Family businesses often pride themselves on their values, ethical commitments, and long-term perspectives. Unlike non-family firms, they are not just financial entities—they carry legacies, family identities, and social responsibilities. However, tax avoidance presents a gray area where ethics and financial prudence intersect. While minimizing tax payments is legal and sometimes seen as good business practice, it can also raise ethical concerns, particularly for family firms that value social responsibility. This article explores how family business CEOs’ sense of responsibility toward future generations influences their tax strategies.

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What We Studied

This study examined the relationship between family business CEOs' transgenerational responsibility and corporate tax avoidance. The research was based on a sample of 272 Italian listed family firms between 2014 and 2018, using a panel regression model to analyze tax behavior. The study considered whether factors such as the involvement of the next generation and financial distress influenced CEOs’ ethical decisions regarding tax avoidance.

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Key Insights

1. CEO Transgenerational Responsibility Increases Tax Avoidance

Family business CEOs with a strong sense of transgenerational responsibility are more likely to engage in tax avoidance. The reasoning is simple: they see minimizing tax as a way to ensure financial stability and longevity for future generations.

2. Next-Generation Involvement Strengthens This Relationship

When next-generation family members are actively involved in the business, the tendency to avoid taxes increases. The presence of younger family members reinforces the CEO’s sense of duty, making them more focused on preserving wealth for succession.

3. Financial Distress Amplifies Tax Avoidance

When a family business is financially struggling, tax avoidance becomes even more appealing. In these situations, the ethical weight of tax avoidance shifts, as saving the company and securing the family’s future takes precedence over social obligations.

4. Ethics vs. Financial Prudence – A Utilitarian Perspective

The study applies utilitarian ethics—a framework where decisions are judged based on the balance of benefits and harms. In family businesses, tax avoidance is often seen as an ethical choice because the benefits to the family (wealth preservation) outweigh the broader societal costs (reduced tax contributions to public services).

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Takeaways

For Family Business Owners

• Recognize the ethical dilemmas in tax decisions—long-term sustainability should not come at the cost of reputational harm.
• Engage in transparent tax planning to ensure alignment with family values and corporate social responsibility.

For Next-Generation Leaders

• Be aware of how financial security and ethical behavior must balance in decision-making.
• Develop ethical tax policies that ensure both financial longevity and corporate integrity.

For Policymakers

• Understand that family firms weigh tax decisions differently than non-family firms due to their long-term focus.
• Consider policy incentives for ethical tax behavior that aligns with sustainable family business growth.

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Impact

This research highlights the complex interplay between ethics, financial strategy, and transgenerational responsibility in family firms. It challenges the traditional view that family businesses are inherently more ethical than non-family firms—showing that financial security for future generations can sometimes override social responsibility.

Future research could explore how different cultural and legal environments affect tax avoidance in family businesses. Are these findings consistent in economies with lower corporate tax rates or different governance structures? Understanding these dynamics can help shape better tax policies and ethical business practices.

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Recommendations

1. Develop Ethical Tax Strategies: Family firms should establish clear ethical guidelines on tax practices that balance financial prudence and social responsibility.
2. Educate Next-Generation Leaders: Future family business leaders should be trained on the ethical and financial implications of tax planning.
3. Strengthen Transparency: Policymakers should create tax incentives for transparent tax reporting, ensuring that businesses are rewarded for responsible tax practices.

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