Aggressive Tax Planning Research Articles

Aggressive tax planning and stock price synchronicity: evidence from China

PurposeThe purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity.Design/methodology/approachEmploying the special institutional background of China, this study constructs tax aggressiveness and stock price synchronicity measures for a large sample of Chinese stocks spanning the period 2003–2015. The authors employ OLS regression as the baseline methodology, and a fixed effect model, the Fama–Macbeth method and GMM as sensitivity checks. Matched samples and difference-in-difference analyses are used to control for endogeneity.FindingsThe authors find a significant and positive association between aggressive tax planning and stock price synchronicity. Because material information about risky tax transactions tends to be hidden in various tax accruals accounts, aggressive tax strategies make financial statements less transparent, thereby, increasing information asymmetry and decreasing stock price informativeness. The authors also find that the firms engaging in aggressive tax planning exhibit relatively high corporate opacity. In addition, the authors find that improvements in the tax enforcement regime, ownership status and high-quality auditors all constrain the adverse effects of tax aggressiveness.Practical implicationsThis study has important practical implications for China’s regulators, who are striving to reduce the tax burden of enterprises. It also helps investors to consider investment decisions more appropriately from a taxation perspective.Originality/valueFirst, this paper contributes to the stock price efficiency literature by identifying the effect of a hitherto unexamined factor, namely, firm-level aggressive tax planning, on the efficiency of stock prices. Second, this study provides further empirical evidence to support the agency view of tax aggressiveness, and the informational interpretation of stock price synchronicity. Third, this study helps us better understand the effects of firm-level tax policy on firm-specific information capitalization in an environment where overall country-level investor protection is relatively weak.

Aggressive Tax Planning and Corporate Tax Avoidance: The Case Study

There have been increasing literature on aggressive tax planning and corporate tax avoidance, which focus on economic consequences (Ksovreli, 2015; Hanlon & Heitzman, 2010). Campaigners have targeted tax-avoiding corporations through the media, citing the enormous amount of tax losses (Hasseldine, Holland & Van der Rijt, 2012). It is pertinent that policy-makers and tax authorities to take action against tax avoiders and tax intermediaries. This paper focuses on the tax avoidance structures identified during tax audits and investigations and further contributes to an understanding of tax avoidance structures and models. The key models identified are related to the abuse of tax incentives and the use of corporate restructuring to minimize or reduced tax exposures. Based on the Case Management System of the Inland Revenue Board of Malaysia, we identify the key structures, their roles and incentives, and outline the tax avoidance schemes. The study summarizes a range of policy responses to tax avoidance, including anti-avoidance rules, disclosure rules and the regulation of tax intermediaries such as tax practitioners.

Dutch Guidance on Tax Integrity Risk for Financial Institutions

Financial institutions serve a “gatekeeper” role when it comes to preventing and addressing money laundering conducted by (or through) their clients. The Dutch regulator is requiring Dutch banks to significantly improve their “know-your-customer” rules and test their clients much more thoroughly for aggressive tax planning. This article discusses the new guidance issued in the form of a consultation paper that was published on 7 February 2019 on what constitutes “good practice” when it comes to financial institutions screening their clients for aggressive tax planning structures.

The Importance of Lawyers in International Tax Policy Design and Development: An Exploration and Extension of the Legal-Economic Literature

The advent of the global digital economy has increased opportunities for aggressive tax planning by multinational enterprises (‘MNEs’). Governments are increasingly faced with the competing objectives of remaining internationally competitive and encouraging foreign investment while also protecting their national tax bases. Two key trends have had a significant impact on the international tax debate. First, over the past three decades, the rise of MNEs and the prominence – and dominance – of inter-company trade as a proportion of global trade has fundamentally shifted the influence of individual governments’ tax policies. Second, even though corporate tax policy has traditionally been a field dominated by economists, there is now a shift towards ‘politicisation’ of the debate. The focus of this article is on the importance of legal practitioners and scholars in assisting with meaningful reform at the intersection of these two trends – and examining alternative theoretical approaches to tax policy. In doing so, this article also bridges two disciplines by combining legal analysis with linear optimisation modelling (to simulate a tax-minimising MNE’s behavioural responses to both existing and proposed tax legislation). Ultimately, it is hoped that this research will present a platform for further discussion on the tax treatment of cross-border intercompany transactions, and facilitate the development of improvements to both the tax law design and drafting.

Імплементація міжнародних стандартів податкового контролю в українське законодавство

Стаття присвячена вивченню процесу впровадження міжнародних стандартів податкового контролю в національну правову систему. Податковий контроль є важливою ланкою державного контролю, яка при ефективному правовому регулюванні та успішній організації здатна наповнювати бюджет країни необхідними їй коштами для забезпечення стабільного соціального та економічного розвиту держави. Перепоною на шляху досягнення поставленої цілі є проблема ухилення від сплати податків, в тому числі з використанням прогалин у законодавстві та міжнародних угодах і недосконалостей правового регулювання податкового контролю. Ухилення від сплати податків давно стало масовим явищем, яке негативно впливає на економічний стан країни, незалежно від рівня її розвитку. Задля протидії даній проблемі розвинуті країни беруть активну участь у розробці та впровадженні дієвих способів здійснення податкового контролю. В умовах сучасних реформаційних процесів та з огляду на розвиток української економіки, постає актуальним питання співпраці України з іншими країнами в сфері контролю за оподаткуванням та імплементації міжнародних стандартів податкового контролю у вітчизняне законодавство. Метою статті є теоретичний аналіз розвитку нормативно-правового забезпечення впровадження в Україні міжнародних стандартів податкового контролю. У статті розглянуто вплив глобальних негативних явищ, таких як агресивне податкове планування, на міжнародні відносини в сфері оподаткування. Проаналізовано найбільш яскраві тенденції розвитку норм міжнародного податкового контролю та їх вплив на реформування нормативно-правового регулювання податкового контролю в Україні. Досліджено кроки держави з юридичного закріплення міжнародних стандартів податкового контролю в національному законодавстві. Незважаючи на, в загальному, досить позитивну динаміку з впровадження нових стандартів виявлено юридичну прогалину, що стосується правового регулювання процесу міжнародного обміну інформацією в податкових цілях.

Tax policy, tax disharmony and tax competition: The situation of Greek economy

The European Union is a unique economic and political union, a single "internal" market with over than 510 million inhabitants. Further coordination in the field of taxation is required, since it is not yet integrated into the E.U. policy and remains under the responsibility of national governments. However, the economic and financial turmoil caused by the crisis of 2008 and the new challenges resulted from the globalization and digitalization of the economy, require profound reforms to tax systems. Thus, fiscal policy is a significant priority on the EU agenda: firstly, in order to stabilize public finances, stimulate growth and competitiveness and finance the European social welfare model as well as to tackle tax evasion and aggressive tax planning, developed mainly by multinationals. The present paper attempts to explore on a theoretical and empirical basis the challenges and possible developments towards harmonization in European taxation, at a critical juncture, not only for the integration but also for the existence of the European Union. More specifically, it investigates the Greek taxation and its structural weaknesses through empirical research conducted with questionnaires distributed among 225 tax officers, accountants, and accounting executives and statistical processing of their response. The results were examined through descriptive analysis, segmented in seven theoretical domains based on the examination of both audit literature and the present taxation state of Greece. The findings reveal that structural problems remain unresolved within the Greek tax system. However, it is understood that issues of distrust toward the taxation system may hinder harmonization processes.

Principles-Based Legislation in Context: A Dworkinian Perspective

Principles-based legislation (PBL) is sometimes presented as an alternative regulatory instrument to counter aggressive tax planning, as a remedy for the failure of rules-based legislation. Rules are almost sacred in (tax) law - for rules are thought to secure legal certainty (and equality) for citizens. Nonetheless, a system of pre-established rules has its drawbacks because one can play by the rules but also bend the rules. This a well-known reality in tax. Counteracting tax avoidance is one of tax authorities’ major concern nowadays. However, there are various instruments in the legislature’s toolkit. Principles-based drafting is but one of them. Here we will deal with fictions, standards, general anti-avoidance rules, before turning to PBL. This paper will investigate the meaning of these instruments from the perspective of (legal) principles as advocated by the legal philosopher Dworkin. Fundamental legal principles embody the dimension of morality (justice, fairness) in law. They are regulative ideals that make morally sound positive law possible. They constitute a normative framework for legislation: legislation should be aimed at realizing these principles.

Reflections on the Fight against Aggressive Tax Planning (When the Law Is Silent)

Multinational enterprises make use of aggressive tax planning strategies because they are able to operate in the legal vacuum that exists between nation states. The tax burden is not mitigated by falsifying the facts of tax-relevant events (as in the case of tax evasion) or through simulation of certain transactions (as in the case of sham), but through careful use of existing gaps between tax rates. The present article describes the current situation with normative gaps in global taxation and erosion of national governance due to the loss of sovereignty and the extraterritorial application of national law. It is argued that a legal vacuum represents a substantial cost for nation states. To reduce this cost, the current international proposals are considered. The article aims to clarify whether and to what extent the BEPS Project has contributed to redefining the concept of “legal vacuum” in the international tax system. In particular, the question is whether, in order to prevent aggressive tax planning schemes, OECD member states are required to avoid situations of double non-taxation and cases of no or low taxation associated with practices that artificially segregate taxable income from the generating activities.

BEPS 13: CBCR – raport według krajów

In order to eradicate the unfair competition in the form of tax avoidance and profit shifting, the OECD and the EU advise undertaking effective measures, which have been gathered in a complex of 15 actions that should be introduced by member states to their law orders. Promoting the automatic information exchange and reporting (BEPS 13) has become one of the priorities, as it is considered a tool that guarantees the transparency of actions and the future European and international standards in tax matters. Due to the fact that groups of multinational enterprises have the possibility for applying practices of aggressive tax planning, tax organs of member states need extensive and accurate data that will enable them to react to harmful tax practices by introducing amendments to law or implementing appropriate risk assessments and tax inspections. A greater transparency towards tax organs ought to result in multinational tax organs refraining from the practices they have implemented so far, so that they would start to pay taxes in the country they generate income.

When Companies Use Their Wiggle Room, Which Investors Care?

This paper investigates whether certain investors either prefer or dislike holding firms that exploit more of the available regulatory wiggle room and if such a strategy pays off. Exploited wiggle room (WR) is captured by relatively aggressive tax planning, financial reporting, and earnings management practices. I find that long-term, low-turnover investors hold firms with 3% higher exploited WR than those held by short-term, high-turnover investors. After experiencing financial adviser misconduct that breaches their trust, investors reduce the exploited WR of their holdings by 5%. This is consistent with investors choosing firms according to their preferences for WR. Overall, investors seem to have heterogeneous preferences for WR exploitation and a liking for cautious firms that cannot be explained by a profit maximization motive alone.

A implantação do BEPS no Brasil: conquistas e desafios

Em outubro de 2015, a OCDE aprovou o BEPS que compreende 15 ações diferentes no tocante a tributação internacional, buscando combater a erosão da base imponível e a transferências de resultados tributários. Entretanto, transcorrido quase três anos ainda existe um longo caminho para que tenhamos um instrumental de tributação uniforme e universal. Neste artigo, após a exposição dos principais fundamentos do pacote BEPS, serão revisados os efeitos das suas ações propostas, verificando em particular os impactos causados no sistema tributário brasileiro. Metodologicamente, através da análise das recentes modificações na legislação tributária brasileira serão revistas as principais conquistas nessa temática. A estratégia da OCDE tem passado a reforçar o combate ao planejamento tributário agressivo, e tem procurado promover isso através de instrumentos multilaterais, que pactuam um novo padrão de tributação internacional. Porém o tratamento diferenciado de alguns países, onde aí se inclui o Brasil, tem alimentado uma fragmentação do BEPS que podem criar oportunidades para outros tipos de planejamento tributário internacional, comprometendo a eficácia do BEPS.

The impact of the proposed EU Directive on tax intermediaries on the Austrian Foundation as tax planning tool

For European Union (EU) Member States, it will become difficult to protect their tax bases from erosion. The draft EU Directive on Tax Intermediaries is aimed at preventing aggressive tax planning by enabling the increased scrutiny of the activities of tax intermediaries. On 13 March 2018, the Council reached agreement on a proposal aimed at boosting transparency in order to tackle aggressive cross-border tax planning. The draft EU Directive is the latest of a number of measures designed to prevent tax avoidance and avoidance of transparency rules. The Directive will also have an impact especially on advisors and directors of the Austrian Foundation, who will be potentially obliged to report tax avoidance schemes to the tax authorities.

Tax Aggressiveness and Corporate Transparency

ABSTRACT We investigate whether aggressive tax planning firms have a less transparent information environment. Although tax planning provides expected tax savings, it can simultaneously increase the financial complexity of the organization. And to the extent that this greater financial complexity cannot be adequately clarified through communications with outside parties, such as investors and analysts, transparency problems can arise. Our investigation of the association between tax aggressiveness and information asymmetry, analysts' forecast errors, and earnings quality suggests that aggressive tax planning is associated with lower corporate transparency. We also find evidence that managers at tax-aggressive firms attempt to mitigate these transparency problems by increasing various tax-related disclosures. Overall, our results suggest that firms face a trade-off between tax benefits and financial transparency when choosing the aggressiveness of their tax planning. JEL Classifications: G30; H26; M41.

OPOREZIVANJE DOBITI MULTINACIONALNIH KOMPANIJA I PRAVO DRŽAVNIH POTPORA EUROPSKE UNIJE: STUDIJA “SLUČAJA APPLE”

The paper analyses the most important legal aspects of the recent European Commission's decision regarding the case. The decision, adopted in August 2016, breeds controversies, especially as to the innovative interpretation of the so-called arm's length principle and transfer pricing rules within the EU context. Legal reasoning of the Commission will be put to the judicial test by the Court of Justice of the European Union in the coming period. From a broader perspective, the Apple decision is tied to the current debates on fairer taxation of multinational companies. In this regard it is evident that the EU institutions are using state aid rules as instruments against the so-called aggressive tax planning. However, from the perspective of individual Member States this may be considered as an undue encroachment on their tax sovereignty. Against this backdrop, main findings of this paper may be useful for academics and practitioners dealing with neighbouring areas of tax law and state aid law.

A Historical Analysis of the BEPS Action Plan: Old Acquaintances, New Friends and the Need for a New Approach

In 2012, public opinion focussed on what has been called ‘aggressive tax planning of multinational enterprises’. Since then, the G20 and OECD developed the Base Erosion and Profit Shifting (BEPS) Action Plan – a phenomenon that has received enormous attention. Despite this attention, the efforts, methodology and outcomes, and the instruments used to implement them, pose very little innovation. This article analyses the issues raised by the BEPS Action Plan from a historical perspective, showing that they remain grounded on the same basis of discussions that took place decades ago. This is probably because the project was triggered by a decrease in tax revenue, and not by an actual study of the failures of the system. The only real innovation of the BEPS Project is the change in the public state of mind and attitude towards tax planning, as well as a totally new way of developing international tax rules through consensus with the participation of a broad number of countries. Future steps should take advantage of this actual innovation, get rid of previous analysis and, taking into account of the current economic situation, study (1) the structure of the tax system and tax burden; (2) the jurisdiction to tax rules and the source and residence principles; and (3) the relationship between private law and tax law, i.e. legal personality and recognition of foreign persons and contracts. Without such in-depth analysis, any changes would be changes that only deepen already existent failing principles forming the base of the current system.

The Role of the Subjective Element in Tax Abuse and Aggressive Tax Planning

This article aims to examine the role of the subjective element in how certain transactions should be taxed according to the international tax system in cases of tax abuse and aggressive tax planning (ATP). This article also analyses the nature and the different scope of the taxpayer’s subjective intent and: (i) the bona fide commercial reasons; (ii) the result of the transaction in terms of reduction (or elimination) of tax; and (iii) other possible outcomes that the taxpayer desired. In particular, this paper examines the meanings (and the weight accorded thereto) of the different terms of “intention”, “purpose”, “motive”, “object” and “aim”, as currently used by soft law instruments in international taxation (specifically by the OECD in the BEPS Final Reports and by the European Commission). The question is whether these terms are synonymous or if they actually have separate and distinct meanings in identifying the subject element in abusive practices and in ATP schemes. Since the taxpayer’s intention is subjective in nature and is determined by factors that vary according to the individual case, this article attempts to identify the objective elements that both the OECD and EU law consider in finding abusive practices or ATP schemes. In this regard, this article also highlights the importance of evidence to prove the subjective element behind the arrangement or transaction undertaken.

적극적 조세계획과 순응적 조세계획이 조세회피에 미치는 영향

본 연구에서는 기업의 조세계획목적 유인에 따라 적극적 조세계획(AggTP)과 순응적 조세계획 (ComTP)으로 구분하고 조세회피에 미치는 영향을 실증분석 하고자 하였다.BR 적극적 조세계획보수크기(AggTP_Scale)와 순응적 조세계획보수크기(ComTP_Scale)를 독립변수로 하여 조세회피와의 연관성을 실증분석한 결과, 적극적 조세계획보수크기가 클수록 합법적인 절세범위내에서 조세절감목적의 조세계획을 더 많이 수립되고 수행하고 있음을 보여주고 있다. 순응적 조세계획보수크기(ComTP_Scale)와 조세회피는 유의한 음(-)의 관련성이 나타났다. 이는 순응적 조세계획보수크기가 클수록 기업의 조세계획이 조세절감목적 이외의 다양한 조세계획을 더 많이 수립되고 수행하고 있으며, 조세계획 수립시 법인세최소화전략 이외의 법인세유연화전략과 비조세비용 등을 동시에 고려하여 조세계획을 수립되고 수행하고 있음을 알 수 있다.BR 본 연구의 시사점은 첫째, 기업의 조세절감정보와 조세절감 이외의 다양한 목적의 조세계획이 이루어질 수 있다는 정보를 제공할 수 있을 것으로 기대된다. 둘째, 감사인이 조세계획목적 유인에 따라 조세계획서비스를 감사서비스와 동시에 제공하는 경우 조세회피에 미치는 영향을 분석한 본 연구의 결과는 현행 규정 보완의 필요성에 대한 정책적 근거가 될 수 있을 것으로 보인다. 셋째, 본 연구의 결과 기업이 조세절감목적 유인에 따라 적극적 조세계획을 통한 조세회피를 하는 경우, 과세당국 및 금융감독기관의 입장에서 이러한 기업들을 보다 주의 있고 깊은 관찰이 필요할 것이다.

The Brazilian “Sixth Method” and BEPS Action 10: Transfer Pricing Control on Commodity Transactions

Aggressive tax planning, i.e. the act of sending profits to low-tax jurisdictions, is a reality. All countries in which significant economic activities are carried out make an effort to fight against it, using instruments such as transfer pricing rules, as well as those defined in the OECD Action Plan on Base Erosion and Profit Shifting (BEPS). The legal control of transfer pricing over commodity transactions represents a special challenge for developing countries – traditional commodity traders – for which such transactions constitute a significant source of revenue. This revenue comes not only from the trade transactions, but also from their taxation. This article aims to analyse the Brazilian “sixth method” for transfer pricing in commodity transactions in comparison with the guidelines established by Action 10 of the OECD BEPS Project. The goal is to determine whether Brazilian legislation is in line with the guidelines provided by the OECD, mainly with regard to compliance with the prestigious arm’s length standard as a criterion for allocating profits in transactions between related parties, and whether Brazilian legislation is efficient in its final scope for combating base erosion.

Aggressive Tax Planning and Corporate Social Irresponsibility: Managerial Discretion in the Light of Corporate Governance

The purpose of this contribution is to explore the possibility of integrating tax with corporate social responsibility (CSR). Some corporate directors seem to argue that they do not have a choice with regard to tax planning, implying that a responsible tax planning strategy is not an option. This contribution shows such argument to be wrong. First, the issue of management accountability and choice will be dealt with in the context of corporate governance systems in order to find out what kinds of obligations corporate governance entail for managers. It will be shown that corporate directors enjoy sufficient discretion for making socially responsible decisions. To this end, two existing theoretical frameworks will be analysed, according to which corporate decisions should prioritise either shareholders or stakeholders interests. Both theories allow managers a choice to act with a wider interest than purely shareholder value maximisation. Furthermore, it will be argued that managerial discretion to take CSR into account does not oblige managers to aspire to some kind of ideal social responsibility but rather to stay away from corporate social irresponsibility (CSI). Therefore, corporate managers in different corporate governance regimes have sufficient room for aligning their tax planning strategies with societal expectations and avoiding aggressive tax planning. Thus, this paper aims to make two contributions to academic theory. First, it is shown that both shareholder and stakeholder-oriented corporate governance regimes allow for managerial discretion to take CSR on board in tax matters. Secondly, the concept of corporate social irresponsibility is introduced to enhance a more balanced debate about multinationals’ tax planning practices.

Corporate Tax Avoidance - The Problem of Aggressive Tax Planning

This paper explores the complexities of corporate tax policy and (legal) tax avoidance by businesses. It first examines justifications for the existence of a corporate tax and shows that different theoretical conceptualizations of the corporate entity surface in the major rationales used to justify treating corporations as taxable subjects. Next, the paper discusses the problem of aggressive tax planning, including its mechanics, effects, the role of governments, and regulatory frameworks and initiatives in this area. Finally, the paper answers the question whether there is a corporate (fiduciary) duty not to engage in aggressive tax planning. It concludes that while there is normally no legal duty to this effect, there is an extra-legal obligation not to utilize aggressive tax planning techniques based on the benefit principle and corporations’ status as consumers of public goods and services. From this perspective, tax avoidance contributes to corporate free riding on publicly financed infrastructure.