Corporate Tax Planning Research Articles

Overconfident CEOs, decentralisation, and tax aggressiveness: evidence from Japan

This study investigates the relationship between chief executive officers' (CEO) overconfidence and tax avoidance, and the process through which the influence of CEOs' overconfidence propagates to subsidiaries and affiliates. To estimate CEOs' overconfidence, this study focuses on Japanese management forecasts, which are disclosed by most companies in Japan. This approach allows mitigating sample selection bias. The study's results indicate that: 1) companies with overconfident CEOs engage in more aggressive tax avoidance; 2) the influence of CEOs' overconfidence is more pronounced in parent companies directly operated by CEOs. These trends are more pronounced when CEOs are overconfident regarding specific information and are also observed when the analysis accounts for factors related to corporate governance. The study's findings suggest that the nature of manager has a substantial impact on corporate tax planning, and such impact is more likely to spread in organisations closer to the CEO.

Enterprise Risk Management and Corporate Tax Avoidance

This study examines the impact of enterprise risk management (ERM) programs on corporate tax planning. ERM is a holistic approach to managing an enterprise’s entire portfolio of risks (COSO 2004, 2017). We expect that enhanced coordination across business units as a result of ERM allows firms to exploit tax avoidance opportunities and increase tax effectiveness. We hand-collect data on ERM adoption for a sample of S&P 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates (ETRs) and higher tax effectiveness than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among financially constrained firms, suggesting that, when faced with financial constraints, firms with ERM are better able to seek out alternative cash sources.

КОНЦЕПЦІЇ МІЖНАРОДНОГО БІЗНЕСУ У ТЕОРЕТИЧНОМУ ДИСКУРСІ ПРОЦЕСІВ ОФШОРИЗАЦІЇ ЕКОНОМІЧНОЇ ДІЯЛЬНОСТІ

Financial and economic activity of business structures in global conditions is characterized by significant expansion of scale and diversification of organizational and managerial forms, innovation and digitalization of production processes, radical modernization of technological base in the format of industry 4.0, as well as systematic development of corporate networks and further deeper integration into them of national economies of almost all countries of the world. Under such conditions and taking into account the dominance of multinational enterprises (MNEs) in the world economic structure, the question of utilization of mechanisms and tools of offshorization of economic operations raised to a great extend in the context of realization of diversification of outsourcing corporate strategies, tax planning and erosion of tax base. Since 2010s, the world theoretical discourse of international business outlines offshorization of economic activity into a separate and independent direction of the general theory of competitive advantages and factors of production, although a scientific interest in this issue originated in classical political economy and theories of international trade, direct and portfolio foreign investment, multinational enterprises, management and the international division of labor. The article reveals the transformational changes that have undergone the essential content, implementation mechanisms, forms and levels of offshorization of business activities under the influence of leading patterns and trends in the development of world economy at different stages of its evolutionary progress. It is proved that the theoretical qualification of business offshoring always faces significant methodological difficulties related to the constant diversification of international business and the increasing complexity of its organizational and managerial structures, as well as the diversification of business and state interaction in the implementation of the social contract. Considerable attention is paid to the study of the paradigm of international business and justification of its universal nature to explain the objective reasons of offshorization of business, foreign direct investments and economic activity of multinational enterprises in both regional and global dimensions.

The Measurement of Corporate Tax Avoidance in the Presence of Net Operating Losses

This article addresses the question whether net operating loss (NOL) observations can be implemented in the measurement of corporate tax avoidance and how the handling of losses affects the measurement outcome. I find that the implementation of NOLs in the measurement of tax avoidance is feasible but only under certain restrictions. If researchers control for the confounding effect of firm-profitability per asset and heterogeneous characteristics of non-prospering firms, losses can meaningfully be included in the analysis by the use of asset-scaled proxies. When researchers decide to remove net operating losses from their sample, they should be aware of misleading tax expense before and after loss-years that remain in the sample and do not signal tax planning. In view of this, I re-examine trends in aggregate U.S. corporate tax avoidance documented by Dyreng, Hanlon, Maydew and Thornock (2017) who omit NOLs. I document that their findings are robust to misleading tax expenses of firms around loss years but that the loss structure in the data partly conceals the true development of U.S. domestic firms’ corporate tax planning. More precisely, I show that profitable U.S. domestic firms have become more tax-disfavored over time relative to profitable U.S. multinationals when the dynamic Compustat data coverage is taken into account.

PENGARUH CORPORATE SOCIAL RESPONSIBILITY DAN PERENCANAAN PAJAK TERHADAP NILAI PERUSAHAAN

This study aims to determine and provide empirical evidence about the influence of Corporate Social Responsibility and Tax Planning on Company Value in agricultural sector manufacturing companies listed on the Indonesia Stock Exchange in the period 2014-2017. The number of samples used in this study are agricultural sector manufacturing companies listed on the Indonesia Stock Exchange (BEI) and published a complete financial report in 2014-2017 with 18 sample companies obtained using the purposive sampling method. The independent variable of this study is Corporate Social Responsibility measured by calculating the index according to GRI4, Tax Planning which is measured by calculating the effective tax rate, and company value measured by calculating the book price.
 The results of the study were based on a hypothesis test with a significant level of 5%, the results of this study concluded: Corporate Social Responsibility does not affect the value of the company. Tax planning affects the value of the company. Immediately (together) the variable Corporate Social Responsibility and Tax Planning have a significant effect on Company Value.

Corporate tax planning and corporate tax disclosure

PurposeThis paper aims to examine the impact of corporate tax planning (TP) on tax disclosure (TD). Using tax expenses data set, with the detailed effective tax rate (ETR) by reconciling individual items of income and expenses.Design/methodology/approachA firm-level panel data set is used to analyse 286 non-financial listed companies on Bursa Malaysia that spans the period 2010-2012. Multivariate statistical analyses were run on the sample data. The empirical understanding of TD depends on public sources of data in the financial statement, characterized in the aggregated note of tax expenses. Fitting with Malaysian environment, the authors measured TD using modified ETR reconciling items.FindingsResults show that TP, exhibit a robust positive influence on TD. This suggests that TP is related to lower corporate TD. In addition, companies with high TP attempt to mitigate the disclosure problem by increasing various TD. The authors further find significant positive impact between each of firm size and industry dummy, on TD. This means that company-specific characteristics are significant factors affecting corporate TD.Research limitations/implicationsThis study contributes to the literature on the effect of TP on TD. It depends on both the signalling theory and the Scholes–Wolfson framework, which are the main theories concerned with TP and TD. Therefore, from a theoretical side, the authors add to the current theories by verifying that users are the party influenced whether positively or negatively, by the extent of TD or the extent of TP activities through Malaysian organizations.Practical implicationsThe evidence found in this paper has important policy and practical implications for the authorities, researchers, decision makers and company managers. The findings can provide them some relevant insights on the importance of TP actions from companies’ perspective and contribute to the discussion of who verifies and deduces from TD directed by companies.Originality/valueThis paper originality is regarded as the first attempt to examine the impact of TP on TD in a developing country such as Malaysia. Malaysian setting is an interesting one to examine because Malaysia could be similar to other countries in Southeast Asia. Results contribute significant insights to the discussion about TD regarding, which parties are responsible for the verification of TD by firms, and which parties benefit from this disclosure. Findings suggest that companies face a trade-off between tax benefits and TD when selecting the type of their TP.

CEO Severance Pay and Corporate Tax Planning

ABSTRACTWe examine the association between CEO severance pay (i.e., payment a CEO would receive if s/he is involuntarily terminated) and corporate tax planning activities. We find that CEO severance pay is positively associated with corporate tax planning, consistent with CEO severance pay providing contractual protection against managers' career concerns and thereby inducing otherwise risk-averse managers to engage in incremental levels of tax planning. This result holds under an instrumental variable approach and propensity score matching, and survives alternative measures of CEO severance pay and corporate tax planning. Finally, we find that severance pay provides stronger tax planning incentives in situations where managers are expected to face greater career concerns—when they are less experienced, when they face stronger shareholder monitoring, and when they manage firms with higher idiosyncratic volatility. Overall, our results suggest that CEO severance pay represents a form of efficient contracting with otherwise risk-averse managers.

Corporate Tax Planning: Canadian Inbound Investment After the MLI

The multilateral instrument (MLI), developed by the Organisation for Economic Co-operation and Development and the Group of Twenty as part of the base erosion and profit shifting initiative was signed by Canada and more than 60 other signatories in 2017 and came into force in July 2018. The MLI introduces significant tax treaty changes that may have the effect of materially altering the tax-planning opportunities available for investing in Canada. This article sets out a brief review of the Canadian case law on the application of tax treaties in relation to investing in Canada, a summary of the treaty changes for Canada contemplated by the MLI, and some anticipated effects on the structuring of investments into Canada. The authors focus on the practical issues that taxpayers face in relation to inbound investment following Canada's ratification of the MLI.

Reform of Section 8c of the Corporate Tax Act – Use of Tax Loss Carry-Forwards Significantly Improved

In this note, the authors discuss recent changes in respect of limitations on corporate loss carry-forwards and their implications on German corporate tax planning.

Conforming Tax Planning and Firms’ Cost Behavior

Using a panel of European private firms, we show that the reaction of operating costs to sales changes increases with corporate taxes, consistent with conforming tax planning. We also find evidence of stickiness in conforming tax planning. Further, we show that conforming tax planning and stickiness of corporate tax planning vary in the cross-section: Firms with losses, firms with access to nonconforming tax planning, or firms with the ability to pass on taxes to stakeholders engage less in conforming tax planning. Altogether, our results suggest that conforming tax planning can affect reported pre-tax cost behavior.

CEO age and tax planning

AbstractThis study investigates the association between CEO age and corporate tax planning. Using a sample of 11,537 firm‐year observations from the fiscal year 1997–2013, I find CEO age exerts an economically significant influence on firms’ tax policies, incremental to economic determinants identified in prior research. Specifically, CEO age is positively related to cash and GAAP effective tax rates, and negatively related to permanent book‐tax difference, suggesting that older CEOs are less likely to take actions to lower tax burden. The results hold across different model specifications and robustness tests to address potential bias arising from endogeneity, sample selection issue, and the confounding effect of CEO tenure.

Corporate Tax Planning and Political Costs: Peer Effects of Foreign Institutional Ownership

We explore the relation between foreign institutional ownership and corporate tax planning. Using a comprehensive sample of international publicly listed firms, we find the presence of foreign institutional investors plays a disciplinary role by leading corporate managers to engage in a level of tax planning consistent with the average tax position of the company’s country and industry peers. Our findings hold for larger firms only, consistent with a political cost theory of tax planning. We address endogeneity concerns by exploiting multiple sources of exogenous variation in foreign institutional ownership. Our results overall suggest that foreign institutions act as effective monitors of managerial tax-related activity.

Ireland

The Irish economy continues to expand strongly, benefitting from higher net exports by multinational enterprises and robust domestic demand. Accelerating wage growth reflects tight labor market conditions and inflation has started to pick up. Crisis legacies have diminished but some vulnerabilities persist. The outlook remains broadly positive, provided Brexit proceeds in an orderly manner. However, the economy operates near full capacity and an accelerating cyclical momentum could re-ignite a boom-bust dynamic. A no-deal Brexit represents the key downside risk, while escalation in global protectionism and sudden changes in corporate tax planning of multinational enterprises in Ireland could adversely affect the economy and public finances.

Corporate Tax Planning and Financial Performance in Nigerian Non‐Financial Quoted Companies

AbstractThis study investigates the relationship between corporate tax planning and financial performance of quoted non‐financial companies. The secondary yearly data used were gathered from 47 sampled non‐financial companies from 2007 to 2016. A panel vector autoregressive approach with structural analysis such as variance decomposition and impulse response function was adopted. The results of the study revealed that tax saving had a direct relationship with financial performance, while tax avoidance had an inverse relationship with financial performance. The financial variables under consideration mainly contributed to their own shocks or forecast errors. The responses of the financial performance to shocks in tax avoidance had an expansionary effect which could hinder the performance of the companies, while financial performance response to shocks in tax savings had a contractionary effect and as such, could lead to better performance of the companies. Thus, corporate tax planning that enhances tax savings greatly contributes to the performance of non‐financial companies. They should therefore not only engage in tax planning, but also ensure that their tax planning is legal, and leads to tax saving for the companies, such that no excessive or multiple tax will be paid and hence, better financial performance will be achieved.

Strategic reactions in corporate tax planning

We find that firms’ tax planning exhibits strategic reactions: firms respond to changes in their industry-competitors’ tax planning by changing their own tax planning in the same direction. We document evidence of these strategic reactions in two distinct research settings that entail an exogenous increase and decrease in competitors’ tax planning. We also find evidence that strategic reactions stem from concerns about appearing more tax aggressive than industry competitors, some evidence that they stem from firms learning from the tax planning of their industry competitors, and no consistent evidence that they stem from leader-follower dynamics.

Consumption Taxes and Corporate Tax Planning - Evidence from European Service Firms

There is an increasing political concern that firms in the globalized, digital economy avoid income and consumption taxes. We examine income and consumption tax planning of service firms in Europe through managing the respective tax bases and hypothesize that both tax planning channels are interrelated. We exploit corporate affiliate-level panel data and a unique setting in Europe over the period 2007-2015 with 71 staggered and plausibly exogenous corporate income and consumption tax rate changes (and differences). We find that firms significantly respond to incentives from value-added taxes evidenced by a tax-rate semi-elasticity of reported sales of around 0.5. Consistent with greater discretion over the jurisdiction of value-added tax liability, we find a significantly larger effect for firms in the digital service sector. We then show that income tax-motivated profit shifting behavior depends on the extent to which firms report sales in order to minimize consumption taxes. In particular, we document that income tax-motivated profit shifting behavior is completely attenuated for firms that, on average, respond to higher (lower) value-added taxes via reporting lower (higher) sales. Our study offers a new explanation why some firms avoid more income taxes than others. The results suggest that minimizing the consumption tax burden can be a dominating tax consideration that imposes a constraint on income-tax motivated transfer pricing.

The effect of chief financial officers’ accounting expertise on corporate tax avoidance: the role of compensation design

Accounting expertise is closely related to corporate tax planning, and hence, corporate chief financial officers (CFOs) with accounting expertise may have advantages in exploiting tax planning opportunities. By manually collecting CFOs’ autobiographic information and identifying their accounting-related work experience, we empirically examine whether a CFO with accounting expertise is more likely than a CFO without such expertise to exploit tax planning opportunities, resulting in greater corporate tax avoidance. We find that CFOs with accounting expertise are negatively associated with corporate effective tax rates. The average effective tax rate of firms with accounting expert CFOs is approximately 19.4% lower than that of their counterparts with non-accounting expert CFOs, ceteris paribus. Moreover, the abnormal variable compensation of CFOs with accounting expertise is negatively associated with corporate effective tax rates. The results suggest that the accounting expertise and compensation schemes of CFOs can have a significant effect on the aggressiveness of corporate tax planning.

Planiranje korporativnog poreza i finansijsko poslovanje sistemski važnih banaka u Nigeriji

Due to the multiplicity and overburdening of Nigeria's tax system, the economic units in which systemically important banks (SIBs) are included implement the corporate strategies that identify the loophole which minimizes, postpones, or entirely avoids tax payments so as to reduce its negative effect on financial performance. Therefore, this study examined the corporate tax planning and financial performance of systemically important banks in Nigeria. Ex-post facto was adopted as the research design in this study, while Pooled OLS was used to analyze the data. This study has shown that the effective tax rate has a negative and significant impact on financial performance. Thin capitalization has a positive significant impact on the financial performance of SIBs in Nigeria, whereas capital intensity and the lease option have demonstrated an insignificant impact on the financial performance of SIBs in the country. The study concluded that corporate tax planning affects financial performance depending on the adopted tax planning strategies. Likewise, the study recommended, among other things, that the tax authorities should engage in the tax reforms whereby the corporate tax rate is to be adjusted, and that banks should engage in the activities that can reduce the effective tax rate.

РОЛЬ КОРПОРАТИВНОГО ПОДАТКОВОГО ПЛАНУВАННЯ У ДІЯЛЬНОСТІ СУБ’ЄКТІВ ГОСПОДАРЮВАННЯ

РОЛЬ КОРПОРАТИВНОГО ПОДАТКОВОГО ПЛАНУВАННЯ У ДІЯЛЬНОСТІ СУБ’ЄКТІВ ГОСПОДАРЮВАННЯ

Corporate Tax Planning and Firms’ Information Environment

This study examines whether internal information quality (IIQ) is associated with firms’ external information quality (EIQ) and whether tax planning moderates this association. Based on the argument that higher internal information quality allows managers to convey higher quality information to market participants, I hypothesize and find a positive association between IIQ and EIQ. I then examine if tax planning, which prior literature shows affects external information quality due to proprietary costs of disclosure, attenuates this association. I find that the association between IIQ and EIQ is fully attenuated for firms with a high level of tax planning. A structural equation model that allows different elements of IIQ to covary and robustness tests corroborate my findings. Overall, my results imply that increased IIQ spills over to EIQ because managers convey higher quality internal information to market participants. However, proprietary costs resulting from a high level of tax planning appear to moderate this effect.