The Interplay between Risk Management and Internal Control Towards Corporate Tax Aggressiveness
Abstract
Corporate tax aggressiveness has become a major issue in the international business environment as they exploit the loopholes of legitimate tax avoidance. Although these techniques have the potential to increase revenues, they are viewed critically by regulators and society. Due to the reputational and financial impact associated with aggressive tax planning, effective measures are required to manage the risks and ensure compliance with tax laws. In addressing the issue of corporate tax aggressiveness, this paper examines the role played by risk management and the effectiveness of internal controls. Based on agency theory, tax aggressiveness often represents an agency problem between agent and principal. Therefore, effective risk management provides a systematic approach to recognizing and mitigating the potential pitfalls of aggressive tax strategies, while robust internal controls ensure compliance and align tax practices with governance standards. This study underscores the critical need for companies to view tax aggressiveness not just as a financial strategy, but as a governance challenge that requires robust risk mitigation and control systems. Although it can bring financial benefits and competitive advantages, it also carries financial, reputational and regulatory risks that jeopardize long-term value. Hence, companies should pursue a balanced approach to tax planning that harmonizes profitability targets with social expectations and regulatory standards.
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