Avoid Income Tax Research Articles

The Relation between Payroll and Income Tax Avoidance

ABSTRACT Payroll taxes, such as contributions mandated through the Federal Insurance Contributions Act (FICA), are a considerable expense for businesses and a large source of government revenue. Despite the significant cost, little is known about the determinants of payroll tax avoidance. By misclassifying employees as independent contractors, firms can avoid their portion of FICA contributions and other employee-related costs. This paper uses publicly available Wage and Hour Division (WHD) compliance action data from the U.S. Department of Labor (DOL) to identify employee misclassification and examine whether firms that avoid income taxes also avoid payroll taxes. This study documents two main results. First, firms with higher CashETR, indicating lower income tax avoidance, are more likely to have Fair Labor Standards Act (FLSA) violations detected during a WHD audit. Second, firms increase their CashETR following the discovery of FLSA violations, indicating a reduction in income tax avoidance. Data Availability: The data that support the findings of this study are available from the U.S. Department of Labor's Wage and Hour Division. JEL Classifications: H25; H26; K31; K34.

ANALISIS PENGENAAN PAJAK PADA PELAKU E-COMMERCE

In Indonesia, the use of information technology in business is growing rapidly. One of the impacts of technological advances is e-commerce. E-commerce allows customers to buy at smart brokers more conveniently. However, the rise of e-commerce raises concerns about how e-commerce businesses should be taxed. The tax base of e-commerce businesses is examined in this study. This study aims to analyze the analysis of tax imposition on e-commerce actors. The research method used in this study is the normative legal research method. The legal analysis is based on Regulation of the Minister of Finance of the Republic of Indonesia Number 210/PMK.010/2018 concerning Market Platform Providers and VAT NPWP. Legal basis for taxing online retailers. As a result, the implementation of tax collection on e-Commerce actors has not been efficient. According to Regulation Number 210/PMK issued by the Minister of Finance of the Republic of Indonesia. PMK 010/2018 Obligation to pay income tax in excess of non-taxable income in connection with tax procedures or procedures for carrying out online transactions through electronic systems. However, there are still many taxpayers who do not pay or avoid income tax. This problem is caused by non-compliance and lack of understanding of tax law in Indonesia.

The economics of prepackaged bankruptcy

The economics of prepackaged bankruptcy

The Relation between Payroll and Income Tax Avoidance

Payroll taxes, such as contributions mandated through the Federal Insurance Contributions Act (FICA), represent a considerable expense for businesses and are a large source of government revenue. Considering that employers pay approximately 50% of FICA, payroll taxes have a material impact on firm profitability. Despite the large cost, little is known about the determinants of payroll tax avoidance. By misclassifying employees as independent contractors, a firm can avoid their portion of FICA contributions and a variety of other employee related costs. This paper utilizes publicly available compliance action data from the Wage and Hour Division (i.e., WHD) of the United States Department of Labor (i.e., DOL) to identify employee misclassification and to empirically identify whether firms that avoid income taxes also avoid payroll taxes. This paper documents two main results. First, income tax avoidance, proxied by CashETR, is positively related to the likelihood of a successful discovery of a Fair Labor Standards Act (i.e., FLSA) violation during a Wage and Hour Division audit. Second, firms reduce their income tax avoidance following the discovery of FLSA violations.

Minimum taxation as a luxury good

This paper investigates the use of minimum tax thresholds to avoid income tax evasion. We analyze a moral-hazard model in which, given the endogenous audit probability, taxpayers may choose to comply or not with their tax obligation. The main result is that the imposition of a minimum tax, whereby taxpayers need to pay a tax on wealth no lower than a certain amount, can be Pareto efficient. The result hinges upon a critical level of wealth endowment: wealthy economies should ask for a minimum tax payment from all taxpayers; poor economies should only rely on income taxation, and allow taxpayers to be able to get away with their tax obligations. Minimum taxation, therefore, is like a luxury good and only rich economies can afford it.

Offshore trusts and income tax avoidance: the lures and pitfalls from a South African perspective

Taxpayers often form trusts out of their countries of residence in order to avoid income taxes in their countries. The ensuing tax avoidance is more apparent when trusts are set up in offshore tax-haven jurisdictions that levy nil or minimum taxes, if there are no counteracting measures by the taxpayer’s country of residence. From a South African perspective, this article investigates the legality of some factors that lure taxpayers into investing in offshore trusts for tax avoidance purposes. The consequential income tax pitfalls that unwary taxpayers often fall into are then discussed. The analysis entails a discussion of effectiveness of the anti-tax avoidance legislation that South Africa has in place to counteract the ensuing tax avoidance, and it provides some recommendations as to how this legislation can be enhanced.

The OECD's Harmful Tax Competition Initiative and the Tax Havens: From Bombshell to Damp Squib

The OECD's Harmful Tax Competition of 1998 departed in both tone and substance from almost anything the organization had published before. The roots of the associated project lie mainly in EU concerns that certain forms of intra-union competition were eroding both the corporate and personal income tax bases of member states. But it appeared impossible to deal with those problems unless policies were also changed in the 40 or so jurisdictions know as “tax havens.” HTC threatened sanctions against the tax havens if they failed to collect and share information upon request about individuals and corporations attempting to evade or avoid income taxes. HTC also set criteria for the legitimacy of claims about corporate location. A firm could claim location in a tax haven only if it had “substantial” activity there. The report created a furor among the tax havens, which complained loudly that they were facing a new form of colonial control by being held accountable for standards they had no role in setting. Over the next several years the corporate element of the project disappeared, and the style of the OECD's approach shifted from confrontation to cooperation. HTC was strongly supported by the Clinton Administration, and summaries of the project's development often stress how much change came with the election of George W. Bush. A careful look at OECD reports, however, reveals that much of the shift in direction occurred before the outcome of the U.S. election in 2000 had been determined. The revised focus on bank secrecy did yield results. Virtually all of the tax havens had acceded to the revised OECD demands for transparency and information exchange by 2004. This article looks at the data on tax haven liabilities to gauge the impact of the project on tax evasion. It employs the ARIMA technique to investigate both tax haven activity as a whole and the particularly important case of the Cayman Islands. No significant impact can be found probably because investment in the havens remains very easy to disguise and very difficult to detect. This suggests that an effective attack on personal income evasion will require more than the OECD demanded. Automatic information-sharing on the ownership based on an internationally consistent set of identifying numbers over a range of financial instruments holds greater promise for a significant decline in the use of the havens for tax evasion.

Experimental Evidence on Mixing Modes in Income Tax Evasion

Taxpayers unlawfully trying to avoid income tax in most countries can mis-report a wide variety of line items, including income sources, exemptions, deductions, and credits. Such portfolio opportunities, or “modes,” for evasion raise important policy questions. For example, increasing the probability of detection in underreporting of income may increase compliance in terms of income reporting but may decrease compliance as a result of increased evasion through over reporting of deductions. It is possible that the resulting increase in revenue from the mode targeted for increased enforcement effort will be partially, or even fully, offset by deteriorating compliance in other modes. In this article, data from a series of laboratory experiments are used to investigate the compliance behavior of individuals when evasion can be accomplished via multiple items. The findings suggest that increasing enforcement for a single item may lead to revenue declines as evasion increases in other items as an offset.

Tax‐Avoidance Activities of U.S. Multinational Corporations*

AbstractThis paper investigates whether economies of scale exist for tax planning. In particular, do larger, more profitable, multinational corporations avoid more taxes than other firms, resulting in lower effective tax rates? While the empirical results indicate that, ceteris paribus, larger corporations have higher effective tax rates, firms with greater pre‐tax income have lower effective tax rates. The negative relation between effective tax rates (ETRs) and pretax income is consistent with firms with greater pre‐tax income having more incentives and resources to engage in tax planning.Consistent with multinational corporations being able to avoid income taxes that domestic‐only companies cannot, I find that multinational corporations in general, and multinational corporations with more extensive foreign operations, have lower worldwide ETRs than other firms. Finally, in a sample of multinational corporations only, I find that higher levels of U.S. pre‐tax income are associated with lower U.S. and foreign ETRs, while higher levels of foreign pre‐tax income are associated with higher U.S. and foreign ETRs. Thus, large amounts of foreign income are associated with higher corporate tax burdens. Overall, I find substantial evidence of economies of scale to tax planning.

Tax Avoidance Activities of U.S. Multinational Corporations

This paper investigates whether economies of scale and scope exist for tax planning. In particular, do multinational corporations avoid more taxes than U.S. domestic-only companies, resulting in lower effective tax rates? While the empirical results indicate that ceteris paribus, larger corporations have higher effective tax rates, firms with greater pre-tax income have lower effective tax rates. The negative relation between ETRs and pre-tax income is consistent with firms with greater pre-tax income having more incentives and resources to engage in tax planning. Consistent with multinational corporations being able to avoid income taxes that domestic-only companies cannot, I find that multinational corporations with more extensive foreign operations have lower worldwide ETRs than other firms do. Finally, in a sample of multinational corporations only, I find that higher levels of U.S. pre-tax income are associated with lower U.S. and foreign ETRs, while higher levels of foreign pre-tax income are associated with higher U.S. and foreign ETRs. Thus, large amounts of foreign income are associated with higher corporate tax burdens. Overall, I find substantial evidence of economies of scale and scope to tax planning.

Specialty and training differences in the reported use of endocarditis prophylaxis at an academic medical center

This paper synthesizes the major empirical findings of the burgeoning tax avoidance research in China from the accounting, finance, and economics literature over the last 13 years. It surveys the evidence in four main areas: (1) the mechanisms through which Chinese firms avoid income taxes; (2) the effects of government ownership and agency problem on tax avoidance; (3) tax avoidance and political connections; and (4) the roles of book-tax conformity, tax enforcement, and corporate governance. It also discusses the appropriateness of tax avoidance measures in the Chinese setting. Finally, it proposes important directions for future research.

Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates

The residence-based taxation of interest income in the EU faces the difficulty that taxpayers may evade taxation by holding bank accounts in other countries. The EU therefore makes considerable efforts to achieve cooperation among EU member states in order to improve tax enforcement. The present paper argues that international cooperation in tax enforcement may not be sufficient to implement an effective taxation of interest income. The reason is that taxpayers may also avoid income taxes by holding financial assets in the corporate sector. If corporate tax competition reduces corporate income tax rates below personal income tax rates, taxpayers will increasingly shift income from the personal to the corporate sphere. We show that this type of income shifting is empirically important. According to our results, a one percentage point increase in the personal income tax rate increases the fraction of private savings held within corporations by approximately 2.6 percentage points.

Earnings cosmetics in a tax-driven accounting environment: evidence from Finnish public firms

Finnish firms are known to manage earnings downwards to avoid income taxes. This study suggests that they simultaneously manage earnings upwards in a smaller scale. The idea behind this behaviour is that humans may perceive a profit of, say, 301 million as abnormally larger than a profit of 298 million. Consequently, firms tend to adjust the second leftmost digit of earnings to exceed nine in order to make the first digit of earnings larger by one. Such corporate behaviour has been previously documented in New Zealand and in the USA. Our study finds a similar phenomenon in Finland. Our results show that although the largest second digits (eight and nine) are fewer than expected, only sixes and sevens are statistically significantly managed upwards.

Taxation. Corporations. Use of Holding Company to Avoid Income Tax

Taxation. Corporations. Use of Holding Company to Avoid Income Tax

Taxation. Exemptions. Loan by Trustee to Exempt Beneficiary to Avoid Income Tax

Taxation. Exemptions. Loan by Trustee to Exempt Beneficiary to Avoid Income Tax