DOES TAX AVOIDANCE DIFFER BETWEEN ECONOMIES AND SECTORS? DETERMINANTS OF TAX AVOIDANCE IN DEVELOPED AND EMERGING ECONOMIES

Abstract

Purpose This study aims to examine whether tax avoidance determinants result in different levels of avoidance depending on the country and sector. Prior literature finds that firms in developed countries avoid taxes (Dyreng et al. 2008, 2017). However, the level of tax avoidance differs across developed economies (Lee and Swenon, 2012; Thomsen and Watrin, 2018). In emerging economies, there are few studies that investigate tax planning and the results are not always in line with developed economies. Design/methodology/approach We expect that the extent of tax avoidance also differs between developed and emerging economies. We use a sample of firms from major economies (IMF, 2018), the G7 countries, and firms from major emerging economies, called BRICS (Brazil, Russia, India, China, and South Africa). We use a panel data multilevel analysis. Findings We find that the country and sector can influence tax avoidance practices to some extent and must be considered in the decision-making process regarding companies’ new international investments. It is also possible to observe that some determinants of tax avoidance do not yield different tax avoidance levels across countries and sectors. Originality This study fills a gap in the tax avoidance literature, showing that tax avoidance determinants may not accurately predict tax avoidance behaviour, depending on the country, industry, and level of regulatory enforcement.