Sharing corporate tax knowledge with external advisers

Tax knowledge is critical for companies to comply with tax laws and engage in tax planning and avoidance. Firms rely on external advisers in handling tax issues, however, sharing corporate tax knowledge with external advisers entails both opportunities and risks. We identify four relational factors that are associated with the decision of corporate taxpayers to share knowledge with external tax advisers. Survey data from 221 corporate taxpayers reveals a novel distinction between operational and strategic knowledge sharing. The operational dimension has a functional nature, whereas the strategic dimension has a more intentional character. Accessibility to, and a positive experience with, external advisers enables operational knowledge sharing. When firms perceive specific tax benefits in relation to sharing knowledge, they are more inclined to engage in operational knowledge sharing with external advisers but less prone to strategic knowledge sharing. Instead, strategic knowledge sharing is enhanced when firms have access to, and value the knowledge of their advisers, although this latter factor plays no significant role in explaining operational knowledge sharing. A positive experience with advisers also associates with strategic knowledge sharing. We link our results to other research and discuss implications for regulators considering, or requiring, firm disclosures of corporate tax strategy.     

Changing perceptions behind the corporate report

“A creature which has become perfectly adapted to its environment, an animal whose whole capacity and vital force is concentrated and expended in succeeding here and now, has nothing left over with which to respond to any radical change”. Gerald Heard, The Source of Civilisation.     

Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia

This study examines the determinants of the variability in corporate effective tax rates in Australia spanning the Ralph Review of Business Taxation reform. Our results indicate that corporate effective tax rates are associated with several major firm-specific characteristics, including firm size, capital structure (leverage) and asset mix (capital intensity, inventory intensity and R&D intensity). While the Ralph Review tax reform had a significant impact on many of these associations, corporate effective tax rates continue to be associated with firm size, capital structure and asset mix after the tax reform.     

A model of corporate rent-seeking through tax legislation

An analytic model is developed to examine the role of rent-seeking expenses on tax legislation. Rent-seeking expenses are found to be only a fraction of the tax benefits at stake. Rent-seeking expenses increase when firms cannot cooperate, when very general tax legislation is proposed, and when there is legislative support for tax cuts.     

European tax systems and the neutrality of corporate financing policy

The different tax systems of European illustrate the variety of ways in which the double taxation of dividends can be reduced. This paper analyses the effect of corporate financing policy under the imputation, dual rate, mixed and classical tax systems, and derives conditions for neutrality of the systems with respect to financing policy-neutrality in the sense that no type of financial policy has favourable tax treatment. The effect of the capital gains tax and heterogenous personal tax rates across individuals are analysed by using a model of stock value. Neutrality depend on the parameters of the tax system and a weighted average of personal tax rates.     

Expected economic growth and investment in corporate tax planning

Review of Accounting Studies - This study investigates whether expected economic growth is associated with investment in corporate tax planning. We predict that higher expected economic growth...     

Meta-analysis categorization of EU countries in the context of corporate income tax

The corporate income tax is a corporate tax which aggregates economic, political and social aspects. The paper focuses on identification, analysis and assessment of homogenous EU countries groups, which show the common characteristics in the field of corporate taxation based on the selected segmentation criteria. Within the statistical meta-analysis in this paper some several methodical approaches were used: variants of agglomerative hierarchical cluster analysis, k-means method and fuzzy c-means and also multidimensional scaling method are implemented and compared. The purpose of this research is, in the context of theoretical implication to provide a synthesis of knowledge and empirical evidence about selected determinants of corporate taxation, and to verify the applicability of the clustering methods when gaining knowledge in the field of taxation. In the context of practical implication is the main purpose of this research the categorization of European countries into economically meaningful clusters, based on their similarity in corporate taxation, and to assess the convergence of European countries in corporate taxation. Results of provided cluster analysis are five groups of multidimensional objects with distinctive characteristics: nominal and effective corporate tax rate, economic performance and the level of debt.     

Perceived importance of corporate boards in October 1987

This study provides empirical evidence from the U.S. firms that shareholders perceived corporate boards to be more important during than surrounding the October 1987 stock market crisis. The results indicate that during the crisis market-adjusted stock returns are negatively associated with CEO–chair duality, board size, and the presence of inside blockholders on board. The valuation effects of CEO–chair duality, percent of inside directors, and the presence of inside blockholders on board are stronger during than surrounding the crisis. The results are consistent with the view that corporate boards have valuation effects.     

Effects of corporate tax reform on optimum debt maturity

This study investigates effects of selecting maturity years on investment decisions. Ceteris paribus an optimum debt maturity (ODM) maximising net present value exists and its change correlates positively with corporate tax rates but negatively with real interest rates, while its relationship with inflation rate is conditional. Furthermore depreciation does not matter at all. A model simulation carried out for seven selected EU countries demonstrates the most significant role of real interest rate for determining ODM in the period of 1981–2004. Yet corporate tax rate will gain in importance since interest and inflation rates are more rapidly converging in the EMU.     

The effect of tax avoidance crackdown on corporate innovation

To constrain the use of intangible assets in tax-motivated state income shifting, many U.S. state governments adopted addback statutes. Addback statutes reduce the tax benefits that firms can gain from creating intangible assets such as patents. Using a sample of U.S. public firms, we examine the effect of addback statutes on corporate innovation behavior. First, the adoption of addback statutes leads to a 4.77 percentage point decrease in the number of patents and a 5.12 percentage point decrease in the number of patent citations. Second, the “disappearing patents” resulting from addback statutes have significant economic value. Third, after a state adopts an addback statute, a firm with material subsidiaries in that state assigns fewer patents to subsidiaries in zero-tax states, whereas the number of patents assigned to the other states does not change. Overall, our findings suggest that addback statutes impede corporate innovation.     

The impact of tax enforcement on corporate investment efficiency: evidence from the tax administration information system

Information technology is essential in tax enforcement. This study found that stronger tax enforcement after the tax administration information system reform improved corporate investment efficiency by reducing excessive investment expenditures. The effect is more significant under higher local government fiscal pressure, poorer external information environments, weaker external corporate governance, and stronger tax avoidance motivation. The main mechanism is based on the quality of the accounting information. This study enriches the literature on the economic consequences of tax enforcement and adds investment efficiency as an influential factor, which provides implications for international governments to use information technology to strengthen tax enforcement.     

Effect of corporate tax avoidance activities on firm bankruptcy risk

Corporate tax avoidance has been shown to raise the cost of bank debt and lower credit and bond ratings. However, it is unclear whether tax avoidance actually increases a firm’s bankruptcy risk or whether it is just viewed negatively by banks and rating agencies. We find that firms engaging in tax avoidance and firms that are thinly capitalized face higher bankruptcy risk. To account for endogeneity and functional form misspecification, we verify our results using instrumental variable and propensity score matching methods. Our findings are consistent with the view that tax avoidance is a risk-enhancing activity.     

The value of a flow-through entity in an integrated corporate tax system

In an integrated corporate tax system, resident shareholders receive a tax credit for corporate tax paid that can be used to offset personal tax on dividend income. Nonresident and tax-exempt (pension plan) investors cannot use the tax credit on corporate dividends and thus prefer to invest in flow-through entities. We estimate the value of the flow-through entity to nonresident and pension plan investors by examining the price change around the date of an unexpected announcement of a change in tax law related to Canadian publicly traded income trusts units creating an entity-level tax that makes them no longer tax-favored to these investors.     

The effect of board of director composition on corporate tax aggressiveness

This study considers the effect of board of director composition on corporate tax aggressiveness. Our logit regression results for a choice-based sample of 32 corporations comprising 16 tax-aggressive corporations and 16 non-tax-aggressive corporations show that the inclusion of a higher proportion of outside members on the board of directors reduces the likelihood of tax aggressiveness. The ordinary least squares regression results from our sensitivity analysis of a cross-section of 401 corporations confirm our main results about board of director composition and tax aggressiveness.     

Does recent empirical evidence support the existence of international corporate tax competition?

Recent reductions in institutional barriers to international investment have meant that the existence of international corporate tax differentials is now one of the most significant remaining causes of distortion to the optimum global allocation of resources, and hence to international trade. In the debate as to how to reduce such distortion, two main schools of thought have emerged. The first believes that this result can be achieved primarily through the international co-ordination of corporate taxes. To date, efforts in this direction have not made significant progress. The second contends that market forces, through tax competition, will spontaneously reduce international corporate tax differentials. In this article, an analysis of recent trends in corporate tax rates supports this second contention: statutory and effective corporate tax rates are continuing to decline and converge. However, recent tax revenue data give little support for the existence of tax competition; the expected shift in the tax burden from corporate profits onto less mobile factors such as labor has largely failed to materialize. Several explanations for these contrasting findings are outlined and analyzed.     

The value relevance of corporate tax expenses in the presence of partisanship: International evidence

This study examines the value relevance of corporate tax expenses in an international setting and determines whether partisanship plays a role in its informativeness. Our empirical results indicate the greater value relevance of corporate taxes during the administration of right-leaning governments. Moreover, our cross-sectional analysis suggests that corporate tax expense is value-relevant during the administration of right-leaning governments; however, corporate tax expense does not convey information regarding returns when left-leaning parties are in office. These findings highlight the importance of the political orientation of tax policymakers in determining value-related information on corporate tax expenses.     

Evidence of the effect of domicile on corporate average effective tax rates in the European Union

We estimate (worldwide) corporate average effective tax rates (ETRs) from financial statements for companies domiciled in European Union (EU) member states during 7 years from 1990 to 1996. Our objective is to compare the tax rate effectively experienced by each company with the corporate statutory tax rate (STR) in the EU country in which each company is domiciled. The difference between the corporate statutory tax rate and the financial statement-based corporate average effective tax rate provides information on the magnitude of tax incentives provided by governments within the EU. These tax incentives come on top of the directly observable differences in statutory tax rates between EU member states. We find (1) that the use of tax incentives, over and above differences in STRs, differs substantially between EU member states (corporate domiciles) and (2) that the provision of tax incentives does not have the effect of equalizing corporate ETRs between EU member states (corporate domiciles).     

The impact of corporate tax avoidance on analyst coverage and forecasts

Review of Quantitative Finance and Accounting - Corporate tax avoidance is likely to be associated with a high level of earnings management and with high financial opacity in the time-series. On...     

Learning in organisations: a corporate curriculum for the knowledge economy

This paper elaborates on the argument that the economy is transforming into a knowledge economy. Therefore, individuals, teams and companies need to develop the necessary competencies to be able to participate in a working life that is mainly based on knowledge productivity. The traditional approaches to management, training and development will not provide the learning environment that is required for knowledge work. Each company should consciously design a corporate curriculum that turns the day to day work environment into a learning environment. The knowledge economy may bring prosperity to those who join the new elite of knowledge workers. Inherently, it also creates new imbalances.     

The emergence of the tax official into a T-shaped knowledge expert

Public sector officials have had to engage in new ways of working to reflect the changing practices of the public sector. This paper uses the specific case of professional tax officials in the UK tax administration to examine this broader context, by a longitudinal study. Tax officials are being disciplined by the changing working practices of the tax administration. The tax official becomes a T-shaped tax official who has emerged from a bureaucratic inward facing technical civil servant to become an outward facing new style tax official who still has to engage with the detailed technical tax knowledge as a knowledge expert (the vertical part of the T) but also has to relate to the new way of operating in a strategic and marketing organisation (the horizontal part of the T). This changing role of the tax official has tax policy implications and impacts on the social and organizational aspects of the tax compliance process.