promise to behave in an ethical and responsible manner. On the other hand, they promote an organizational culture that allows tax evasion practices to thrive.

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This paper also identifies the main research question that the research paper sets out to answer as well as the philosophical approach used by the author to answer it. The main research question is: how do companies and major accountancy firms promise to conduct their businesses in a responsible manner only to end up indulging in tax evasion and avoidance, and how does this organised hypocrisy impact on the quality of life for millions of people?

This critical evaluation also examines the methodology used in the paper. In this case, the researcher provided detailed extracts from CSR statements of different companies and major accountancy firms and contrasted them with the firms’ practice of evading and avoiding taxes. This method is appropriate given the tendency by companies to refrain from disclosing evidence that implicates them in tax evasion claims. The paper ends with an assessment of the article’s findings, justifications, and main contributions to the discourse on CSR and taxation.

  1. What is this research about? In what ways does it engage with a significant problem (empirical or theoretical)? What in your view motivates this research?

This research paper is about the tendency by companies to engage in organised hypocrisy through tax evasion. The paper sets out to encourage research into the two sets of cultures that thrive in large corporations and firms that offer taxation services. Aspects of corporate social responsibility are examined. The researcher’s objective is to show that directors and managers of companies promise to abide by CSR goals in public but silently engage in organised hypocrisy through organizational practices and cultures that allow tax evasion practices to thrive.

According to Sikka (2010), this debate is important because the revenues that states and countries lose through tax evasion can be used to make a lasting impact on quality of life for millions of people. The research paper demonstrates that there are huge disparities between corporate claims of adherence to CSR values and their elaborate practices of evading and avoiding taxes. Sikka (2010) refers to this phenomenon as corporate hypocrisy. Corporate hypocrisy arises from organizational pressures that managers and directors face to maximize profits. Company executives are tempted to evade tax in order to earn more performance-related incomes as well as to win awards and medals.

In my view, this research is motivated by the understanding that the huge sums of money that countries lose through tax evasion and tax avoidance can be used to make a difference in the quality of lives of millions of people through the provision of essential services such as education, sanitation, healthcare, water, and roads, and electricity. I also feel that this research is motivated by the dearth of literature in the field of CSR and taxation. According to Sikka (2010), many researchers seem not to be interested in this area of study.

  • What is the main research question? What theoretical (or philosophical) approach does the author take to answer the research question?

The main research question is: how do companies and major accountancy firms promise to conduct their businesses in a responsible manner only to end up indulging in tax evasion and avoidance, and how does this organised hypocrisy impact on the quality of life for millions of people? To answer this question, the philosophical approach that Sikka (2010) adopts entails efforts to discuss the behaviour of entities in an ethical and responsible manner. The objective is to ensure that no doubt arises regarding the applicability of the claims with regard to payment of taxes.

The researcher also refrains from relying on a statistical sample in the positivistic sense for the simple reason that no company will ever willingly provide information about its strategies for tax avoidance and evasion. Therefore, it is impossible to determine the size of the populations under study with certainty. Rather, the researcher chooses to provide illustrations of contradictions and gaps between corporate talk and action with a view to demonstrate that their claims of adherence to the values of corporate social responsibility are problematic. The researcher answers the research question by analyzing episodes that have already been brought to the public limelight through courts, parliamentary committees, investigative journalists, and regulators. Sikka (2010) explicitly expresses the philosophical view that these sources of information ascribe to an element of “hardness” as far as contemporary standards of evidence are concerned.

  • What methods are used in the empirical section of the paper? Consider the appropriateness of the methodology for the research question posed.

To appreciate the methodology used in this paper, one needs to understand the objective that the researcher set out to achieve. Sikka’s objective was to encourage discussions on the subject of CSR and taxation. At the outset, the researcher noted that the bourgeoning CSR literature fails to pay sufficient attention to claims that many companies continue to engage in organised tax avoidance and evasion even though this practice has far-reaching consequences for the lives of millions of around the world and the essence of humanity itself.

In the empirical section, the researcher provides detailed extracts from CSR statements of different companies and major accountancy firms and contrasts them with the firms’ practice of evading and avoiding taxes. In this method, the researcher highlights situations in which the companies concerned had promised to behave in a socially responsible and ethical way, only to be found to have been evading taxes. Sikka (2010) chooses to examine major companies operating in finance, telecommunications, mining, and energy industries. The research also examines some major accountancy firms. The author justifies the inclusion of the latter category of organizations by stating that they too operate under immense pressure to grow profitability and in many cases choose to achieve this goal by facilitating avoidance of taxes.

In all the extracts, the companies involved claim that they always adhere to highest standards of ethics and social responsibility. On this basis, the author assumes, and rightly so, that these claims are applicable to tax payments. This methodology is appropriate for this study because it serves the purpose of demonstrating the contradiction, gaps and outright hypocrisy on the part of the companies and the accountancy firms with regard to tax evasion.

  • How well are the findings or conclusions explained and justified? (To what extent do you find the argument persuasive?

The findings and conclusions derived from this paper are properly explained and justified. However, the researcher could have provided longer extracts in order to create room for proper context. That way, the claim that only few companies refer directly to payment of taxes in social responsibility reports would have been proven beyond doubt. However, Sikka (2010) is correct when he concludes that the fact that the issue of tax payments is not mentioned does not mean that it is not included in the promise of ethics, honesty, integrity, responsibility, and transparency.

I find the arguments about organised hypocrisy very persuasive. However, I disagree with the notion that the money that goes to taxation can make a meaningful difference to the quality of lives of millions of people. This is because in most developing countries, the taxes paid by multinational organizations are rarely used prudently. In many cases, they are either embezzled through corrupt activities or channelled into extravagant projects that only benefit the dominant classes. Nevertheless, this paper serves its objective of exposing the gap between corporate talk in public and actual corporate action that condones tax evasion.

  • What further research projects could derive from this article?

A number of research projects could derive from this article. One of them entails an investigation of the relationship between CSR and poverty. Jenkins (2005) supports Sikka’s view that efforts by companies to match their talk with action with regard to ethical and social responsibility can greatly contribute to poverty reduction. Moreover, researchers may embark on projects that demonstrate that large corporations and multinational enterprises are structured in a manner that allows tax evasion and avoidance to occur. According to Christensen & Murphy (2004), numerous distortions that allow tax evasion to occur continue to emerge as globalized companies look for taxation loopholes in tax regimes that are nationally based.

  • What is the main contribution of this article?

Lastly, this article’s main contribution relates to the double talk by large companies as far as the issues of CSR and taxation are concerned. The article exposes the problem of organised hypocrisy and the need for authorities to avoid easily believing all the talk and well-written brochures about companies’ commitment to ethical responsibilities relating to the payment of taxes. Instead, government agencies should focus on how well the companies organizational practices are aligned to their public claims regarding their willingness to pay democratically agreed taxes.

References

Christensen, J. & Murphy, R. (2004). The Social Irresponsibility of Corporate Tax Avoidance: Taking CSR to the bottom line. Development, 47(3), 37–44.

Jenkins, R. (2005). Globalization, Corporate Social Responsibility and poverty. International Affairs, 81(3), 525–540.

Sikka, P. (2010). Smoke and mirrors: Corporate social responsibility and tax avoidance. Accounting Forum, 34, 153–168.

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