Tax Aggressiveness Research Articles

The Interaction Effect of Female Leadership in Audit Committees on the Relationship Between Audit Quality and Corporate Tax Avoidance

This study examines the moderating role of female audit committee chairs on the relationship between audit quality (measured by audit fees) and corporate tax avoidance. The analysis is based on 165 UK firms between 2011 and 2021 using static panel data regression models and Lewbel’s heteroscedastic identification method to check robustness. The findings highlight the significant role of audit quality in reducing corporate tax avoidance. In addition, the female audit committee chair strengthens the negative relationship between audit quality and tax avoidance. This study has many implications. For corporate governance, it shows the value of female leadership in audit committees, especially in curbing aggressive tax strategies. Firms should increase female representation in key roles, like audit committee chairs, to improve oversight and ethical financial practices. For regulators and policymakers, it supports the case for strengthening gender diversity mandates to improve corporate transparency and accountability. Tax authorities can use the fact that firms with strong audit quality and female-led audit committees are less likely to engage in tax avoidance to focus their audits on companies with weaker governance structures.

The effect of company size and inventory intensity on tax aggressiveness with political connections as a moderating variable in agricultural sector companies listed on the BEI for the period 2019-2023

The effect of company size and inventory intensity on tax aggressiveness with political connections as a moderating variable in agricultural sector companies listed on the BEI for the period 2019-2023

Liquidity In Its Influence On Tax Aggressiveness

Indonesia is a developing country with rapid economic growth. One of the biggest sources of state revenue today is tax. Many cases of tax aggressiveness have occurred in Indonesia, even to the detriment of the state with a fantastic amount of money. This study aims to examine the effect of liquidity, measured using the current ratio (CR), on tax aggressiveness, measured using the effective tax rate (ETR). The research method used is quantitative with an associative descriptive analysis approach. The population consists of 78 consumer goods industry manufacturing companies, with a research sample of 23 companies and a total of 92 data points. The data analysis technique used is panel data regression analysis with estimation through the Random Effect Model (REM), tested using Eviews 12 software. The results showed that the level of liquidity does not have a significant effect on tax aggressiveness, this is evidenced based on the hypothesis test that has been carried out

Empirical Insight into Solvency Constraint and Tax Planning Dynamics in Ghanaian Banking Sector: A Non-Linearity Approach

This paper examines the relationship between tax planning activity dynamics and solvency constraints within the Ghanaian banking sector. This is conceived on the premise that banks are likely to change their tax planning dynamics in the midst of solvency challenges to boost their after-tax capital position to minimize the exposure to the going concern problem. The study employs the quantile regression estimation to draw time-varying constraint scenarios to measure solvency constraint proxies: WW index, HP index, and Z-score. Tax planning activity is also measured through cash effective tax rate. Annual data from 2008 to 2022 are used for the investigation with the unit of analysis expanding to cover all licensed banks which have been in operation within the study span. The study employed a quantile estimation approach to conduct the analysis. It is observed that the nature and trend in tax aggressiveness of the banks under a solvency-constraint scenario is dependent on the measurement of the constraints. Nevertheless, the study found non-linearity in the solvency-constraint and tax planning nexus. The banks do not generally alter their tax planning behaviour at the initial stage of the constrained scenario, however, turn to be relatively aggressive when the solvency constraint amplifies. The government is advised to protect the banks not to fall into any solvency constraint situation since that could change their tax planning activities.

Enhancing corporate accountability through covert situational integrity testing (CSIT)

ABSTRACT This article explores the potential of ‘covert situational integrity testing’ as a mechanism for assessing corporate/organisational compliance with legal rules and standards, the goal being to enhance corporate/organisational accountability. There are major challenges to holding corporations/organisations to account for non-compliance: low detection levels, incomplete understanding of the inner workings of organisations, and the modest power of current social scientific research methodologies. This article argues there is scope for methodological innovation through the use of covert situational integrity testing, a variation of mystery shopping methodologies, to address some of these gaps, with a focus not on service quality or customer satisfaction but on compliance with regulatory and legal requirements, and as a data gathering tool on secretive and difficult to access areas of business operation. We focus on two examples: AML compliance by challenger banks, and the promotion of aggressive tax avoidance schemes. Our core argument is that covert situational integrity testing provides a research mechanism through which robust and systematic observational data can be collected and scrutinised by independent, third-party assessors to understand levels of organisational/corporate compliance with legal rules and standards, and by doing so, identify critical vulnerabilities and strengths in the compliance responses of organisations and industries.

Analysis Of the Effect of Liquidity and Profitability on Tax Aggressiveness in Plantation Subsector Companies Listed on The Indonesia Stock Exchange

Analysis Of the Effect of Liquidity and Profitability on Tax Aggressiveness in Plantation Subsector Companies Listed on The Indonesia Stock Exchange

ESG disclosure, governance, political connection, and tax Aggressiveness: what information is critical, and is more information always forceful?

ESG disclosure, governance, political connection, and tax Aggressiveness: what information is critical, and is more information always forceful?

Pengaruh Inventory Intensity, Thin Capitalization, Capital Intensity, Research and Development dan Multinationality Terhadap Tax Aggressiveness pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia (BEI) Periode 2020-2022

Thisi study aims to examined and analyzed the effect of Inventory Intensity, Thin Capitalization, Capital Intensity, Research and Development and Multinationality on Tax aggressiveness of manufacturing companies listed in the Indonesia Stock Exchange. The population of this research iis manufacturing companies ilisted in the Indonesia Stock Exchange (IDX) during the years 2020-2022. Samples are included in the criteria of thisi study were 335 companies using purposive samplingi method. This research datai analysis methods iusing thei multiple linear regressioni analysis. The results of the study indicate that the Thin Capitalization and Multinationality variable has a positive effect on Tax Aggressiveness. While Inventory Intensity, Capital Intensity and Research and Development do not affect Tax Aggressiveness.

The Influence of Corporate Governance and Accounting Conservatism on Tax Aggressiveness in Automotive and Component Sub-Sector Companies

This study aims to obtain empirical evidence regarding the impact of corporate governance, projected through independent commissioners and audit committees, as well as accounting conservatism as independent variables, on tax aggressiveness as the dependent variable in automotive and component subsector companies listed on the Indonesia Stock Exchange (IDX) during the research period from 2018 to 2022. In this study, independent commissioners are measured by the ratio of the number of independent commissioners to the total board of commissioners. The audit committee is measured by the number of current audit committee members in the company. Accounting conservatism is measured by summing operating income with depreciation of fixed assets, then subtracting the net cash flow from operating activities, and dividing by the total assets of the company, with the result then multiplied by -1. Tax aggressiveness is measured by the Effective Tax Rate (ETR), calculated by dividing income tax expense by pre-tax income of the company. The sample size for this study is 11 companies, where the sample data were selected using purposive sampling. The data are analyzed using a multiple linear regression model processed with IBM SPSS Statistics version 23. The results of this study indicate that independent commissioners have a significant negative effect on tax aggressiveness, while the audit committee and accounting conservatism do not have a significant effect on tax aggressiveness.

IRS Audit Detection Risk and Firm Tax Behavior: Can Tax Fraud Be Deterred by Increasing IRS Budgets?

ABSTRACT This paper examines whether tax fraud and aggressive tax positions at firms are affected by changes in the IRS budget. Changes in a firm’s risk profile affect many users of financial information including the IRS, forensic accountants, and investors among others. We find that concurrent IRS resources are related to firms’ tax aggression and tax fraud likelihood and that they explain incrementally more of these tax decisions at a firm than historical information often used in prior literature. Taken together, our results suggest that firms increase their tax risk profile thus more tax aggression and higher likelihood of tax fraud when they believe IRS scrutiny will be lower.

Data Breach Notification Laws and Corporate Tax Planning

ABSTRACTThis study explores the impact of data breaches on corporate tax planning in the United States. The results reveal that when a firm's headquarter is located in a state that has adopted a data breach notification (DBN) law, there is a significant 3.8% decrease in the long‐term effective tax rate. This reduction translates to annual tax savings of approximately $8.13 million. Furthermore, tax sheltering is found to decrease by 19.17% compared to the sample average. These effects are particularly pronounced in financially constrained firms and those operating in high‐tech industries. The findings suggest that after the introduction of mandatory data breach disclosure requirements, firms are less inclined to engage in aggressive tax avoidance practices, which could otherwise lead to increased litigation costs. Instead, they prioritize efficient tax planning strategies to improve after‐tax cash flows.

Effect of Selected Board Attributes on Tax Aggressiveness of Quoted Insurance Companies in Nigeria

The main objective of this study is to examine the effect of selected board attributes on tax aggressiveness of quoted insurance companies in Nigeria. Specifically, the study examines the combined effect of female directors and board financial expertise on tax aggressiveness of quoted insurance companies in Nigeria. Tax aggressiveness was measured using effective tax rate while female directors and financial expertise were measured using proportion of female directors on the board to the total number of independent directors and proportion of financial experts on the board to the total number of independent directors respectively. This study uses the longitudinal research design. The population of the study is the entire twenty-three listed companies in the Nigerian insurance sector. The sample size of twenty-two was selected after eliminating one without complete data. Data were sourced from the annual financial statements of the listed insurance companies for the period 2011-2022. To be able to examine the effect of female directors and financial expertise on tax aggressiveness, the study used panel multiple regression model for the analysis. The result of the study shows that female directors have negative and insignificant effect on tax aggressiveness. However, the study finds statistical evidence which suggests that boards financial expertise has significant effect on tax aggressiveness in the insurance sector. From the findings, it was concluded that board attributes have strong explanatory power on tax aggressiveness. The study recommends that since management could aspire to avoid more taxes, because they estimate the tax benefits too high, more external board members with accounting and corporate reporting knowledge should be admitted on the boards to curtail managerial aggressive tax planning.

Does the presence of a sustainability committee strengthen the impact of ESG disclosure on tax aggressiveness? Insights from North America

AbstractWe investigate the influence of ESG disclosure on tax aggressiveness within the North American Travel and Leisure (T&L) sectors, specifically examining the role of sustainability committees in this relationship. Our analysis utilizes longitudinal panel data from the USA B3000 and Canadian S&P/TSX indices over the period from 2010 to 2020. Employing fixed-effects panel quantile regression with two distinct measures of tax aggressiveness, our findings indicate that firms with a focus on ESG tend to display higher levels of tax aggressiveness. This suggests that some companies might use strong ESG performance as a facade to obscure aggressive tax strategies. Moreover, our research introduces new evidence that the existence of sustainability committees can both hinder corporate tax aggressiveness and foster an ethical corporate culture, which aligns higher ESG engagement with lower tax aggressiveness. Our study underscores the importance of fostering tax compliance in T&L companies, emphasizing that individuals and corporations, which often seek direct state benefits, regard robust public services as essential for encouraging adherence to tax regulations. Furthermore, sustainability committees play a crucial role in enabling firms to address broader social issues, including tackling tax aggressiveness, thus shaping their sustainability agendas.

Corporate Tax Aggressiveness and Managerial Capabilities: Insights From Indonesian Firms

This study aims to investigate the effect of management ability, business strategy, and profitability on corporate tax aggressiveness. This study uses mediation analysis with the Smart PLS approach on a sample of basic materials sector companies listed on the IDX from 2020 to 2022. The results show that more capable management tends to adopt a conservative approach in tax management practices. In addition, business strategies such as prospector and defender have a significant impact on tax aggressiveness. More profitable companies tend to implement more aggressive tax strategies. Companies need to improve managerial capabilities to manage taxes more effectively, as well as formulate appropriate business strategies to mitigate tax risks in the future. With a better understanding of tax risks, companies can minimize potential tax disputes and protect their reputation and long-term performance. This study extends the research time scope to 2022 and uses corporate governance mechanisms as moderating variables, both internal and external, which have not been widely studied in previous studies.

Taxes under stress: bank stress tests and corporate tax planning

PurposeThis paper aims to examine how bank stress tests affect bank tax planning.Design/methodology/approachThe study uses US bank stress test bank size thresholds and a regression discontinuity design to investigate the effect of the Dodd-Frank Act and the instituted bank stress tests on bank tax planning. We use different measures of tax planning, including bank-specific measures and measures of tax avoidance, tax aggressiveness, and effective tax planning from recent literature. Our regression discontinuity and difference-in-differences regression analyses include bank and year fixed-effects and lagged bank characteristics to control for potential endogeneity.FindingsThis study finds that stress tests have the unintended consequences of intensifying tax planning and increasing tax avoidance. Stress-test banks increase tax avoidance by accelerating charge-offs, net interest, and non-interest expenses. However, this increase in tax planning is not optimally maximized, leading to lower effective tax planning compared to non-stress-test banks. Banks with a substantial increase in tax avoidance under the Dodd–Frank Act tend to increase their risk, investing in high-risk-weight assets and lending in riskier loan categories. These findings are consistent with tax minimization conditions under added regulatory attention and policy uncertainty.Originality/valueLiterature on bank tax planning is limited. Most tax avoidance literature excludes financial institutions such as bank holding companies mainly due to differences in business practices and regulatory frameworks. This study is the first to investigate tax planning behavior among US banks. The current study thus extends the research field by examining the effect of bank transparency regulations, such as bank stress tests, on bank tax planning activities. Our findings have a direct bank policy implication. They show that stress testing has the unintended consequences of increasing tax planning activities and consequently increasing risk-taking on banks with high tax avoidance, which goes against the goals of stress testing regulations.

The Influence of Corporate Governance on Tax Avoidance and The Role of Independent Auditors in Vietnamese Firms

This research addresses how corporate governance mechanisms influence tax avoidance in Vietnamese firms and the role of independent auditors in detecting or mitigating tax avoidance. The purpose of the research is to explore the relationship between corporate governance structures (e.g., independent boards, audit committees) and tax behavior, as well as to assess how auditors interact with these governance mechanisms to ensure tax compliance. A qualitative case study approach was used to analyze six companies from different sectors and governance models (2 state-owned enterprises; 2 family-owned private companies; and 2 publicly listed companies) through 18 interviews conducted between May 2024 and October 2024 with 3 key individuals from each company, including: Independent auditor; Company CEO; Manager or administrator, along with documentary analysis of financial statements and tax filings. The research found that firms with stronger governance (e.g., independent boards and active audit committees) are less likely to engage in tax avoidance, while weak governance structures often lead to more aggressive tax strategies. Independent auditors were more effective in well-governed firms, but faced ethical challenges in weaker ones. These findings are significant because they highlight the importance of strengthening governance frameworks and ensuring auditor independence to reduce tax avoidance and improve corporate transparency in Vietnam.

Intra-Group Financing: Analysis of the Coexistence of the Arm’s Length Principle with the General Anti-Abuse Rules

The deduction of interest expenses for corporate tax purposes has attracted the attention of tax policymakers and multinational enterprises owing to concerns about base erosion and profit shifting. Prior to the transposition by Member States of the Anti-Tax Avoidance Directive that established a minimum standard, national rules to limit the tax deduction of interest expenses and anti-abuse rules to tackle perceived aggressive tax planning lacked uniformity and consistency at EU level. This resulted in legal disputes, especially in cross-border intra-group financing cases when transfer pricing based on the arm’s length principle is also applied. The Court of Justice of the European Union has set general guidelines and an interpretative framework. However, the opinion of the Advocate General in the X BV case (C-585/22), suggesting a departure from the Lexel case (C-484/19), raises significant concerns. In the authors’ opinion, this approach could lead to an overreaching application of the GAAR even to arrangements subject to the arm’s length principle that, based on economic rationality and substance, is intended to treat in the same way cross-border intra-group and third-party structures and transactions.

The impact of asset specificity on corporate tax avoidance: Do financial constraints and product market power matter?

Our findings reveal that asset specificity significantly enhances corporate tax avoidance, with firms exhibiting lower cash effective tax rates. Firms with higher asset specificity also engage in more aggressive tax avoidance strategies, including tax dodging and long-term tax planning. Additionally, our analysis indicates that the positive impact of asset specificity on tax avoidance is less pronounced in firms with lower ESG performance but is more pronounced in those facing negative demand shocks or operating during periods of economic policy uncertainty. We also find that financial constraints and product market power mediate the relationship between asset specificity and tax avoidance, with financial constraints serving as the dominant economic channel. These findings offer new insights into the factors driving corporate tax avoidance and highlight the complex interplay between asset specificity, financial constraints, product market power, and tax planning strategies.

Does Firm Size Buffer Tax Aggressiveness? Examining Financial Distress and Capital Intensity

This study investigates the relationships between financial distress, capital intensity, and tax aggressiveness, focusing on the moderating role of firm size. Utilizing a sample of property and real estate companies listed on the Indonesia Stock Exchange from 2021 to 2023, the research employs quantitative methods to analyze the influence of financial distress and capital intensity on tax aggressiveness. The findings reveal that financial distress significantly increases tax aggressiveness, indicating that firms facing economic challenges are more likely to pursue aggressive tax strategies to enhance their cash flow. Additionally, capital intensity is positively associated with tax aggressiveness, as firms leverage their capital assets for potential tax benefits. However, the study finds that firm size does not significantly moderate the relationships between financial distress or capital intensity and tax aggressiveness, suggesting that the effects of these variables are consistent across different firm sizes. These results underscore the complex dynamics of corporate tax behavior and highlight the need for firms to carefully consider their tax strategies in the context of financial conditions and capital structure. The research contributes to a deeper understanding of tax aggressiveness in emerging markets and provides implications for corporate managers and policymakers regarding tax planning and regulation

DETERMINANTS OF TAX AGGRESSIVENESS WITH CORPORATE GOVERNANCE AS A MODERATION VARIABLE IN PUBLIC COMPANIES IN INDONESIA

This research examines how corporate governance moderates the impact of financial derivatives, executive pay, executive traits, and family ownership on tax aggressiveness in manufacturing firms listed on the Indonesia Stock Exchange between 2021 and 2023. Independent commissioners are used as a proxy for corporate governance. A total of 86 companies were included in the study using purposive sampling. The data analysis method employed was moderated regression analysis (MRA). The findings indicated that tax aggressiveness was impacted by financial derivatives, executive compensation, and executive behaviour but not by family ownership. These findings suggest that the level of family ownership does not dictate the degree of tax avoidance. Corporate governance as a moderating factor can influence executive compensation and executive behaviour but does not influence financial derivatives and family ownership concerning tax aggressiveness.