Cash Effective Tax Rate Research Articles

EFFECT OF FOREIGN INVOLVEMENT ON CORPORATE TAX NONCOMPLIANCE

There exists a potential decline in tax revenue to government among firms with foreign involvement. The main aim of the study is to examine the impact of foreign involvement on corporate tax noncompliance. The study focuses on the effects of foreign CEO, the percentage of foreign executive board members, and the ratio of stocks owned by foreign directors on corporate tax noncompliance. Data on manufacturing firms were utilized based on data availability from 2015 to 2019. Generally accepted accounting principle effective tax rate was utilized as a primary measure of tax noncompliance and fixed effect technique of regression analysis. Controlling for profitability, leverage, firm size and board size, the findings of the study revealed a significant negative effect of the percentage of foreign executives’ shareholding on GAAP ETR. Our result is robust to using cash effective tax rate as an alternative proxy for tax noncompliance. The implication of this finding is that an increase in foreign executive shares will reduce tax proceeds. Given the corporate tax implication, regulatory authorities should weigh the cost and benefit of a benchmark for foreign directors’ equity ownership.

EFFECT OF TAX AGGRESSIVENESS ON CEO TURNOVER

This study verifies the influence of corporate tax aggressiveness on replacing the Chief Executive Officer - CEO. Tax Aggressiveness can be a determinant of CEO turnover in companies listed on the Brazilian stock exchange B3. Efficient tax planning is essential for any organization, being a manager's duty to avoid paying unnecessary taxes. Methodologically, the study uses three tax aggressiveness metrics to verify the nature of this relationship from 2010 to 2016, ranking the results by quintile and identifying the high and low extremes of tax aggressiveness. Also, control variables were used to reduce the bias of the proposed regression. Two of the proxies of tax aggressiveness, Cash Effective Tax Rate Long Run Effective Tax Rate, showed significant low tax aggressiveness. The results evidence that less tax aggressive CEOs are more likely to be replaced. For managers, the findings reinforce that tax planning is a determinant factor to remain in the position.

Incorporating Data Analytics in a Technical Tax Setting: A Case Using Excel and Tableau to Examine a Firm's Schedule M-3 and Tax Risk

ABSTRACT New tax accountants are expected to possess strong technical tax and data analytic skills. This case provides an opportunity to improve students' corporate tax and accounting for income taxes knowledge and experience with professional tax workpapers. It also provides exposure to two powerful data analytic platforms, Tableau and Excel. Students must complete a set of tax workpapers, including a Schedule M-3 reconciliation. Students begin to view tax through an analytical mindset, gaining familiarity with descriptive data for tax analyses. This case helps students calculate GAAP and cash effective tax rates, taxable income, temporary and permanent book-tax differences, and formulate a professional written communication. Students also complete tax workpapers; benchmark tax data across time and industry peers; clean, format, and combine data using Excel and Tableau; analyze and visualize data using Tableau; and access and use the IRS's SOI database. JEL Classification: H29; D89; A22; A23.

Effect of tax avoidance on accounting conservatsim of listed non-financial firms in Nigeria

The study seeks to ascertain the effect of tax avoidance on accounting conservatism of listed non-financial firms in Nigeria. The independent variable, tax avoidance was proxied by Generally Accepted Accounting Principle Effective Tax Rate (GETR), Cash Effective Tax Rate (CETR) and Book Tax Difference (BTD), while the dependent variable accounting conservatism was measured using Negative Accruals (NA). The control variables utilized were leverage, Return on Asset (ROA) and Firm Size (FS). The study covered a period of seven years (2014-2020) and a population of forty-eight listed non-financial firms on the Nigerian stock exchange. The data was analysed using panel regression technique. From the findings, it was discovered that GETR and BTD significantly affect unconditional conservatism with a negative relationship between the variables. Overall, this paper shows that taxation is a determinant of financial reporting conservatism in Nigeria.

A Re-examination of Firm Size and Taxes

We document that larger firms pay substantially lower cash effective tax rates (cash ETRs) in the long-term than do smaller firms. This pattern in long-term cash ETRs is robust to various specifications, but vanishes when cash ETRs are measured over a single year. Over a ten-year period, firms in the largest decile pay 10.8 p.p. (26 percent) lower taxes than those in the smallest decile, while this gap balloons to 14.4 p.p. (35 percent) for the largest 1 percent of firms. The relation between firm size and taxes over the long run cannot be explained by foreign operations, asset tangibility, R&D spending, capital structure, net operating loss carryforwards, or releases in the valuation allowance. While profitability explains near a quarter of this effect, about 80 percent of the association between size and taxes can be explained by the magnitude of losses within the horizon period. Overall, our results suggest large firms pay fewer taxes over the long run primarily by avoiding losses, potentially mitigating the negative consequences of tax convexity.

PENGARUH KONSERVATISME AKUNTANSI DAN INTENSITAS MODAL TERHADAP PENGHINDARAN PAJAK DENGAN DEWAN KOMISARIS INDEPENDEN SEBAGAI VARIABEL MODERASI PADA PERUSAHAAN MANUFAKTUR SUB SEKTOR INDUSTRI BARANG KONSUMSI YANG TERDAFTAR DI BURSA EFEK INDONESIA (BEI) PERIODE 2014-2017

This study aims to determine the effect of accounting conservatism, capital intensity, and independent board of commissioners on tax avoidance and the existence of an independent board of commissioners as a moderating variable to influence the relationship between accounting conservatism and capital intensity on tax avoidance. Tax avoidance is measured by cash effective tax rate (CETR), accounting conservatism is measured by earning / accrual measure, capital intensity is measured by the ratio of fixed asset intensity and independent board of commissioners is measured by the percentage of independent board of commissioners. The population in this study is the Manufacturing Companies sub-sector of the consumer goods industry which is listed on the Indonesia Stock Exchange (IDX) for the 2014-2017 period. The research sample was obtained using the purposive sampling method, so that a total of 84 research samples were obtained. The type of data used is secondary data with multiple linear regression analysis methods and moderated regression analysis (MRA) with the SPSS Analysis Program. The results showed that accounting conservatism, capital intensity and the independent board of commissioners influence tax avoidance, the independent board of commissioners weakens the relationship between accounting conservatism and tax avoidance and the independent board of commissioners strengthens the relationship between capital intensity and tax avoidance.

Financial Distress, Tax Loss Carried Forward, Corporate Governance and Tax Avoidance

Objective – This study aims to obtain empirical evidence about the factors that influence tax avoidance. The independent variables tested in this research were financial distress, tax loss carried forward, institutional ownership, managerial ownership, audit committee, audit quality, firm size, and return on assets with e Cash Effective Tax Rate (CETR) used as a dependent variable in this study. Methodology/Technique – The companies used in this study are manufacturing companies listed on the Indonesia Stock Exchange (IDX) with a research period of 2016-2018. The number of research samples used were 162 data. The method of sampling used purposive sampling and this research used multiple regression analyses to test the hypothesis. Findings – This research provides the result that financial distress, tax loss carried forward, institutional ownership, managerial ownership, audit committee, audit quality, firm size, and return on assets have no influence on tax avoidance. Originality/value – The difference between this study and previous studies is that this study focuses on financial distress, tax loss carried forward and corporate governance. Type of Paper: Empirical. JEL Classification: M41, M49. Keywords: Financial Distress, Tax Loss Carried Forward, Institutional Ownership, Managerial Ownership, Audit Committee, Audit Quality, Firm Size, Return on Assets, Cash Effective Tax Rate. Reference to this paper should be made as follows: Khamisan, M.S.P; Christina, S. 2020. Financial Distress, Tax Loss Carried Forward, Corporate Governance and Tax Avoidance, Acc. Fin. Review, 5 (3): 87 – 94. https://doi.org/10.35609/afr.2020.5.3(1)

Corporate In‐house Tax Departments*

ABSTRACTIn‐house human capital tax investment is a significant input to a firm's tax decisions. Yet, due to the lack of data on corporate in‐house tax departments, there is little empirical evidence on how tax departments are associated with tax planning and compliance outcomes. We expect the size of tax departments to be positively associated with the effectiveness of tax planning and compliance. Using hand‐collected data on the number of corporate tax employees in S&P 1500 firms over the 2009–2014 period, we find that firms with larger tax departments are associated with lower and less volatile cash effective tax rates. Furthermore, using tax employees' specialization, we identify tax departments' relative focus on planning or compliance and document a trade‐off between tax avoidance and tax risk. Specifically, tax departments with more of a tax planning focus have incrementally greater tax avoidance but higher tax risk, whereas tax departments with more of a tax compliance focus have incrementally lower tax risk but higher tax rates. Overall, this paper contributes to the literature by looking inside the “black box” of corporate tax departments and shedding light on the importance of human capital tax investment for tax outcomes.

PENGARUH TINGKAT PAJAK EFEKTIF PERUSAHAAN TERHADAP PEMBERHENTIAN DIREKTUR UTAMA

This study aims to determine the effect of the company’s effective tax rate on forced president director turnover. Prior studies find that the company’s effective tax rate is used continuously by shareholders to assess the performance of top manager (president director), then used as the basis of making decisions whether to hire or to fire the top manager. The effective tax rate of company is measured using accountancy effective tax rate (ETR) and cash effective tax rate (Cash ETR). By using 90 companies listed on the Indonesia Stock Exchange (IDX) as the samples, selected after going through purposive sampling stages, with firm-years starting from 2012 to 2016, this study finds that the company’s effective tax rate (both ETR and Cash ETR) does not affect the forced president director turnover.

Political connection and tax avoidance on sharia stocks; good for business?

Abstract This research is used to determine the influence of political connections on tax avoidance. Researchers use government ownership and directors and commissioners who hold multiple positions as former government officials and military officials to measure variable political connections. Tax avoidance is measured using cash effective tax rate (CETR). The data in this study used secondary data in annual reports on companies included in the Jakarta Islamic Index period 2015-2018. The method used in this study is quantitative analysis, and the results show that political connections through government ownership affect tax avoidance; the same is also evident in political connections through BOD profiles and BOC profiles affecting tax avoidance. Keywords : Tax Avoidance, Political Connection, Sharia Stock

The Decreasing Trend in U.S. Cash Effective Tax Rates: The Role of Growth in Pre-Tax Income

ABSTRACTWe develop a linear corporate tax function where taxes paid are regressed on pre-tax income and an intercept. We show that if the intercept is positive, cash ETRs are a convex function of pre-tax income. We present large-sample evidence consistent with this ETR convexity. Thus, although firms may have stable linear tax functions (i.e., constant parameters in the linear tax model) representing stable tax avoidance behavior, ETRs can change over time because of growth in pre-tax income. Consequently, simply examining changes (or differences) in cash ETRs is nondiagnostic about whether tax avoidance has changed over time (or differs across firms). We illustrate our argument by showing that all of the observed downward trend in cash ETRs documented by Dyreng et al. (2017) can be explained by growth in pre-tax income. The wholesale concern about increased tax avoidance over time might be overstated.Data Availability: Data are available from the public sources cited in the text.JEL Classifications: G39; H20; H25; H26.

Financial constraints and future tax outcome volatility

AbstractWe investigate whether variation in the volatility of tax outcomes across firms is associated with the extent of financial constraints. We document a positive association between current‐period financial constraints and the volatility of cash effective tax rates in subsequent periods. We find that this positive association becomes more pronounced as firms avoid more cash taxes. These results suggest that as financial constraints increase, the benefits of cash tax savings more likely outweigh the costs associated with more volatile tax outcomes. Recent research documents a negative association between financial constraints and the level of cash taxes paid. Our evidence suggests that tax strategies adopted by more financially constrained firms to increase cash tax savings come at the price of more volatile future tax rates.

Compensation and Taxes: Evidence from Relative Performance Evaluation

ABSTRACT Relative performance evaluation (RPE) is a common practice in compensation contracting, essentially conditioning management compensation on the achievement of certain performance goals relative to a benchmark. In this paper, we examine the incentive effects of RPE usage on tax outcomes. We predict and find that low-tax peers in RPE contracts influence focal firm tax outcomes. Specifically, we find that a greater proportion of low-tax RPE peers embedded in RPE compensation contracts is associated with lower book and cash effective tax rates, and we find evidence that this effect is not confined to RPE peers within the same industry. Moreover, we also find that the tax outcomes incentivized through low-tax RPE peers occur through RPE grants conditional on achieving after-tax earnings metrics. Overall, our results reveal that RPE provides a meaningful influence on corporate tax outcomes. Data Availability: All data used in this study were obtained from publicly available sources.

The Effect of Company’s Performance on Tax Avoidance

Researchers want to examine tax avoidance that occurs in companies listed in LQ45. As is well known, the LQ45 index represents 45 companies that have gone through a selection process with high liquidity (Liquid) and considerations of large market capitalization. Companies that are listed in LQ45 are very interesting to research, which companies that go public and liquid are doing Tax Avoidance or tax avoidance.
 Tax avoidance variables use CETR or ( Cash Effective Tax Rate) and company performance variables use ROA (Return on Asset).
 Analyzed by quantitative, secondary data obtained from the financial statements of companies that consistently included in the LQ45 index in the year 2014 to 2018 on the website Stock Exchange Indonesia, namely www.idx.co.id .
 The number of samples obtained were 21 companies. The data analysis technique used simple regression with the SPSS application.
 The results showed that company performance did not affect tax avoidance attitudes. companies listed on LQ45 are still compliant with tax payments in accordance with the portion

Top Management Team Intrapersonal Functional Diversity and Tax Avoidance

ABSTRACTTop management team (TMT) members have been shown to influence tax avoidance; however, prior literature has not identified whether the intrapersonal diversity of TMT functional backgrounds leads to higher levels of tax avoidance. To study this relationship, we utilize TMT intrapersonal functional diversity, which captures the average heterogeneity of the TMT members' work experience. The skills associated with intrapersonal functional diversity may allow managers to better understand and communicate with various parties related to firm tax policies, thereby facilitating tax avoidance. Overall, we find that TMTs with higher levels of intrapersonal functional diversity achieve lower cash effective tax rates and that these TMTs do not rely on tax strategies that pose high risk.Data Availability: Data are available from the public sources cited in the text.

Corporate tax effects of economic policy uncertainty

AbstractWe show consistent results that corporate cash tax burden within a year rises when economic policy uncertainty heightens using aggregate‐level data. Time‐varying tax effects of policy uncertainty are gradual and take time to induce corporate precautionary motives to engage in cash tax saving in the long run. Firm‐level analysis confirms that the tax effects of policy uncertainty are asymmetric and depend on underlying sources of monetary/fiscal policy uncertainty. The contemporaneous effect of monetary policy uncertainty on the cash effective tax rate is positive, whereas fiscal policy uncertainty shows a one‐year delayed negative effect on the cash effective tax rate.

Pengaruh Financial Distress dan Konservatisme Akuntansi pada Tax Avoidance

Tax avoidance can be interpreted as an effort to avoid tax that is done in a legal and safe way for taxpayers because it does not conflict with applicable tax laws. This study aims to empirically examine the effect of financial distress and accounting conservatism on tax avoidance which is proxied by using a cash effective tax rate (CETR). The population in this study were all manufacturing companies listed on the Indonesia Stock Exchange in 2015-2018 totaling 168 companies. The sample used was 44 companies with a total observation sample of 176 in 4 years. Data analysis technique used in this study is multiple linear regression analysis techniques. Based on the analysis, it was found that the financial distress variable had a significant positive effect on tax avoidance, and accounting conservatism had a significant negative effect on tax avoidance.
 Keywords: Financial Distress; Accounting Conservatism; Tax Avoidance.

PENGHINDARAN PAJAK PADA BANK UMUM : DIPENGARUHI OLEH KARAKTER EKSEKUTIF, KUALITAS AUDIT, KOMITE AUDIT, KOMPENSASI RUGI FISKAL, DAN RETURN ON ASSETS

The purpose of this research is to determine the effect of the executive character, the quality of audit, audit committee, fiscal lost compensation, and return on assets towards tac avoidance. The researcher used executive character, quality of audit, audit committee, fiscal lost compensation, and return on assets as the independent variables that are estimated affect the dependent variable (tax avoidance) that is represented through Cash Effective Tax Rate (CETR). This research was conducted at banking company that has already registered in BEI during 2015-2019. This research using a secondary data and used purposive sampling method so that researcher got 21 banks as the sample and 98 observation after the outlier. The result of this research shows that executive character gave a significant negative impact to tax avoidance. Meanwhile, the fiscal lost compensation gave a significant positive towards tax avoidance. Furthermore, the audit quality, audit committee, and return on assets do not affect to the tax avoidance.

Pengaruh Corporate Governance, Capital Intensity dan Profitabilitas Terhadap Tax Avoidance pada Sektor Pertambangan

The study aims to examine the influence of Corporate Governance, Capital Intensity and Profitability on Tax Avoidance. The proxy of Corporate governance was audit quality and audit committee, while the profitability factor used is Return on Asset (ROA) and Tax Avoidance by Cash Effective Tax Rate. The sample was chosen by purposive sampling and resulted 21 companies from mining sector listed oin Indonesian Stock Exchange from 2016 to 2018. The data analyzed by using multiple linier regression. The result showed that audit quality, audit committee, and capital intensity have insignificant influence on tax avoidance. While ROA has negative significant on tax avoidance

How Reliably Do Empirical Tests Identify Tax Avoidance?

ABSTRACTResearch on the determinants of tax avoidance have relied on tests using GAAP and cash effective tax rates (ETRs) and total and permanent book‐tax differences. Two new proxies have emerged that overcome documented limitations of these proxies: one, developed by Henry and Sansing (2018), allows for more meaningful interpretation of results estimated in samples that include loss observations. The other, reserves for unrecognized tax benefits (UTB), provides new data on tax uncertainty. We offer empirical evidence on how well tests using these new proxies perform relative to those extensively used in prior research. The paper finds that tests using the proxy developed by Henry and Sansing (2018) have lower power relative to those using other proxies across all samples, including a sample that includes loss observations. In contrast, when firms accrue reserves for uncertain tax avoidance, tests using the current‐year addition to the UTB have the highest power across all proxies, samples, and levels of reserves. In the absence of reserves, tests using the GAAP ETR best detect uncertain tax avoidance, on average. This study contributes to the literature by using a controlled environment to provide the first large‐scale empirical evidence on how the power of tests varies with the use of relatively new proxies, the inclusion of loss observations, and the advent of FIN 48.