Lower Tax Payments Research Articles

Corporate carbon reduction and tax avoidance: International evidence

Using data on firms’ carbon emissions in 28 countries, we document that a firm’s initiation of carbon reduction activities relates to lower tax payments. This result endorses a perception of legitimacy theory suggesting that companies can gain legitimacy with tax authorities by adopting carbon reduction strategies. Our study also shows that the positive relationship between lower tax payments and a firm’s carbon reduction leads to higher Return on Assets (ROA), particularly for firms with lower operating performance. Moreover, our study documents that firms that engage in carbon reduction activities can mitigate their tax burden in countries that impose a carbon tax, have higher media freedom, judicial independence, and robust legal systems. These various institutions within a country can influence the relationship between a company’s carbon emission reductions, lower tax payments, and its overall performance. Our findings are robust even when using alternative measures of carbon emissions, control variables for corporate social responsibility, and the entropy-balance or propensity score matching sample.

Climate policy uncertainty and corporate tax avoidance

This study examines the relation between climate policy uncertainty and corporate tax avoidance. Using a novel measure of climate policy uncertainty (CPU), we document that CPU is negatively related to effective tax rates for both contemporary and future years. During higher levels of CPU, firms tend to undertake more aggressive forms of tax avoidance, such as long-term tax planning or tax sheltering. Further analysis suggests that the cash savings from lower tax payments are used to pay dividends and not retained for reinvestments. We tackle the endogenous concern with an instrumental variable approach and the firm fixed effect model. Overall, our findings are consistent with the precautionary hypothesis that firms become more conservative in their long-term investment strategies and are risk-averse when there are uncertainties around climate policies.

Pandemics and cash

AbstractWe investigate the relationship between firms’ cash holdings and pandemics. Our results show that compared to tele‐workable firms, whose employees can work remotely, non‐tele‐workable firms with more on‐site employees increase cash during pandemics. This increase in cash comes from short‐debt, preferred stocks, reduction in capital expenditures, discontinuation of some operations and lower tax payments. Firms hold more cash as a reaction to higher default risk. For non‐tele‐workable firms, there is a positive relationship between abnormal stock returns and cash, suggesting that this increase in cash during pandemics is not driven by behavioral reasons but by increases in uncertainty in labor productivity.

Исследование влияния самоуверенности менеджеров на уклонение от уплаты налогов с учетом надзорной роли Комитета по финансовому аудиту

The overconfident general managers use their position and influence in their companies to reach their personal ambitions that can be followed by invasive tax policies, lower tax payments and showcasing of the higher incomes in relation to the general manager’s reward. In between, the audit committees have been designed so as to act independently and resolve the conflicts between the internal and external managers regarding the financial information and the selection of the accounting methods. Thus, the present study aims at investigating the effect of the audit committee on the relationship between the mangers’ overconfidence and tax avoidance in the companies accepted to Tehran’s securities exchange market for the years between 2015 and 2020. The present study is an applied research in terms of the study objectives and it is a correlation-descriptive research in terms of the method. In order to investigate the study subject, multivariate linear regression was used for data analyses. Then, Eviews Software package was utilized to perform the statistical analyses of the obtained information. The results indicated that managers’ overconfidence is significantly correlated with tax avoidance and that the relationship is direct meaning that the increase in the managers’ overconfidence causes an increase in the company’s tax avoidance, as well. Moreover, it was found out in the other study’s findings that the audit committee (financial expertise of the audit committee) exerts a significant effect on the relationship between the managers’ overconfidence and company’s tax avoidance and that the effect is reverse.

Corporate social responsibility, firm performance and tax risk

PurposeThe purpose of this study is to investigate whether corporate social responsibility (CSR) can lower tax risk. Previous studies have demonstrated a negative link between CSR and tax aggressiveness. Generally, corporations engaging in social irresponsibility tend to undertake aggressive tax planning; whereas socially responsible firms enjoy tax savings. Because several recent studies have suggested that lower tax payments do not necessarily create higher tax risk, an exploration of the relationship between CSR and tax risk was not only interesting but also important.Design/methodology/approachUsing an ethical perspective of CSR, this paper argues that executives who are nourished by an ethical climate tend to make responsible and reliable operating decisions. Therefore, their corporations would have better control of tax administration, and the corresponding tax risk would be constrained. Such corporations would enjoy greater tax savings while keeping their tax risk at relatively low levels. However, this reasoning ignores the fact that limited economic resources would constrain a firm from practicing CSR in the form of donations. This situation would also influence its attitude toward tax strategies. Specifically, when a firm’s performance is unsatisfactory, the cultural effect of CSR may diminish or even disappear.FindingsFirms donating additional resources to CSR activities can construct a more ethical work climate that encourages executives to control tax risk while lowering tax expenses. For firms with unsatisfactory performance, the ethical benefits of CSR could disappear, thus suggesting a relationship with firm performance. This finding contributes to the knowledge on the ethical implications of CSR and proposes that the culture argument is conditional on satisfactory firm performance.Originality/valueThis study explores the association between corporate culture (CSR) and tax risk. The empirical results help shareholders, analysts and other investors to make their business decision better because CSR or corporate culture is less likely to change suddenly or dramatically in an abbreviated time. The finding of this study shed light on the importance of corporate culture on making an investment evaluation or decision. In addition, this study extends the research on CSR by demonstrating that the effects of CSR are conditioned on firm performance. The beneficial effect of CSR on tax risk would disappear when firms have unfavorable financial performance.

PERSEPSI WAJIB PAJAK TERHADAP TAX AMNESTY

Abstract: In Indonesia, various problems occur such as a high practice of tax avoidance, tax evasion, the morality of taxation, administrative requirements, trust institutions, implementation capacity and lower tax payments. The objective of this study to analyze and obtain empirical evidence, as well as examine whether the experience have significant effect on the name, quality and sacrifice, then to test whether the name, quality and sacrifice have a significant effect on the perception of the taxpayer. The total sample consisted of 100 taxpayers both corporate taxpayers and individual. The results of this study prove that the experience have an impact on the name, quality and sacrifice. But the name, quality and sacrifice have not an impact on the perception of the taxpayer.

Do Swedish multinationals pay less in taxes than domestic firms?

AbstractIn recent years, there has been growing concern that multinational enterprises (MNEs) engage in strategic tax planning in order to shift profits to low‐tax jurisdictions. This common perception is generally confirmed by empirical evidence, which is foremost provided for countries with high corporate taxes and relatively complex tax systems. We investigate whether multinational firms in a country with a comparatively more competitive tax system undertake profit shifting. We do this using detailed census data from corporate income statements and balance sheets filed by Swedish manufacturing firms between 1997 and 2007. We detect profit shifting by comparing MNEs with (purely) domestic firms. In particular, we identify systematic differences in tax payments, earnings (before interest and taxes) and equity ratios between multinational and comparable domestic firms based on propensity score matching. In addition, we examine the tax behavioural impact of acquiring multinational status using difference‐in‐differences estimations and/or propensity score matching. Our results reveal that the extent to which multinational firms have lower tax payments than their domestic counterparts depends on their production characteristics and foreign market outreach. In particular, we find evidence indicating that firms operating in few foreign markets and firms that become multinational engage in profit shifting from Sweden.

Takeovers: Their Causes and Consequences

Economic analysis and evidence indicate that the market for corporate control is benefiting shareholders, society, and the corporate form of organization. The value of transactions in this market ran at a record rate of about $180 billion per year in 1985 and 1986, 47 percent above the 1984 record of $122 billion. The gains to shareholders from these transactions have been huge. The gains to selling firm shareholders from mergers and acquisition activity in the ten-year period 1977-86 total $346 billion (in 1986 dollars). The gains to buying firm shareholders are harder to estimate, and no one to my knowledge has done so as yet, but my guess is that they will add at least another $50 billion to the total. These gains, to put them in perspective, equal 51 percent of the total cash dividends (valued in 1986 dollars) paid to investors by the entire corporate sector in the past decade. These corporate control transactions and the restructurings that often accompany them are frequently wrenching events in the lives of those linked to the involved organizations: the managers, employees, suppliers, customers and residents of surrounding communities. Restructurings usually involve major organizational change (such as shifts in corporate strategy) to meet new competition or market conditions, increased use of debt, and a flurry of recontracting with managers, employees, suppliers and customers. This activity sometimes results in expansion of resources devoted to certain areas and at other times in contractions involving plant closings, layoffs of top-level and middle managers, staff and production workers, and reduced compensation. Those threatened by the changes that restructuring brings about argue that corporate restructuring is damaging the American economy, damaging the morale and productivity of organizations, and pressuring executives to manage for the short-term. Further, they hold that the value restructuring creates does not come from increased efficiency and productivity; instead, the gains come from lower tax payments, broken contracts with managers, employees and others, and mistakes in valuation by inefficient capital markets. Since the benefits are illusory and the costs are real, they argue, takeover activity should be restricted. The controversy has been accompanied by strong pressure on regulators and legislatures to enact restrictions that would curb activity in the market for corporate control. Dozens of congressional bills in the last several years have proposed new restrictions on takeovers, but none have passed as of this writing. The Business Roundtable, composed of the chief executive officers of the 200 largest corporations in the country, has pushed hard for restrictive legislation. Within the past several years the legislatures of New York, New Jersey, Maryland, Pennsylvania, Connecticut, Illinois, Kentucky, Michigan, Ohio, Indiana and Minnesota have passed antitakeover laws. The Federal Reserve Board implemented new restrictions in early 1987 on the use of debt in certain takeovers. In all the controversy over takeover activity, it is often forgotten that only 40 (an all-time record) out of the 3,300 takeover transactions in 1986 were hostile tender offers. There were 110 voluntary or negotiated tender offers (unopposed by management) and the remaining 3,100-plus deals were also voluntary transactions agreed to by management, although this simple classification is misleading since many of the voluntary transactions would not occur absent the threat of hostile takeover. A major reason for the current outcry is that in recent years mere size alone has disappeared as an effective takeover deterrent, and the managers of many of our largest and least efficient corporations now find their jobs threatened by disciplinary forces in the capital markets. The market for corporate control is creating large benefits for shareholders and for the economy as a whole by loosening control over vast amounts of resources and enabling them to move more quickly to their highest-valued use. This is a healthy market in operation, on both the takeover side and the divestiture side, and it is playing an important role in helping the American economy adjust to major changes in competition and regulation of the past decade.