Effective Tax Rates Research Articles

The Relationship Between Economic Policy Uncertainty and the Effective Tax Rate with Tax Evasion in Using the Rotation Model and Arch Markov Switching Regime Change

The Relationship Between Economic Policy Uncertainty and the Effective Tax Rate with Tax Evasion in Using the Rotation Model and Arch Markov Switching Regime Change

A Transaction Cost Model of Tax-Motivated Income Shifting into Dot-Sized Tax Havens and an Empirical Examination of E-Commerce Effects

ABSTRACT Our paper develops a new transaction cost model of tax-motivated income shifting. We analytically show that income shifted by U.S. multinational parent corporations into their tax haven subsidiaries differs from predictions based only on tax rate differences because of the transaction costs of shifting income into tax haven subsidiaries. Our model predicts that e-commerce facilitates greater income shifting by lowering the transaction costs of income-shifting operations, which theoretically supports our focus on actual income shifting instead of the traditional focus on effective tax rates alone. Empirically, we find that greater numbers of multinational corporations’ dot-sized tax havens significantly increase profits shifted out of their U.S. parent corporations and also show with a separate estimation that this amount is similar to amounts shifted into their tax haven subsidiaries, consistent with income shifting being a zero-sum strategy. This novel approach documents income shifting materially increasing with e-commerce activities that lower transaction costs. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: H26; L81; F38; M48.

Effective Tax Rates: Firm Size, Leverage and Return on Assets

The Effective Tax Rate (ETR) assesses a company's proficiency in managing its tax burden by comparing tax expenses to total net income. A lower ETR percentage indicates better tax effectiveness. Companies utilize the ETR as a benchmark for shaping their tax policies. It serves as a tool for gauging how well a company handles its tax system. This study seeks empirical evidence on the impact of firm size, leverage, and return on assets on effective tax rates. The independent variables include firm size, debt level, and return on assets, while the dependent variable is the effective tax rate. The research focuses on food and beverages sector companies listed on the Indonesia Stock Exchange (IDX) from 2020 to 2022. The sample comprises 34 companies selected through purposive sampling. The analysis employs multiple linear regression, revealing that firm size and return on assets do not influence effective tax rates, whereas leverage significantly affects the effective tax rate

중국 상장기업의 조세회피와 사회적 책임활동이 기업가치에 미치는 영향

[Purpose] Recently, social demands for sincere tax payment and social responsibility activities (hereinafter, CSR) of companies are increasing. However, some oppose this because of the decrease in corporate value. China, which has shown rapid capitalism economic development over the past decades, is no exception. This study empirically analyzed the effects of tax avoidance and CSR on corporate value for Chinese listed companies. [Methodology] For empirical analysis, corporate value was measured in Tobin Q, tax avoidance was measured in three ways：effective tax rate and effective cash tax rate multiplied by (－1), and discretionary BTD of Desai and Dharmapala (2006). CSR was measured by whether or not to disclose the CSR report. [Findings] First, it was found that corporate value decreased as tax avoidance increased. Second, when CSR is active, corporate value increases. Third, the regression coefficients of the interaction variable between tax avoidance and CSR all had significant positive (＋) values, and it was found that the negative effect of tax avoidance on corporate value decreased when CSR is active. [Implications] This s tu dy i s meaningfu l in that it has demonstrated empirically that i t is also effective in terms of corporate sincere tax payment and CSR performance corporate value.

Is tax avoidance one of the purposes of financial data manipulation? The case of Romania

PurposeCompanies avoid taxes in a variety of ways and use different methods to do that, one of the most common being earnings management. The purpose of this paper is to investigate whether companies manipulate their financial data in order to reduce taxes paid.Design/methodology/approachWe considered a sample of 63 listed Romanian companies for the period 2016–2021. The Beneish model was used for estimating earnings management, and the effective tax rate was used to measure tax avoidance. The analysis was carried out using regression analysis in Stata13 software.FindingsThe findings of the research indicate a negative and statistically significant association between effective tax rate and earnings management, implying that one of the main reasons why companies manipulate their earnings to reduce tax burden and avoid taxes. Moreover, our results show that return on assets (ROA) has a statistically significant negative influence on the effective tax rate. Furthermore, our analysis reveals that firm size, growth, and Big4 audit have no effect on effective tax rate.Research limitations/implicationsBecause it analyzes concrete cases using financial data and provides some recommendations for addressing the issue of tax avoidance, this work is useful in advancing both quantitative and qualitative research on this topic. This research is relevant for businesses, governments, regulators, audit professionals and investors.Originality/valueThe study, by analyzing concrete cases using reported financial data, contributes in filling the gap within the literature that results from a lack of scientific research on the relationship between tax avoidance and earnings management, and then it clarifies the nature of the causal connection between them. Moreover, it considers a combination of firm related variables including performance, size and also audit quality.

Enterprise risk management and corporate tax planning

AbstractThis 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. We hand‐collect data on ERM adoption for a sample of Standard & Poor's 500 firms from 1993 to 2016. We empirically document that firms with ERM programs have lower cash effective tax rates than firms without ERM. Additionally, we find that the relation between ERM and tax avoidance is stronger among firms with more business segments. Finally, our results suggest ERM adoption offsets an increase in opacity and tax uncertainty typically associated with tax avoidance strategies. Overall, we provide evidence that ERM allows firms to exploit tax avoidance opportunities through enhanced coordination and communication.

The Effect of Tax Avoidance on Cost of Debt with Institutional Ownership as a Moderating Variable (Empirical Study of Energy Sector Companies Listed on The IDX 2020-2022)

This research aims to test the effect of tax avoidance on the cost of debt with institutional ownership as a moderating variable. In this research, tax avoidance is measured by the effective tax rate. The population in this research is energy sector companies listed on the Indonesia Stock Exchange for the 2020-2022 period. This type of research is quantitative research. The sample in this research was obtained using purposive sampling, namely selecting samples using predetermined criteria. Based on the purposive sampling method, 57 samples were obtained from 82 energy sector companies listed on the Indonesia Stock Exchange for the 2020-2022 period. The analytical methods used are simple linear regression analysis, Moderated Regression Analysis, partial test (t), and coefficient of determination test (R2) using the SPSS version 16 program. The results of this research show that tax avoidance has a significant negative influence on cost of debt. Institutional ownership can strengthen the tax avoidance and cost of debt variables.

Effective corporate income taxation and its effect on capital accumulation: cross-country evidence

Abstract It is debated to what extent corporate taxation discourages capital formation, and the related empirical cross-country evidence is inconclusive. This paper provides new insights into this matter for a large sample of developed and developing countries. In the first step, national accounts data is used to calculate backward-looking effective corporate income tax rates (ECTR) for 77 countries during 1995–2018. In the second step, dynamic panel data regressions are used to estimate the effect of ECTR on aggregate corporate investment. The main findings of this exercise are that (i) statutory corporate income tax rates (SCTR), on average, are twice as high as ECTR, (ii) average ECTR has been relatively stable but show distinct dynamics across countries and (iii) no significant negative relationship exists between ECTR and investment. The latter finding is robust to different specifications and samples and when publicly available SCTR or forward-looking effective tax rate measures are used as alternative tax rate proxies.

Effective Tax Rates and Firm Size under Turnover Tax: Evidence from a Natural Experiment on SMEs

Abstract Taking advantage of Romania’s compulsory and unique presumptive tax system (turnover tax) for the smallest of the small- and medium-sized enterprises (SMEs), which unequivocally allows grouping the companies into two subsamples according to their tax status (the smallest of the SMEs, i.e. micro-companies for tax purposes, subject to alternative turnover tax vs larger SMEs subject to regular profit tax), the papers compute and compare three versions of firm-specific effective tax rates and brings first-time empirical evidence on the effects of turnover taxation on corporate tax burden. The results show not only that in Romania, the turnover tax is now the prevailing tax system, massively displacing the profit tax, but also it is more burdensome in terms of taxes actually paid relative to the firm size. Moreover, turnover taxation means that taxes are due irrespective of the profitability of a company, making the share of companies who paid taxes despite having losses much higher for micro-companies than for larger SMEs, which translates into higher public finance receipts, at the cost of lower tax equity. Since the corporate tax burden triggered by turnover taxation remains under the radar of even the most qualified policy reports, the results offer relevant lessons for other jurisdictions and have valuable policy implications.

Examining determinants of book-tax difference: Insights from Malaysian multinational corporations

This research investigates the factors affecting the book-tax differences of multinational corporations (MNCs) operating in Malaysia. The sample for this study consists of MNCs with subsidiaries in tax haven countries listed on the Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index (KLCI) and FTSE Bursa Malaysia Mid 70 Index. About 67 MNCs were selected after eliminating 32 companies with inadequate data and one with extreme outliers. A secondary data approach was employed, utilising multiple regression analysis. Selected corporate characteristics, including deferred tax liabilities and assets, taxable income, interest coverage ratio, return on assets, and effective tax rate, were used as independent variables. Descriptive analysis revealed evidence that corporations with a high return on assets (ROA) typically benefit from very high levels of book-tax differences (BTDs). Furthermore, the results indicate that a high interest coverage ratio may partly explain the outcomes leading to an increase in differences recorded between book income and taxable income. Thus, this supports the idea that a positive relationship exists between the interest coverage ratio and BTD. Hence, this study contributes to the tax literature and informs policymakers on factors influencing BTD, especially MNCs with subsidiaries in tax haven countries. The study aims to contribute to the existing body of knowledge by offering insights into the factors influencing MNCs' strategic tax planning decisions in the Malaysian context. Policymakers should address the unfair allocation of the worldwide tax base, where a reasonable portion of the earnings made by MNCs doing business in a nation should be subject to taxation in that nation.

Identifying Profit-Shifting to Tax Havens using statistics on Country-by-Country Reports

Profit-Shifting is an aggressive tax planning activity that erodes public revenues worldwide. Using statistics based on recent Country-by-Country Reports, this article identifies both descriptively and econometrically the existence of such activity by large Spanish multinationals in EU tax havens. Moreover, the paper shows that the application of the minimum Effective Tax Rate of 15% to profits generated in other EU countries by these large multinationals, within the Two-Pillar solution of the OECD/G20 Inclusive Framework, could increase Spanish tax revenue by around 2- 17% of annual corporate income tax.

Effective Tax Rate of Sharia Banks in Indonesia: How Profitability Moderates the Effect of Mergers, Size, and Leverage

Effective Tax Rate of Sharia Banks in Indonesia: How Profitability Moderates the Effect of Mergers, Size, and Leverage

Pengaruh Profitabilitas, Leverage, Earnings Per Share, dan Tax Planning Terhadap Return Saham

The goal of this study was to examine how factors like as profitability, leverage, earnings per share, and tax strategy affect the return on investment for shareholders. Variable earnings per share proxied by eps. The ratio of debt to equity serves as a proxy for the leverage variable. Profitability variable is proxied by return on asset. And tax planning variable is proxied by effective tax rate. Share return was considered as important by investor and company because it describes the financial performances of company. This study looked at many industries during the course of the years 2016-2022. Purposive sampling was used to pick the sample, and a total of 10 businesses were included. The multiple regression approach was used to examine the secondary data used in this study. This study found that profits per share did not influence share return, and leverage had a negative impact on stock returns. A negative and negligible impact on stock returns, profitability didn’t effect share return, and tax planning didn’t effect share return. Earnings per share, leverage, profitability, and tax planning simultaneously influence stock returns.

Pengaruh Transfer pricing dan Sales Growth Terhadap Tax avoidance Pada Perusahaan di Bidang Teknologi (Data IDX 2021-2023)

The global technology sector has experienced significant growth, leading to increased scrutiny of tax practices within companies. Transfer pricing, the practice of setting prices for transactions between affiliated entities, has been a focus of regulatory bodies and academics. The relationship between Sales Growth and Tax Avoidance is an important aspect that has not been explored in the context of technology companies. This research aims to examine the relationship between Transfer pricing, Sales Growth, and Tax Avoidance in the technology industry by utilizing data from the Indonesia Stock Exchange (BEI) from 2021 to 2023. This research uses quantitative methodology, specifically utilizing IDX financial data. for technology companies. Transfer pricing practices will be assessed through financial indicators, while Sales Growth will be measured as a percentage increase in revenue during the research period. Tax Avoidance will be operationalized using predetermined metrics such as effective tax rates. Statistical methods, such as regression analysis, will be used to identify patterns and correlations between variables. Research findings show that there is no relationship between Transfer Pricing and Sales Growth and Tax Avoidance in companies operating in the Technology Sector.

Accounting and taxation in Romania: from connection to disconnection?

Research Question: What are the effects of the evolutions in tax and financial reporting regulations on the book-tax relationship in the case of Romanian listed companies; is the de jure trend towards a disconnection confirmed, and what findings can be made from a de facto analysis based on the effective tax rate (ETR)? Motivation: Istrate (2011) applied the grid proposed by Lamb et al. (1998) and found that, in 2020, the de jure trend was clearly towards a book-tax disconnection. My intention is to replicate this analysis for 2021 and to add some other variables that could characterize the period, in order to assess the 2021 de jure and de facto (dis)connection. Idea: Mandatory introduction of IFRS for some listed companies, adaptation of the Romanian accounting rules to the European directive 34/2013, modification of the tax rules, in particular as a result of European efforts to fight tax avoidance, unprecedented situations such as the covid-19 crisis were just as many reasons for companies to adapt their tax and financial reporting behaviours, which makes the more interesting the analysis of the book-tax relationship. Data: For the application of the analysis grid proposed by Lamb et. al (1998) and developed later by other authors, I have analysed the accounting and financial reporting regulations, in parallel with the treatments provided by the Romanian tax law. For the de facto analysis attempt, I analysed more than 3,800 observations about the Romanian companies listed on Bucharest Stock Exchange for the period 2000-2021. Tools: The assessment of the book-tax relationship was done by applying the Lamb et al. (1998) model, with the six possible cases: from total identity, to total disconnection. My analysis takes into account 40 key elements. In the case of de facto analysis, I calculated an ETR as the ratio between the current tax expense to profit before taxes. Findings and contributions: The study proposes a de jure analysis that confirms the evolution towards almost total disconnection between accounting and tax rules, especially for companies applying IFRS. The de facto analysis allows us to observe that ETR significantly different from the statutory tax rates (STR) – which confirms the disconnection between accounting and taxation. So, for the Romania listed companies, in general, the book-tax disconnection explains and justifies the differences between the ETR and the STR; in this case, the ETR is not really the best proxy for the tax avoidance, as many studies in the literature proposed.

Pengaruh Profitabilitas, Ukuran Perusahaan dan Capital Intensity Terhadap Agresivitas Pajak di Perusahaan Property dan Real Estate yang Terdaftar di Bursa Efek Indonesia Periode 2019-2021

This study aims to determine the effect of profitability, company size, and capital intensity on tax aggressiveness. This study used a sample of property and real estate companies listed on the Indonesia Stock Exchange. The sampling technique used in this study was purposive sampling. This study of the research analysis uses the SPSS 2.5 for windows application. Tax aggressiveness as an independent variable is proxied by effective tax rate (ETR). While the dependent variable in this study is profitability proxied by Return On Asset (ROA), the company size variable is proxied by the natural Log of total assets, and the capital intensity variable is proxied by total net fixed assets divided by total assets. The results obtained in the following study, profitability and capital intensity have accepted and have an effect on tax aggressiveness while company size has no influence on tax aggressiveness.

THE IMPACT OF THE INFLUENCE OF PROFITABILITY, COMPANY SIZE, AND LEVERAGES ON TAX AVOIDANCE

The research aims to empirically test the influence of profitability, company size, and leverage on tax avoidance. The independent variables are profitability with the Net Profit Margin, firm size with the natural logarithm of total assets, leverage with debt to equity ratio and the dependent variable uses tax avoidance with the Effective Tax Rate minus the Cash Effective Tax Rate. The samples tested in the research were the substance of the property and real estate subsector listed on the IDX for the 2019 to 2021 period. There are financial reports for 17 entities, with 51 data assessed as meeting the criteria. The research method uses descriptive statistical tests, which then perform classical tests of hypotheses, including normality, heteroskedasticity, multicollinearity, and autocorrelation. In addition, the hypothesis regarding the influence of the independent variable on the dependent variable is tested. This test uses F-test statistics (simultaneous), T-test (partial), and coefficient of determination, which are then continued in the study using multiple regression analysis. Based on the subtest results, it was found that profitability and debt have significantly favorable effects on tax avoidance and that firm size has no effect on tax avoidance.

Third‐party reporting and cross‐border tax planning

AbstractIn 2018, the European Union (EU) introduced a new mandatory reporting requirement for a wide range of cross‐border tax arrangements (EU Directive 2018/822, also known as DAC6). Unlike prior corporate transparency initiatives, which put the reporting responsibility primarily on the taxpayers, this directive puts the initial reporting responsibility on the third‐party intermediaries who are involved in the reportable arrangement at any stage during the planning and execution process. We exploit the adoption of DAC6 in the EU to examine the effectiveness of third‐party reporting in curbing cross‐border tax planning by multinationals. Using a difference‐in‐differences research design, we find that affected firms reduce income shifting and report higher effective tax rates in the post‐adoption period. The reduction in income shifting is stronger for affiliates operating in countries without legal professional privilege extensions and in countries where noncompliance penalties are higher. Our results highlight the importance of strong third‐party reporting requirements in constraining cross‐border tax planning.

Pengaruh Corporate Governance terhadap Penghindaran Pajak pada Perusahaan Perbankan Periode 2018-2020

This study is aimed at knowing the influence of corporate governance on tax avoidance assessed with an effective tax rate (ETR). The size of the board of commissioners, audit committee, managerial ownership and institutional ownership are used as elements in corporate governance to be tested in research. The sample was determined by purposive sampling which found 32 banking companies listed on the Indonesia Stock Exchange (IDX) in the period 2018-2020. The study used secondary data as database. The research analysis method used is a multiple regression analysis method and is processed using SPSS 25. The results showed that the size of the board of commissioner had a negative effect on tax avoidance. Instituional ownership had a positive effect on tax avoidance. The audit committee and managerial ownership cannot influence tax avoidance

Pengaruh Intensitas Aset Tetap dan Intensitas Persediaan terhadap Tarif Pajak Efektif

This research is a quantitative study that aims to determine how fixed asset intensity, inventory intensity on effective tax rates in food and beverage manufacturing companies listed on the Indonesia Stock Exchange in 2019-2021. The number of samples in this study was 22 companies, with the sample withdrawal method using the purposive sampling method. This study uses secondary data obtained from the annual report of the company. Data analysis using panel data regression, which consists of descriptive statistical analysis, classical assumption test.Panel data regression model selection and hypothesis testing. The results of data analysis or panel data regression show that the inventory intensity variable partially has a positive effect on the effective tax rate. While the fixed asset intensity variable has no effect on the effective tax rate. At the same time, fixed asset intensity, inventory intensity has a significant effect on the effective tax rate.