Customer–supplier relationships and corporate tax avoidance |
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Authors: | Edward L Maydew |
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Institution: | 1. Department of Management (UTSc) and Rotman School of Management, University of Toronto, Toronto, ON M5S 3E6, Canada;2. Kenan-Flagler Business School, University of North Carolina, Chapel Hill, NC 27599, United States;3. Department of Accountancy, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong;4. Samuel Curtis Johnson Graduate School of Management, Cornell University, Ithaca, NY 14853, United States |
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Abstract: | We investigate whether firms in close customer–supplier relationships are better able to identify and implement tax avoidance strategies via supply chains. Consistent with our prediction, we find that both principal customers and their dependent suppliers avoid more taxes than other firms. Further analysis suggests that principal customers and dependent suppliers likely engage in tax strategies involving shifting profits to tax haven subsidiaries. Moreover, tax benefits appear to explain both principal customer firms’ and dependent supplier firms’ organizational decisions. Overall, our study provides evidence of the importance of tax avoidance as a source of gains from these relationships. |
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Keywords: | H25 H26 L14 Tax avoidance Customers Suppliers Industrial organization Supply chain |
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