Aggressive Tax Avoidance Research Articles

Data Breach Notification Laws and Corporate Tax Planning

ABSTRACTThis study explores the impact of data breaches on corporate tax planning in the United States. The results reveal that when a firm's headquarter is located in a state that has adopted a data breach notification (DBN) law, there is a significant 3.8% decrease in the long‐term effective tax rate. This reduction translates to annual tax savings of approximately $8.13 million. Furthermore, tax sheltering is found to decrease by 19.17% compared to the sample average. These effects are particularly pronounced in financially constrained firms and those operating in high‐tech industries. The findings suggest that after the introduction of mandatory data breach disclosure requirements, firms are less inclined to engage in aggressive tax avoidance practices, which could otherwise lead to increased litigation costs. Instead, they prioritize efficient tax planning strategies to improve after‐tax cash flows.

The impact of asset specificity on corporate tax avoidance: Do financial constraints and product market power matter?

Our findings reveal that asset specificity significantly enhances corporate tax avoidance, with firms exhibiting lower cash effective tax rates. Firms with higher asset specificity also engage in more aggressive tax avoidance strategies, including tax dodging and long-term tax planning. Additionally, our analysis indicates that the positive impact of asset specificity on tax avoidance is less pronounced in firms with lower ESG performance but is more pronounced in those facing negative demand shocks or operating during periods of economic policy uncertainty. We also find that financial constraints and product market power mediate the relationship between asset specificity and tax avoidance, with financial constraints serving as the dominant economic channel. These findings offer new insights into the factors driving corporate tax avoidance and highlight the complex interplay between asset specificity, financial constraints, product market power, and tax planning strategies.

Effect of Transfer Pricing on Corporation Tax Compliance Among Multinational Corporations in Nairobi Kenya

Purpose: Tax is a compulsory contribution that is made by the citizens of a country to the government for the provision of public utilities. It is evident from the National Tax Policy, 2024 that the Kenya Revenue Authority (KRA) and the government at large have recently shown a lot of interest in multinationals due to the complexity of their operations and the tendency for them to come up with complex tax avoidance mechanisms. This has also been complicated by the widespread abuse of transfer pricing models adopted when dealing with multinational corporations operating in Kenya. This study looked into effect of transfer pricing on corporate tax compliance among multinational corporation companies in Kenya. The study was guided by the following theories, AS theory, the Slippery Slope Framework, and the theory of the planned behavior. Methodology: The study employed an explanatory research design. The target population was 221 multinational corporations’ companies and a sample size of 142 respondents. Questionnaires were used to collect primary data and analysis was descriptive statistics include frequency, percentage, and mean while inferential statistics included correlation and multiple regression. Results: The study findings found out most companies in Nairobi, Kenya have transfer pricing policies that are moderately but not adequately in line with domestic tax statutes. Most companies will use transfer pricing as a tool to reduce their tax liabilities. Further, KRA is moderately but not adequately efficient in monitoring and regulating transfer pricing practices in our company. Conclusion: The study results concluded that transfer pricing affects corporation tax compliance Based on the findings, the study recommends there is a need for exchange of information and more international collaborative efforts from a policy, legal, and academic front to address aggressive tax avoidance practices from MNCs. Therefore, future studies can be conducted on the impact of Dispute resolution mechanism on corporation tax performance.

Moderation of tax attitudes on the relationship of knowledge and tax incentives on sustainable MSMEs performance

Recently, public opinion regarding tax avoidance has become unbreakable; and issues related to tax institutions are disrupting tax revenues. Tax avoidance leads to an issue that still requires resolution and is firmly entrenched among the business community in developed countries. The small and medium business sector refers to a sector that is involved in aggressive tax avoidance practices. Thus, tax can be accepted as a problem to achieve sustainability. This research applies a fiscal psychology theory approach with a survey approach on 150 MSME owners in Bandung City, West Java. The collected data was then analyzed using the Partial least squares approach to test and analyze the hypothesis. The results of this research show that tax knowledge and the tax incentives provided have a positive effect on the sustainable business performance of MSMEs in Bandung. Apart from that, this research also proves that tax attitudes are a determinant that can strengthen or weaken the relationship between tax knowledge and the tax incentives provided in achieving sustainable MSME business performance. It is hoped that the results of this research will add to the literature and expand the body of knowledge, especially in the context of taxation and business performance, and for practitioners, especially business owners. It can be a consideration that compliance in paying taxes is an essential factor in achieving business performance.

Audit firm tenure and corporate tax avoidance: evidence spanning COVID-19 pandemic

Purpose This study aims to examine the effect of audit firm tenure (AFT) on corporate tax avoidance (CTA) and the moderating effect of the COVID-19 pandemic. Design/methodology/approach The sample comprises 41,074 firm-year observations from 32 countries from 2015 to 2020, for which data are collected from various sources: financial data from the Refinitiv database, country corporate tax rates from the Tax Foundation, and other country-level data from the World Bank database. The authors use the book tax difference to measure CTA and multiple proxies for AFT. Findings This study finds that a longer AFT is associated with higher CTA, confirming the notion that long AFT impairs auditor independence. The findings remain robust when considering various AFT proxies, incorporating Hofstede’s cultural factors, using weighted least-squares estimation and addressing endogeneity through propensity score matching. This study also finds a non-linear relationship between extended client and auditor relationships and CTA, supporting the mandatory audit firm rotation regulation and increasing investors’ caution regarding the consequences of extended client–auditor relationships on firm behaviour. Research limitations/implications This study offers new evidence on the effect of the COVID-19 pandemic on the link between AFT and CTA and documents a non-linear relationship between AFT, which has not been addressed in prior studies. Practical implications The findings of this study have several significant practical implications. First, governments and policymakers gain insights into the consequences of extended auditor–client relationships, hence calling for a review of auditing and taxation regulations. Second, the findings provide important insights into the issue of auditor independence, especially during long engagements and crises such as COVID-19. Finally, investors and tax authorities should be more cautious about the risks of aggressive tax avoidance during crisis periods. Originality/value To the best of the authors’ knowledge, this is the first study to use a global data set to investigate the effect of AFT on CTA during the COVID-19 pandemic.

The effect of academic top executives on corporate social responsibility: potential motivation and its outcomes

This paper investigates whether there is ethical or opportunistic motivation behind academic top executives’ (ATEs) engagement in corporate social responsibility (CSR) by exploring how ATEs relate to CSR practices and their consequences on corporate misbehavior and performance. We find that firms run by ATEs invest more in CSR. Moreover, CSR firms with ATEs are unlikely to be involved in corporate fraud and aggressive tax avoidance, especially when firms have low institutional ownership and fewer analysts and are located in low law enforcement and socially dishonest environments. We also document that the CSR performance brought by ATEs is positively associated with subsequent firm performance. Overall, our study suggests that academic experience has important implications for understanding executives’ ethical leadership and driving firms’ ethical CSR.

Pengaruh Intensitas Persediaan, Ukuran Perusahaan Dan CSR Terhadap Agresivitas Pajak Dengan Koneksi Politik Sebagai Variabel Moderasi

Tax aggressiveness is a form of income design practice carried out by companies to minimize taxes that must be paid illegally. The percentage of tax aggressiveness actions taken by manufacturing companies reaches 23%. This study aims to determine and analyze tax aggressiveness with koneksi politiks as a moderating variable, which is known to be closely related to aggressive corporate tax avoidance activities. The independent variables used in this study are inventory intensity, company size, and corporate social responsibility (CSR). This study uses descriptive quantitative methods and purpsive sampling, while the data collection uses secondary data in the form of financial reports and company annual reports. The population in this study are manufacturing companies listed on the Indonesia Stock Exchange during the 2019-2021 period. The study population was 368 companies with a sample acquisition of 80 data and a total observation of 240 data over a 3-year period. The data analysis method uses multiple linear regression and moderated analysis regression (MRA) and data processing using SPSS 24. The results of this study indicate that inventory intensity and CSR have no effect on tax aggressiveness, company size has a positive effect on tax aggressiveness, koneksi politiks are unable to moderate inventory intensity and CSR on tax aggressiveness, koneksi politiks are able to moderate company size on tax aggressiveness.

Dominasi Asing dalam Agresivitas Pajak di Indonesia

This research aims to provide empirical evidence of the impact of foreign entities on tax aggressiveness in Indonesia. The sample consists of non-financial companies listed on the Indonesia Stock Exchange from 2017 to 2019, totaling 804 firm-years. The independent variables include foreign dominance represented by foreign share ownership, significant foreign share ownership, foreign commissioners, foreign directors, foreign CEOs, and foreign CFOs in these companies, while the dependent variable is tax aggressiveness. The results indicate that foreign ownership and significant foreign ownership do not have a significant influence on aggressive tax avoidance practices, contrary to previous research findings. However, another intriguing finding is that the composition of foreign commissioners and foreign directors has a significant impact on aggressive tax avoidance. The presence of foreign commissioners and directors appears to lead to increased compliance with tax regulations and a reduction in aggressive tax avoidance practices. This can be attributed to considerations of legal risk, reputation, and higher tax planning costs in the context of multinational corporations. These results provide valuable insights into the role of board composition in managing a company's tax practices. Overall, the findings contribute significantly to understanding the factors influencing aggressive tax avoidance practices in Indonesian companies, which can serve as a basis for more effective tax policies in the future. However, it is essential to note that this study has limitations and further research is needed to gain a deeper understanding of the dynamics of tax practices in an ever-evolving business environment.

Relationship between Tax Incentives and Corporate Tax Avoidance Strategies in Kenya

Purpose: The aim of the study was to assess the relationship between tax incentives and corporate tax avoidance strategies in Kenya.
 Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
 Findings: The relationship between Tax Incentives and Corporate Tax Avoidance Strategies in Kenya has been a subject of research. Findings indicate that while tax incentives are intended to promote economic growth and investment, they can also create opportunities for corporate tax avoidance. Companies in Kenya have sometimes leveraged these incentives to reduce their tax liabilities through legal but aggressive tax planning strategies, potentially leading to reduced government revenue.
 Implications to Theory, Practice and Policy: Agency theory, resource dependence theory and political economy theory may be use to anchor future studies on assessing relationship between tax incentives and corporate tax avoidance strategies in Kenya. For practitioners, understanding how tax incentives and avoidance strategies vary across industries is essential. Policymakers should actively engage in global collaboration to address tax avoidance by multinational corporations. International tax policy reforms and coordinated efforts are needed to create a fair and transparent global tax environment that discourages aggressive tax avoidance.

Does tax disclosure in Global Reporting Initiative (GRI)-based sustainability reporting mitigate aggressive tax avoidance? Evidence from a developing country

Purpose This paper aims to examine whether tax disclosure in Global Reporting Initiative (GRI)-based sustainability reporting mitigates aggressive tax avoidance. Design/methodology/approach This study uses a multiple regression method for 714 nonspecially taxed firms listed on the Indonesia Stock Exchange in 2014–2018. Findings The findings demonstrate that disclosing tax payments in GRI-based sustainability reports reduces aggressive tax avoidance. Additional analysis indicates that the number of GRI-based sustainability reports positively affects aggressive tax avoidance. However, disclosing tax payments in multiple GRI-based sustainability reports negatively affects aggressive tax avoidance. Originality/value Recent prior studies demonstrate that aggressive tax avoidance does not indicate an organizational culture that devalues corporate social responsibility. This paper argues that firms cannot find the link between tax and corporate social responsibility when tax payments are not incorporated in sustainability reports. GRI considers tax a sustainability issue and seeks to institutionalize this concept by recommending that firms disclose taxes in their sustainability reports. This research analyses whether disclosing taxes in GRI-based sustainability reports may serve as a form of soft law by convincing firms that tax is a sustainability issue, thereby reducing their tax avoidance. This topic has received little attention in previous research.

Does opinion shopping impair auditor independence? Evidence from tax avoidance

In this study, we investigate whether a firm’s opportunistic switching of auditors for a favorable audit opinion, known as opinion shopping (OS), affects its tax avoidance activities. Using a sample of Korean firms over the 2006–2018 period, we find that firms that switch auditors for OS purposes engage in more aggressive tax avoidance than other firms. The association between OS-driven auditor switches and tax avoidance is more pronounced for switches to non-Big 4 auditors than to Big 4 auditors. The results are robust to various robustness tests that attempt to control for differences in the characteristics of OS and non-OS firms. Collectively, the findings suggest that auditors hired as a result of OS allow their clients to engage in more aggressive tax avoidance, which is consistent with impaired auditor independence. We contribute to the literature on OS by documenting evidence of the negative consequence of OS on corporate tax compliance. In addition, our findings suggest that firms’ tax and audit behaviors need to be monitored concurrently.

Discretionary Accrual Earnings Management in a Sub-Saharan African Economy

This paper investigates the existence of discretionary total accrual earnings management and working capital accrual earnings management in Nigeria which is Sub-Saharan Africa's largest economy. Unlike previous studies that use the Ordinary Least Squares (OLS) technique that does not control for endogeneity that can invalidate results, our empirical methodology implements the maximum likelihood estimation that controls for endogeneity to estimate economically plausible levels of discretionary accrual earnings management. Our results find that discretionary accrual earnings management in Nigeria is characterized by statistically significant, tax-induced income-reducing discretionary accruals. This study contributes to the literature as it is the first emerging market, African and Sub-Saharan African economy study to the best of the researchers’ knowledge that estimates discretionary accrual earnings management for listed non-financial firms using various models based on the maximum likelihood estimation technique to control for endogeneity. The findings inform the political economy of economic development in Sub-Saharan Africa, particularly as it relates to how firms, especially multinationals, are motivated to extract rents from African economies. The results have policy implications for accounting regulatory interventions by policy and standard setting bodies that mitigate and/or eliminate capital flight, tax evasion, aggressive tax avoidance and financial corruption practices in Sub-Saharan African economies.

Do financing constraints affect the financial integrity of firms?

We use micro-survey data from 126,309 private non-financial firms in 138 developing nations during the period of 2006–2018 to investigate how financing constraints affect the integrity of their financial information. Our findings indicate that private firms with greater financing constraints are less inclined to undergo external audits voluntarily. This effect varies depending on factors such as firm size, business sector, ownership structure, accounting and auditing conditions, as well as the prevailing institutional environment. Our results remain robust even after subjecting them to various sensitivity and endogeneity tests. They suggest that financially constrained firms in developing countries may have stronger motivations to manipulate earnings, employ aggressive tax avoidance strategies, or be susceptible to managerial short-sightedness. Additionally, it is possible that finance providers rely on alternative mechanisms rather than audited accounts to monitor firm performance.

Pengaruh Kepemilikan Institusional, Intensitas Aset Tetap, Dan Financial Distress Terhadap Agresivitas Pajak

This research aims to provide empirical evidence of the influence of institutional ownership, fixed asset intensity, and financial distress on tax aggressiveness. The study adopts a quantitative approach and utilizes secondary data, specifically financial reports of manufacturing companies listed on the Indonesia Stock Exchange. The test results showed that institutional ownership, fixed asset intensity and financial distress simultaneously affect the aggressiveness of the tax. It can be assumed that if a company has institutional ownership, fixed asset intensity and is experiencing financial difficulties, it can affect management or company activities to take aggressive tax avoidance actions.

Geopolitical risk, financial constraints, and tax avoidance

We investigate the impact of geopolitical risk on corporate tax avoidance using a sample of all public US firms from 2005 to 2019. We find that an increase in geopolitical risk leads to higher engagement in corporate tax avoidance, as measured by a decline in cash-effective tax rates in both the short run and long run. This effect is more pronounced for firms with higher financial constraints. Furthermore, using the 2016 OPEC agreement as a geopolitical shock, we find that oil-related firms engaged in more aggressive tax avoidance activities than their non-oil-related counterparties. Our findings are robust to an alternative measure of industry exposure.

Does labor unemployment insurance affect corporate tax aggressiveness?

This paper examines the effect of unemployment insurance benefits (UIB) on corporate tax aggressiveness. Given that aggressive tax avoidance is risky and costly for the firm and its employees, we argue that low state UIB increases workers' exposure to unemployment risk and, hence, influences firms' tax strategies. Our results show a positive relation between tax aggressiveness and UIB. We also find that this relation is more pronounced for firms in industries that are more labor-intensive and firms with high financial constraints and less pronounced for firms in industries with high labor bargaining power.

Good Corporate Governance Effectiveness Mechanism, Special Relationship Transactions, and Leverage on Tax Aggressiveness

This study examines how effective good corporate governance, control of related party transactions, and leverage are in reducing tax aggressiveness. The research methodology involves cross-sectional and time-series analysis of manufacturing companies listed on the IDX from 2017-2021. Through purposive sampling, 200 observational samples were collected and tested using E-views 12, which produced a random effect model as the best regression model. The findings indicate that good corporate governance with institutional ownership proxies, audit committee activities, and the proportion of independent commissioners did not significantly reduce tax aggressiveness. Leverage with debt-equity ratio proxies also did not demonstrate a significant effect. However, related party transactions had a significant effect in increasing management opportunities to carry out tax aggressiveness. If good corporate governance implementation is not maximized and there is unfairness in related party transactions, it may indicate aggressive tax avoidance.

Does tax avoidance impair accounting comparability?

PurposeThis paper examines the relationship between tax avoidance and accounting comparability. The authors argue that aggressive tax behavior impairs the comparability of financial statements by altering the accounting function, which maps economic events into accounting data.Design/methodology/approachThe empirical analysis is based on a large sample of United States (US) firms. The authors use raw and industry-adjusted effective tax rates (ETRs) to proxy tax avoidance. The authors use the measure of accounting comparability developed by De Franco et al. (2011), which aims to capture the similarity of the accounting function.FindingsThe authors find that firms with more aggressive tax avoidance strategies have substantially lower accounting comparability. The evidence also shows that the negative effect of tax avoidance on accounting comparability is driven by firms with aggressive tax planning strategies beyond the industry norm. Furthermore, using an alternative measure of accounting comparability as a function of pre-tax income, the authors continue to find evidence of the negative effect of tax avoidance behavior. Importantly, this provides evidence that the effect of aggressive tax planning is not limited to the reported tax expense, but affects the comparability of the overall financial reporting system.Originality/valueThe authors identify a new potential cost of tax aggressive activities, being the loss of accounting comparability as driven by tax aggressive activities. The results contribute to the literature on the costs of tax avoidance and on the determinants of accounting comparability.

Does corporate digital transformation affect the level of corporate tax avoidance? Empirical evidence from Chinese listed tourism companies

Based on the data of China's A-share listed tourism companies from 2019 to 2022, this paper empirically tests the impact and mechanism of digital transformation of tourism enterprises on tax avoidance. The results show that the digital transformation of tourism enterprises will significantly inhibit the tax avoidance of enterprises, and the digital transformation of enterprises inhibits tax evasion by improving the level of internal control. Therefore, the digital transformation of tourism can inhibit the aggressive tax avoidance behavior of managers seeking private interests through effective governance mechanisms, and make managers weigh the benefits and costs of tax avoidance, thus affecting the corporate tax avoidance strategy. This study expands the research in the fields of corporate digital transformation and corporate tax avoidance, and provides relevant enlightenment for promoting the deep integration of digital economy and real economy.

The morality and tax avoidance: A sentiment and position taking analysis.

This paper examines the moral and legal underpinnings of corporate tax avoidance. Cast in terms of a totemic symbol that brand tax avoidance as within the purview of the law, the paper invokes the attributional frames of the new sociology of morality to examine the position of both the moral advocates and the amoral critics of aggressive tax avoidance. The paper uses the United Kingdom as a jurisdiction where complex tax planning by tax advisors serves as a measure of protection for corporations who may have already conceived that they are paying too much tax. Data for the paper came from semi-structured interviews conducted with tax accountants, consultants, parliamentarians, and government officials. To supplement the interviews, data from the Parliamentary Commission on Banking Standards were collected and analyzed to provide useful insights. The findings reveal that through effective tax planning, companies can reduce the present values of future tax payments. Given the singular justification of their actions within the contours of the tax rules, the moral culpability of organized tax avoidance is minimized, with very little liability attached. Tax avoidance is a morally charged area that is slowly drifting away from conventional social norms of what is right or wrong. It is hard not to see those in charge of tax regulation not using the findings of this paper to provide a more nuanced understanding of the intractable problems associated with corporate tax avoidance and use it as a reference point for regulatory reforms.