Languages and corporate tax avoidance

Review of Accounting Studies - This paper examines the effect of languages on corporate tax avoidance. We hypothesize and find that managers of firms in countries with languages that grammatically...     

Military experience and corporate tax avoidance

We find that managers with military experience pursue less tax avoidance than other managers and pay an estimated $1–$2 million more in corporate taxes per firm-year. These managers also undertake less aggressive tax planning strategies with smaller tax reserves and fewer tax havens. Although they leave tax money on the table, boards hiring these managers benefit from reductions in other gray areas in corporate reporting. The broad implications are as follows: for employee selection, boards can consider employees’ personal characteristics as a control mechanism when outputs are difficult to contract ex ante or measure ex post.     

Banking deregulation and corporate tax avoidance

We investigate whether tax avoidance substitutes for external financing. We exploit interstate banking deregulation as a quasi-external shock to examine whether...     

Stock liquidity and corporate tax avoidance

We show that firms with higher stock liquidity engage less in extreme (i.e., overly aggressive or overly conservative) tax avoidance. The effect of stock liquidity on tax avoidance is economically meaningful and robust across alternative measures of tax avoidance and stock liquidity. The findings also hold after controlling for potential endogenous effects. We further document that the effect of stock liquidity on tax avoidance is amplified for firms with high proportions of activist shareholders and attenuated for firms with high levels of stock price informativeness. Overall, our findings suggest that stock liquidity mitigates extreme tax avoidance by enhancing shareholders’ monitoring over firm management.

     

Tax avoidance,tax management and corporate social responsibility

This study examines the effect of three measures of corporate social responsibility (CSR) — corporate governance, community and diversity on tax avoidance in firms that use auditor‐provided tax services. This is one of the first studies, to our knowledge, to empirically relate tax avoidance, tax management and CSR literature. By separating the strengths and concerns for each CSR measure, we are able to analyze the effects of a firm's negative and positive social actions on tax avoidance. We find that the interaction of community concerns with tax management fees positively affects both GAAP and Cash ETR, while the interaction of corporate governance strengths and diversity concerns with tax management fees negatively affects Cash ETR. Our results are similar when we use Excess ETR that is not explained by firm specifics. We find additional evidence that CSR affects tax avoidance when we divide firms into portfolios based on CSR levels. Our findings suggest that future studies on tax avoidance and tax management should incorporate CSR.     

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.     

Advertising and tax avoidance

Review of Quantitative Finance and Accounting - We examine the link between firms’ advertising and their tax avoidance. By generating customer awareness, advertising helps shape firm image...     

Analyst coverage and corporate tax aggressiveness

We examine the impact of analyst coverage on corporate tax aggressiveness. To address endogeneity concerns, we perform a difference-in-differences analysis using a setting which causes exogenous decreases in analyst coverage. Our tests identify a negative causal effect of analyst coverage on tax aggressiveness, suggesting that higher analyst coverage constrains corporate tax aggressiveness. Further cross-sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments. Our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts’ demand for more transparent information, which in turn reduces tax aggressiveness.     

Corporate tax avoidance and high-powered incentives

This paper analyzes the links between corporate tax avoidance and the growth of high-powered incentives for managers. A simple model demonstrates the role of feedback effects between tax sheltering and managerial diversion in determining how high-powered incentives influence tax sheltering decisions. A novel measure of corporate tax avoidance (the component of the book-tax gap not attributable to accounting accruals) allows for an investigation of the link between tax avoidance and incentive compensation. Increases in incentive compensation tend to reduce the level of tax sheltering, in a manner consistent with a complementary relationship between diversion and sheltering. In addition, this negative effect is driven primarily by firms with relatively weak governance arrangements, confirming a central prediction of the model. These results can help explain the growing cross-sectional variation among firms in their levels of tax avoidance, the undersheltering puzzle, and why large book-tax gaps are associated with subsequent negative abnormal returns.     

Trade integration and corporate income tax differentials

Building on recent contributions to the New Economic Geography literature, this paper analyses the relation between asymmetric market size, trade integration, and corporate income tax differentials across countries. First, relying on Ottaviano and Van Ypersele’s (J. Int. Econ. 67:25–46, 2005) foot-loose capital model of tax competition, we illustrate that trade integration reduces the importance of relative market size for differences in the extent of corporate taxation between countries. Then, using a dataset of 26 OECD countries over the period 1982–2004, we provide supportive evidence of these theoretical predictions, i.e., market size differences are strongly positively correlated with corporate income tax differences across countries, but crucially, trade integration weakens this link. These findings are obtained controlling for the potential endogeneity of trade integration and are robust to alternative specifications.     

International tax arbitrage via corporate income splitting

Abstract

If capital for corporate finance was available from a common global pool and at zero transaction cost, then does after-tax arbitrage require harmonization of income tax rates across jurisdictions? This paper shows that the answer is in the negative. When a corporation has the choice of deciding the fraction of income that it distributes as dividends with the remainder held for future capitalization, then such choice brings about arbitrage in after-tax rates of return to investors facing a common pre-tax return but different rates of income taxes. Policy implications are drawn from this result.     

An examination of the political salience of corporate tax avoidance: A case study of the Tax Justice Network

Corporate tax avoidance (CTA) has become a high profile issue despite being a complex area of accounting practice. One reason for this has been the civil society campaign opposing tax avoidance. The paper provides a case study of one key civil society actor: the Tax Justice Network (TJN). Existing accounting analysis offers little to explain how some accounting issues acquire political attention and media coverage. To address this, the concept of political salience is introduced into accounting analysis – understood as the creation of focal points in campaigns – to consider how the TJN contributed to the political profile of CTA.     

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...     

The interaction between corporate tax structure and disclosure policy

When socially desirable behaviors are deemed difficult to legislate, tax code is often called upon to indirectly achieve the desired ends. Adjustments to tax policy have been employed to spark investment, encourage charitable donations, and discourage tobacco consumption, to name a few examples. This paper demonstrates that tax policy may also be an effective means of encouraging welfare enhancing disclosures by firms. Further, by inducing disclosures of the right types of information while discouraging revelation of other types, tax policy proves to be a more versatile instrument than direct regulatory attempts which can mandate (but not prohibit) disclosures. The intuition behind our results is that when firms make decisions to disclose (or withhold) pieces of private information, such a decision is often made with an eye on the potential for a large payoff. In such cases, progressive taxes can dampen the appeal of big payoffs and better align the incentives of firms with those of consumers. In short, while progressive taxes may be criticized for curbing aggressiveness, it is precisely such a decrease in aggressiveness that can prompt efficient sharing of information.     

Uncertainty avoidance,risk tolerance and corporate takeover decisions

In this paper, we examine the role of national culture in corporate takeover decisions, by arguing that managerial risk tolerance (a combination of risk aversion and risk perception), at the national level, is a cultural trait and affects the expected net synergies CEOs require. We propose a theoretical framework that links CEO risk tolerance to the expected net synergies. We empirically show that CEOs of firms located in countries with lower levels of risk tolerance, measured by Hofstede’s (1980, 2001) uncertainty avoidance score, require higher premiums on takeovers, and show that uncertainty avoidance plays a greater role in relatively large takeovers. Additional testing reveals that CEOs from high uncertainty avoiding nations engage less in cross-border/cross-industry takeovers, suggesting that uncertainty avoidance captures more the CEO’s risk perception than his/her risk aversion.     

Corporate tax avoidance: data truncation and loss firms

Loss firms are an economically significant and growing segment of the population of publicly traded corporations. Relatively little is known about the tax positions of loss firms because the firms are typically dropped from tax avoidance studies. We develop a new measure of corporate cash tax avoidance that is meaningful for all observations and reflects the extent to which a firm is tax-favored. We examine the extent to which inferences about corporate tax avoidance over the past twenty-seven years change when we examine the full population of firms, as opposed to a profitable and/or taxable subsample. In contrast to prior research findings, our results suggest that on average firms are tax-disfavored, by which we mean cash taxes paid exceed the product of the firm’s pre-tax book income and the statutory tax rate. In addition, many industries that appear to be tax-favored in profitable subsamples are tax-disfavored when the entire population is examined. We also find that the extent to which firms are tax-disfavored is increasing over time, and that domestic firms are more tax-disfavored than multinationals.     

Local tax rebates,corporate tax burdens,and firm migration: Evidence from China

Conflicts of interest between local governments and the central administration in China have yielded many local policies that only serve the interests of local governments. The policy of first levying and then rebating taxes is an example of how local governments eschew the national tax regulations to boost local economies rather than national interests. In 2001, the Chinese government announced the termination of local tax rebates, which had some expected outcomes. We find that local governments complied with the new tax policy even though it no longer allowed local governments to grant tax incentives. However, some companies found ways to avoid the greater tax burdens by moving their business registration locations to tax havens. We also find that firms controlled by local governments were less likely to change registration locations. Our study examines the national tax regulation in China and explores how tax rules influence company decisions. In addition, we show that non-tax incentives, such as local economic development, may also influence company decisions.     

Smoke and mirrors: Corporate social responsibility and tax avoidance

The bourgeoning corporate social responsibility literature has paid little attention to organised tax avoidance by companies even though it has real consequences for the life chances of millions of people. Companies legitimise their social credentials by making promises of responsible and ethical conduct, but organisational culture and practices have not necessarily been aligned with publicly espoused claims. This paper draws attention to the gaps between corporate talk, decisions and action, or what may be characterised as organised hypocrisy. Its persistence can become a liability and threaten the welfare of the company, its employees and its executives. The paper provides examples to show how companies, including major accountancy firms, make promises of responsible conduct, but indulge in tax avoidance and evasion. It also shows that the exposure of contradictions between talk and action has yielded negative outcomes.     

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.     

合理避税的界限和策略

企业合理避税的界限避税有一个法律界限,有的纳税人筹划不当构成避税,被税务机关按规定调整应纳税金额,未能达到节税目的;有的纳税人筹划失误形成偷税,不仅没有达到节税目的,反而受到行政处罚甚至被刑事制裁。避税还有一个道德界限,一方面,因其并不违反税法的相关规定,故具有非