Aggressive Tax Planning Research Articles

Tax Planning And Financial Constraints With Moderated Effect Of Audit Quality: Evidence From East African Countries

This study aims to provide empirical evidence on the relationship between tax planning and financial constraints with the moderated role of audit quality. This study draws its sample from listed firms operating in developing countries particularly East African Countries, the region where firms are most famous for facing higher financial constraints. We used ordinary least squares (OLS,) fixed effect and feasible generalized least square (FGLS) to estimate the regression on the data spanning 2009 to 2019. The results show a negative relationship between book tax differences and financial constraints, which suggests that companies with larger book tax differences are less likely to experience financial constraints. However, this study found no significant moderated role of audit quality. Nonetheless, the negative relationship between book tax differences and financial constraints has practical and theoretical implications. It highlighted the need for tax authorities and policy makers to reform and enforce their tax regulations to limit aggressive tax planning. It also provides insights into the potential conflicts of interest that can arise between managers and other stakeholders in a company, and highlights the importance of transparency and accurate financial reporting in mitigating these conflicts.

Forum: AG Kokott Tries to Bring Clarity to the Selectivity Test for Individual Tax Rulings

In an opinion of 4 May 2023 in Case C-454/21 P, Engie, Advocate General Kokott proposes a new standard of state aid review of individual tax measures such as the tax rulings, based on a manifestly erroneous application of tax law (favourable to the taxpayer) by the national tax administration. Considering that, in order to assess the selective nature of tax rulings, only national law must constitute the frame of reference and that in any event, only tax rulings that are manifestly erroneous with regard to national law can constitute a selective advantage, Advocate General Kokott has called on the Court to annul the Commission’s decision finding that Luxembourg granted the Engie group unlawful state aid in the form of tax advantages, as well as the judgment of the General Court. State aid control, direct taxation, notion of selective advantage, Commission practice, aggressive tax planning, individual tax rulings, tax system of reference, comparability, Union Courts review, annulment of Commission decision

Legal characteristics of aggressive tax planning

The article studies the problems of legal characteristics of tax planning. It is emphasized that there is no single approach to determining the balance of private and public interests in the field of taxation. This especially concerns situations where taxpayers try to optimize tax payments in a way that does not involve a direct violation of the law, but has signs of abuse of the right, which is characteristic of an aggressive tax planning. It is argued that the solution to this problem is important, since abuse of rights by taxpayers, using the imperfections of legislation, manipulation of differences in tax regulations of different states, as well as active use of low-tax jurisdictions in business schemes leads to huge losses in the budgets of many countries. It is pointed out that aggressive tax planning is not direct violation of the law, otherwise such actions would be qualified as tax offense. The positions of scientists regarding the definition of such a category as “aggressive tax planning” are presented in the article, as well as the author's position on this issue is highlighted. It is noted that the widest toolkit of tax optimization can be used in the implementation of international tax planning. In the past, one of the main, most common and effective methods of aggressive tax planning was the use of low-tax jurisdictions. However, the influence of this factor has been efficiently reduced by modern trends to counteract this phenomenon, in particular, the widespread introduction of anti-BEPS measures and automatic exchange of tax information. Other common tools of aggressive tax planning are listed, including transfer pricing. The negative consequences of aggressive tax planning for the state are described, related to the reduction of tax revenues to the budget, as well as the creation of an anti-competitive environment due to receiving unfair tax advantages. The main methods of combating aggressive tax planning both at the international and domestic level are disclosed. The main signs of aggressive tax planning are identified and the conclusion is drawn that in each specific case, the behavior of the taxpayer, which has signs of aggressive tax planning, should be evaluated for the presence of abuse of the law, which will allow the application of appropriate legal consequences for the purpose of protecting state and public interests.

The Effect of the PCAOB’s Restrictions on Auditor-Provided Tax Services on Audit Quality, Earnings Quality, and Tax Avoidance

This study examines whether the PCAOB’s restrictions on auditor-provided tax services (APTS) in 2005 curtail the potential negative impact on companies’ audit quality, earnings quality, and tax avoidance activities. Using a difference-in-differences research design, this study focuses on firms that retained APTS after the SOX and then significantly reduced APTS purchases after the PCAOB’s restrictions. I find that the PCAOB’s restrictions on APTS are associated with fewer subsequent financial restatements and higher discretionary permanent book-tax differences. Further analysis shows that firms with more effective audit committees are less likely to meet or beat earnings targets and have smaller discretionary permanent book￾tax differences following the PCAOB’s restrictions. This finding supports the notion that audit committee effectiveness plays an important role in alleviating the negative impact of APTS on earnings quality and curtailing aggressive tax planning. The results should be of interest to the U.S. accounting and audit regulators such as the SEC and PCAOB, public accounting firms, auditors, and corporate audit committees.

Aggressive Tax Planning in Light of the Securing the Activity Framework of Enablers Initiative: A Path to Inflation of Anti-Tax Avoidance Rules in the EU Law

The purpose of this article is to demonstrate that the introduction of legal definition of aggressive tax planning (ATP) together with anti-ATP rules by the European Commission under the Securing the Activity Framework of Enablers (SAFE) initiative is an example of legislative inflation of the anti-tax avoidance rules in the degradation phase of EU legal development in the area of direct taxation. The article aims to show that the legal use of ATP would add another factor for further disorder in an interpretation and application of existing concepts and anti-abusive rules in the EU law as well as triggers risk of over-reaction. The analysis of relevant contextual materials on the ATP will help to positively verify that hypothesis. The article will also lead to the conclusion that the Commission could propose new specific anti-avoidance rules (SAARs) based on the economic substance criteria in concert with references to activities that artificially exploit inconsistencies and mismatches between at least two systems of tax law without legally defining ATP. The introduction of such a new SAAR, however, is subject to two caveats. First, it would have to be placed within the boundaries of the rule of law, thereby causing only taxpayers engaging in international tax avoidance to suffer from uncertainty, i.e. the necessary degree of vagueness to effectively prevent tax avoidance by means of artificial exploitation of inconsistencies and mismatches between at least two systems of tax law. Second, proposing a new SAAR would be justified only insofar the Commission would present a robust analysis which confirms that recently introduced legislation against tax avoidance is not effective enough to target the mentioned exploitation. Otherwise, the inflation of anti-tax avoidance rules in the EU law would be guaranteed for the short-sighted benefit of politicians and at the cost of society and economy at large in the long term.

Analysis of The Role of Tax Consultants as Tax Intermediaries in The Implementation of Cooperative Compliance

This study examines the role of tax consultants as tax intermediaries who have an important role in the tax system. The focus of the research is on the role of tax consultants as tax intermediaries in conducting the concept of Cooperative Compliance. The strategic position of this tax consultant must be taken into account to build compliance. In this study, a mixed- methods approach was adopted by combining interviews with tax consultants and Account Representatives under the Directorate General of Taxes. Tax consultants under the Indonesian Tax Consultants Association (IKPI) and Account Representatives under the Directorate General of Taxes were recruited from the survey respondents to participate in the interviews. This study provides recommendations to the Directorate General of Taxes (DGT) so that the DGT can draft a Regulation of the Director-General of Taxes regarding cooperative compliance by considering best practices in various countries that have implemented it, for example, the application of the Tax Control Framework (TCF) as a requirement for cooperative compliance participants. And also, the tax consultant is to be able to practice self-reflection as a taxpayer as long as the condition is legal and refrain from doing aggressive tax planning, tax avoidance, and as well as tax evasions.

Factors Affecting Allocation of Czech FDI in EU Countries

The main objective of this paper is to analyse which factors have an impact on the allocation of Czech foreign direct investment (FDI) in EU countries. Multivariate panel regression with general macroeconomic variables and time dummy variables using Eurostat data for the period 2013-2019 was performed. Indicators of a tax system promoting and/or enabling aggressive tax planning, and other more general indicators were included in the model. This paper provides the opposite view by analysing the flow of FDI from a transition economy to more advanced economies. The results suggest that Czech FDI is placed in developed countries with lower statutory corporate income tax rates, and with which the Czech Republic has a larger volume of foreign trade. Furthermore, it is confirmed that the factors affecting allocation of Czech FDI in the EU are the distance between the capital cities and the existence of the so-called patent box regime.

Corporate social responsibility and tax avoidance: Channeling effect of family firms

AbstractAlthough the relationship between tax avoidance and corporate social responsibility has been the subject of many studies, results have been inconclusive. In this study, we investigate this relationship from the agency perspective of family firms. Using 1156 firm‐year observations from 94 firms listed on the Istanbul Stock exchange, we found that socially responsible non‐family firms engage in tax avoidance activities through discretionary book‐tax differences rather than tax avoidance through aggressive tax planning and tax sheltering, and this behavior is opposite in family firms. According to findings, family firms engage in more aggressive tax planning than non‐family firms. This study also provides evidence about the external effects on the relationship between CSR and tax avoidance when family firms are monitored effectively by institutional investors or debtors. More specifically, external monitoring by institutional investors or debtors only affects the tax avoidance behaviors of non‐family firms.

ESG-повестка и агрессивное налоговое планирование

The analysis of the current state of the balance of interests of the state and organizations in the field of achieving the goals set within the framework of the ESG strategy in the jurisdictions of economically developed countries is of urgent importance for the domestic practice of interaction between organizations and tax authorities to achieve sustainable development goals. It is especially important to assess the negative trends of abuse of the ESG agenda for aggressive tax planning. The subject of the study is the mechanisms of ESG activity of organizations in relation to the tax motivation for obtaining tax benefits. The purpose of the work is to put forward proposals to improve the effectiveness of detecting illegal tax optimization. It is concluded that there is a significant relationship between the declaration of ESG goals by organizations and the methods of aggressive tax planning used by them to extract unjustified tax benefits with an emphasis on environmental ESG aspects. The conclusions made in the study are consistent with the results of the work of foreign scientists over the past five years. At the same time, there is a real prospect of confirming economic and statistical studies within the framework of the hypothesis put forward in the study for domestic organizations in terms of the tax benefits they receive from participating in ESG activity.

Article: Uncertainties Hold Back Achievement of OECD Pillar II Goals

The Organization for Economic Cooperation and Development (OECD) Pillar 2 that was designed to levy a minimum tax on multinationals in all of the countries in which they operate still has many areas of uncertainty. These include issues from the more general uncertainties concerning the politics, including the apparent desire not to adopt a multilateral convention for its implementation to the technical ones that revolve around the complexity of the rules for calculating the effective tax rate (ETR) (which also increases compliance costs), with the risk of jeopardizing the Pillar 2 project’s objectives of simplicity and uniformity. Moreover, the Biden Administration’s unequivocal support for Pillar 2 has not translated into action in the US Congress, and any administrative steps the United States intending to undertake the implementation of Pillar 2 (in lieu of action in Congress) are also not evidenced. Pillar, Base erosion, Treaty, Multilateral convention, Effective tax Rate, Covered taxes, CFC, GILTI, BEAT, Minimum tax, anti-avoidance, Inclusive Framework, aggressive tax planning, GloBE, Substance carve-out, Incentives, Top-Up-Tax, UTPR, STTR

Aggressive Tax Planning (ATP) in Light of the Securing the Activity Framework of Enablers (SAFE) Initiative: A Path to Inflation of Anti-Tax Avoidance Rules in the EU Law

Aggressive Tax Planning (ATP) in Light of the Securing the Activity Framework of Enablers (SAFE) Initiative: A Path to Inflation of Anti-Tax Avoidance Rules in the EU Law

Pengaruh corporate social responsibility dan good corporate governance terhadap agresivitas perpajakan

This study aims to empirically examine the effect of corporate social responsibility and GCG (good corporate governance) on tax aggressiveness. The dependent variable used in this study is aggressive tax planning, which is measured using ETR (effective tax rates). The independent variables in this study are corporate social responsibility and GCG (managerial ownership, audit committee, and audit quality). This study is based on a sample of 110 manufacturing companies listed on the Indonesia Stock Exchange in 2012–2016. The study sample was selected by purposive sampling and obtained from 22 companies per year that fulfill the criteria. Data were analyzed using multiple linear regression analysis. The results show that CSR, managerial ownership, and audit quality do not affect the action of aggressive tax. Meanwhile, the audit committee shows the existence of influence on the activity of aggressive tax.

ASSESSMENT OF THE PRE-CONDITIONS FOR THE IMPLEMENTATION OF MODERN TECHNOLOGIES OF TAX CONTROL ON BASE EROSION AND PROFIT SHIFTING

The purpose of the study is to assess the possibility of combining the concepts of transfer pricing, beneficial owner of income and valid business purpose in a model of three-component tax risk assessment for countering BEPS. To achieve this purpose, the author set priority tasks, namely conducting an isolated analysis of the concepts of transfer pricing, beneficial owner of income and valid business purpose with further identification of intersections and interconnections of such concepts, as well as the formation of conclusions regarding the possibility of combining these concepts into a single model for identification of BEPS risks. Under the study, the author analyzed the three-level transfer pricing reporting system introduced into the tax system of Ukraine by Law of Ukraine No. 466-IX “On Amending the Tax Code of Ukraine on Improving Tax Administration, Eliminating Technical and Logical Inconsistencies in Tax Legislation”. In particular, the study found grounds for moving the essence of transfer pricing analysis from the formal determination of compliance of the prices established within the controlled transactions with the “arm's length” principle to the analysis of value chains, distribution of functions, assets and risks within a multinational group of companies, as well as to the examination of the value allocation process between jurisdictions and the fairness of such allocation. The study established that the information disclosed under transfer pricing reporting process can become part of the analysis of the legality of applying of the provisions of international treaties on the avoidance of double taxation through the concept of “beneficial owner of income”. The draft model of three-component tax risk assessment for countering BEPS is proposed as a finding of the study. Such model corresponds with international trends of abandoning the formal study of transfer prices in separate controlled transactions in favor of a comprehensive study of the essence of the value allocation process within multinational groups of companies. The author concluded that the isolated assessment of the elements of the model of three-component tax risk assessment for countering BEPS, during tax audits, reduces the effectiveness of ensuring the sovereignty of national tax revenues. At the same time, the author saw the legislative limitation of the transfer pricing audit exclusively on issues of compliance with the “arm's length” principle as a key challenge to the implementation of the model of three-component tax risk assessment for countering BEPS. Such limitation of the control body's tools contradicts the global tendency to countering BEPS as a whole, and not as separate (independent) mechanisms of aggressive tax planning.

KONSTRUKSI MODEL OECD BASE EROSION PROFIT SHIFTING ACTION PLAN 12TH GUNA MEWUJUDKAN TRANSPARANSI PERENCANAAN PAJAK

This study presents ideas about the construction of policies under the authority of the Directorate General of Taxes (DGT) in response to recommendations issued by the OECD regarding how to deal with aggressive tax planning related to the current era of globalization. The tax avoidance practice is known as the Base Erosion and Profit Shifting (BEPS) which is allegedly rampant by taxpayers (WP), especially for the Multi National Company (MNC). The impact of the BEPS practice is the loss of state revenues experienced by almost every country, especially developing countries. This is a major concern for developing countries because tax revenues are an important component of government revenues to encourage development. The OECD BEPS action plan issued at the G20 meeting in Moscow Russia in July 2013 had 15 action plans. In this case, the Indonesian Government has not implemented all the recommendations for the OECD BEPS action plan. One recommendation that has not been made is the OECD BEPS action plan 12 concerning Mandatory Disclosure Rules (MDR). MDR here is about the disclosure of the company's strategies regarding tax planning. This is necessary because there must be tax planning transparency carried out by WP. This condition is closely related to Human Activity Systems, which are purposeful activities. Therefore the writer studied it with an action-based Soft Systems Methodology (SSM) approach with the category of research interest.
 
 Keywords: BEPS, aggressive tax planning, mandatory disclosure rules, action-based SSM, research interest

Impact of internal governance mechanisms on tax aggressiveness: evidence from French firms listed on the CAC 40

PurposeThis study aims to analyze the relationship between a firm’s use of aggressive tax planning and board of directors (independence and size) and audit committee characteristics (independence and expertise).Design/methodology/approachThis study used archival data from 35 non-financial firms’ French firms listed on the CAC 40 over a period of 5 years (2013–2018).FindingsThis study shows that measures of board size are negatively related to tax aggressiveness. A broader board helps reduce tax aggressiveness, as having more members can improve board performance. Indeed, more members can contribute to a better assessment of tax risks and detect risky tax strategies.Research limitations/implicationsThe main limitation of this study is the small sample. The authors limited the observations to 2018 because the corporate tax rate in France changed in 2019. Such a time window casts homogeneity on the current study. Examining universal registration documents, it has been noted that companies have only recently become interested in disclosure of tax risk.Practical implicationsKnowing the characteristics of the board and audit committees can give a signal to stakeholders about the potential risk bearing on aggressive tax planning. This study provides evidence that could help the board governance committees integrate the right profiles and to raise awareness among the members of the board of directors and the audit committee to play their role (monitoring function or advisory function) about tax risk management.Originality/valueAccording to the authors’ knowledge, this study is the first to provide empirical evidence regarding the effect of the board of directors and audit committee characteristics on tax aggressiveness.

Commission

This overview highlights the Commission’s (i) request for feedback on the proposal to tackle the role of enablers of tax evasion and aggressive tax planning, (ii) Annual Report on Taxation 2022; (iii) reasoned opinion on the failures of Greece and Spain to communicate ATAD 2 implementing rules on hybrid mismatches; (iv) approval of Italian aid scheme to support tourism sector; and (v) approval of Hungarian Aid scheme to support companies impacted by Russia’s invasion of Ukraine.

Family Firms’ Aggressive Tax Planning: An Empirical Evaluation for Italy

Family Firms’ Aggressive Tax Planning: An Empirical Evaluation for Italy

Characteristics of top management team and Chinese tax planning nexus: Findings from a fuzzy-set qualitative comparative analysis.

A top management team (TMT) has been identified as one of the key factors driving changes in tax planning strategy. Based on upper echelons theory, this study investigates whether configurations of TMT characteristics influence enterprise tax planning strategy by using the fuzzy-set qualitative comparative analysis (fsQCA). Using a panel data of China public companies, we found three configurations conducive to aggressive tax planning and two combinations conducive to low tax planning. Specifically, the level of education, tenure, age, career experience, and size of the top management team affect a firm’s propensity to engage in tax planning. Further, the results show that top management teams are not alike and highlight the differences in how these characteristics combine to impact tax planning.

Податкові пільги в умовах воєнного стану: управління комплаєнс-ризиком

Introduction. In the conditions of the armed aggression of the Russian Federation against Ukraine, the need arose to amend the current legislation aimed at overcoming the negative phenomena in the economic, social and defense spheres. Problem Statement. During the two months of martial law, six laws were passed that amended the current tax rules and provided benefi ts to certain categories of taxpayers. At the same time, most legislative acts were adopted without proper fi nancial, economic and scientifi c justifi cation for their adoption. Th is has led to fi scal risks, which are discussed in the article. Purpose. Th e aim is to study the probable risks of the introduction of certain legal norms in the conditions of martial law and to develop recommendations for their minimization. Methods. Qualitative research methods were used to describe the existing diffi culties in tax administration, quantitative methods – to analyze the benefi ts of corporate income tax and VAT. Results. It has been found that the analyzed norm-forming practice will lead to budget losses and disproportionate taxation of other taxpayers. Th is is not in line with the concept of compliance risk management, as these preferences can be used by other payers. As a result, the risk of aggressive tax planning by those taxpayers who are not cove red by the benefi ts will increase. Conclusions. Fully unjustifi ed unconditional provision of tax benefi ts to certain categories of taxpayers requires careful analysis in order to achieve the declared purposes. Proposals for amendments to legislation to minimize fi scal risks within the compliance risk management procedure have been formulated.

Конфіденційність податкової інформації, що підлягає автоматичному обміну: імперативи забезпечення

OECD governments are working together to address important issues of rapid response to the use of aggressive tax planning and transfer pricing by multinational entities (MNE). Activities in the area of transfer pricing lead to the erosion of the tax base – the state does not receive adequate tax revenues. World practice shows that transfer pricing needs to be regulated. The OECD provided recommendations, including on the establishment of mechanisms for the administration of transfer pricing, the definition of basic requirements for documentation on transfer pricing and the exchange of tax information. As a result of the involvement of more and more countries in the global exchange of tax information, in recent years the problems of ensuring the confidentiality of information to be exchanged have become important. The OECD provides governments with the opportunity to share experience, identify best practices and coordinate activities in the context of the mentioned issue. Ukraine is actively involved in these processes, which highlight the introduction of a number of tools to establish the functioning of international automatic exchange and ensure the confidentiality of tax information. The latter causes further implementation of relevant OECD model legislation. The analysis of international approaches and best practices for ensuring confidentiality and an appropriate level of protection of information exchanges between OECD member states on the issues of the BEPS Action Plan implementation and identification of imperatives for their application are performed. The research is based on a synthesis of general scientific methods, methods of comparison, institutional analysis and empirical approach. The OECD recommendations and the national legislation of certain countries, which contain provisions for ensuring confidentiality and protection of tax information to be exchanged are summarized and systematized. According to the results of the study, various tax administrations are guided by the recommendations of the OECD model legislation within the development of a mechanism to ensure the necessary level of confidentiality and effective protection of tax information to be exchanged. But there are some national pecularities and obstacles for implementation of OECD model legislation.