ABSTRACTCompanies voluntarily adopt lead independent directors (LIDs) for the benefits they could bring to the board, such as further improving board independence, mitigating unresolved agency issues, enhancing board monitoring, and countering criticisms of corporate governance. We find that companies with LIDs have more conservative tax policies. The influence of LIDs on corporate tax policies is greater when the level of tax avoidance is more aggressive compared to their size and industry peers. We also find that investors favorably value the more conservative tax policies of companies with LIDs. Companies with LIDs have lower tax risk, pursue more conservative tax planning, such as lower UTB settlements, and are less likely to use tax shelters. These companies do not have aggressive valuation allowance releases and have fewer permanent book‐tax differences. Lastly, we also find an associated non‐tax benefit: CEOs in companies with LIDs do not have a higher likelihood of subsequent forced turnover for not engaging in tax avoidance. Thus, he investors’ higher valuation of more conservative corporate tax policies reduces the likelihood of subsequent forced CEO turnover.

Abstract Academic research investigating the economic consequences of tax avoidance is almost always interested in the consequences of intentional, deliberate actions undertaken to reduce taxes relative to income. Therefore, it is crucial that such research distinguishes between intentional and incidental tax avoidance, since failure to do so can create endogeneity concerns and lead to incomplete and incorrect economic inferences. In this paper, we first develop a framework that conceptually defines and distinguishes between intentional and incidental tax avoidance. We highlight that the endogeneity problem arises because intentional tax avoidance is not directly observable. We consider two approaches to mitigating endogeneity concerns and apply these approaches by reexamining two influential studies that investigate the economic consequences of tax avoidance. We show how controlling for past accounting losses eliminates the effect of tax avoidance on credit spreads (Hasan et al. 2014, Journal of Financial Economics, 113(1), 109–130) and how using an instrumental variables approach changes the sign of the relation between tax sheltering and stock price crash risk (Kim et al., 2011, Journal of Financial Economics, 100(3), 639–662). Overall, our paper punctuates the importance of both (1) conceptually distinguishing between incidental and intentional tax avoidance and (2) econometrically addressing the challenges that arise when empirical differentiation between incidental and intentional tax avoidance is important to the research question.

Mitigating Abusive Tax Shelters: A Historical Approach

Regulatory Arbitrage and Non-Judicial Debt Collection in Central and Eastern Europe Tax Sheltering and Potential Money Laundering

In 2017 Congress enacted a controversial $10,000 cap on individual deductions for state and local taxes. States initially responded by enacting charitable workarounds which invited individual taxpayers to convert capped § 164 deductions for state income taxes into uncapped § 170 deductions for contributions to charitable organizations in exchange for state income tax credits that reduced or eliminated state tax liability. Final regulations under § 170 shut down the tax shelter by treating state tax credits received in exchange for charitable payments as a quid pro quo, reducing or eliminating any charitable deduction. In 2020, acceding to pressure from business groups and school choice advocates, the outgoing Trump administration blessed a functionally equivalent business-entity charitable workaround which circumvents the SALT cap by exploiting discontinuities under §§ 162, 164 and 170. Passthrough owners obtain an ordinary § 162 business deduction for entity-level payments to § 170 organizations, coupled with passthrough of state tax credits that reduce or eliminate the owners’ state income tax liability. The Treasury can and should close this loophole by requiring a separate statement, subject to the § 164(b)(6) limit, of entity-level deductions attributable to payments to charitable organizations that generate state ncome tax credits. Whether or not Congress retains the SALT cap, passthrough owners should not be permitted to convert nondeductible individual state income taxes into fully deductible business expenses.

The purpose of this research is to analyze the impact of Tax Planning and Aggressive Tax Planning on company value. Tax Planning, measured using three indicators—Cash Effective Tax Rate, Book Tax Difference, and Tax Shelter—was found to have a significant influence on company value. Conversely, Aggressive Tax Planning showed no significant effect on company value. This study employs the Systematic Literature Review (SLR) method, utilizing a sample of 30 journal articles as the primary data source. The SLR approach enables a comprehensive analysis by synthesizing findings from multiple studies, ensuring robust and reliable conclusions. The findings highlight the importance of effective tax planning strategies in enhancing company value while suggesting that overly aggressive tax planning may not yield the desired benefits for firms. These results underscore the need for companies to adopt balanced and sustainable tax strategies to optimize their financial performance and long-term value. Future research is encouraged to explore additional factors influenced by Tax Planning and Aggressive Tax Planning. This may include examining their impact on other financial performance metrics, governance structures, or stakeholder trust. Furthermore, the study's implications can guide policymakers and practitioners in designing tax frameworks and strategies that align with corporate value creation objectives. Ultimately, this research serves as a valuable reference for academics, practitioners, and policymakers, providing insights into the nuanced effects of tax strategies on firm value and laying a foundation for future investigations.

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.

Does corporate culture impact tax shelter? A machine learning approach

PurposeExtant literature investigating the tax payment behaviour of politically connected firms largely supports the notion that politically connected firms have tax sheltering incentives, i.e. politically connected firms pay significantly less tax. Our paper adds to this stream of literature by considering the tax payment behaviour of two different groups of politically connected firms in Pakistan, viz. civil connected firms and military connected firms.Design/methodology/approachThe paper sheds light on the tax payment behaviour of politically connected firms and provides evidence that the tax incentives of politically connected firms are shaped by the institutional structure and contextual factors.FindingsThe results indicate that civil (military) connected firms pay significantly lower (higher) tax than non-connected firms. The findings hold in the face of a number of robustness tests, including the use of alternative proxies for the tax variable and endogeneity concerns.Originality/valueThese results make a significant contribution to the existing literature examining the tax payment behaviour of politically connected firms by providing evidence suggesting that tax sheltering is not the only viable option for politically connected firms; rather, some groups of connected firms have tax under-sheltering incentives. Our findings add to the political cost hypothesis and the signalling hypothesis in relation to tax payment incentives of politically connected firms.

Insurance is basically working on the principle of ‘many sharing the loss of a few’. People facing common risks come together and make small contributions to a common fund and it can be called a co-operative venture. Insurance is also an effective risk management tool. The responsibility of taking care of the family, ensuring the security of the family are shifted from the shoulders of an individual to the life insurance companies since it curtails risk and substitutes certainty for uncertainty in human life. Life is a roller coaster ride and is full of twists and turns, one cannot take anything for granted in life. Life insurance policy helps in not only mitigating risk but also provides a financial cushion against adverse financial burdens suffered. A life insurance policy is distinct from other financial instruments because of the risk cover provided. It is one of the basic needs of an individual; every individual for his own sake and for the sake of his family should invest in life insurance. Life insurance provides for risk, life and health cover, investment, savings and tax shelter. This study Aims to findout to identity the Satifaction level of the policy holders in Erode District.

Corporate tax sheltering is a legal action that may be taken by companies to achieve a better financial position. Chief executive officer (CEO) plays a unique role in determining the Company's tax strategies. Meanwhile, CEO personal traits can affect the company strategy and outcomes. Many of CEO personality traits that affecting firm outcomes have been examined in the literature. Particularly, narcissism is considered as a major CEO trait, which is associated with overconfidence, and willingness to take risks. This research focuses on narcissism trait which is seen as one of the most complex and highly researched personality traits in prior studies. Moreover, this study focuses on examining the relationship between CEO narcissism and corporate tax sheltering which is considered as an aggressive form of corporate tax avoidance and has become a general feature of today´s business landscape (Lanis & Richardson, 2011). This study is based on a sample comprises 48 non-financial firms summing up 267 firm-year observations for the period from 2014 to 2019. An Ordinary Least Squared (OLS) regression and Feasible Generalized Least Square (FGLS) regression are conducted to examine the hypothesis. Contrary to expectations, the results show insignificant negative relationship between CEO narcissism and corporate tax sheltering which means that no significant relationship is found between CEO narcissism and corporate tax sheltering.

This article investigates the ownership and management dynamics of private equity investments and family-controlled holdings in the United Kingdom and Italy, and reveals a tax imbalance in their pursuit of corporate control over publicly listed firms. By employing an interdisciplinary approach and a quantitative case study analysis applied to corporate and tax planning, this article illustrates that whereas UK taxation favours private equity, Italy leans towards controlling families, highlighting its implications for the private equity industry’s competitiveness and family inter generational succession, both domestically and across borders. Hence, with no ex ante preference for a specific form of ownership model (family or private equity), the article sheds light on the impact of tax considerations on corporate control decisions, and therefore advocates for tax neutrality to level the playing field between family and private equity control. Last, the article observes a greater reliance on leverage in private equity corporate governance models compared to controlling families, suggesting that it is not the legal availability of a tax shelter (interest deductions) per se that prompts its use, but rather the controlling investor's profile that weighs on borrowing preferences.

The notion that tax planning activities are schemes to deprive the government of revenue continued to garner the concerns of other business stakeholders. Based on stakeholders and tax planning theoretical foundations, this study examined the effect of tax sheltering on the corporate investment expenditure of listed financial firms in Nigeria. The indicators of tax sheltering modelled in the study are effective tax rate, book tax difference, and tax savings while total investment expenditure was the dependent variable. The study selected 20 listed financial firms and generated data from the audited annual reports and accounts from 2012 to 2022. The three hypotheses were tested using the Multiple Correlated Panels Corrected Standard Errors (PCSEs) Model. The results revealed that the effective tax rate (ETR), exerted a statistically negative significant effect on the total investment expenditure; book-tax difference (BTD) exhibited a statistically non-significant effect on total investment expenditure while tax savings stimulated total investment expenditure. The overall result revealed a statistically significant explanatory power of the regressors on total investment expenditure which implies that tax sheltering could foster business growth opportunities and expansion when funds saved are invested in capital expenditure, particularly the non-current assets.

Abstract We examine the Netherlands around the Second World War, where the occupying Nazi regime overhauled the country's corporate tax regime and introduced a profit tax of 55 per cent. We estimate that the new tax regime cost investors at least 300 million guilders, an amount equivalent to 5 per cent of Dutch GDP in 1940. We demonstrate that the tax introduction changed the financing of Dutch businesses. In particular, we find strong evidence that debt financing increased because it provides a tax shelter. The changes in taxation also led to an after‐tax reduction in the cost of debt, which had large real effects on firm investment. After the end of the war, firms with more leverage had higher capital expenditures.

This teaching case focuses on tax shelters for audiovisual works. Since its inception in 2003, the Belgian tax shelter system has undergone substantial reforms to make the system more ethical and reduce risks for investors. The necessity to reform the system was in part highlighted by a fraud that affected over 1,200 investors. Students take on the role of a business owner contemplating an investment in the Belgian tax shelter. The case challenges students to discuss the ethics of tax shelters, identify risks for investors and make an investment decision.

Tax Sheltering Cost Among High-Income Taxpayers: Evidence From an Australian Tax Policy Change

Climate policy uncertainty and corporate tax avoidance

The study empirically investigated the effect of corporate taxes on financial performance of quoted manufacturing companies in Nigeria. The population of the study consists of sixty quoted manufacturing companies in Nigeria. The study adopts purposive sampling techniques to select thirty quoted manufacturing companies as a sample size. Secondary data was obtained from audited annual financial reports of quoted manufacturing companies in Nigeria from 2006-2020. Hypotheses formulated were tested using panel least squares regression through pooled effect, fixed effect, and random effect, determined by the Hausman test, fixed effect regression was preferred for results interpretation with the aid of Eviews 10 econometric statistical software. Findings show that companies’ income tax, capital gains tax, and tertiary education tax had insignificant effects on return on equity of quoted manufacturing companies in Nigeria. Companies’ income tax and tertiary education tax had insignificant effect on return on capital employed of quoted manufacturing companies in Nigeria. Companies income tax and tertiary education tax had insignificant effect on net profit margin of quoted manufacturing companies in Nigeria. Capital gains tax had significant effect on return on capital employed and net profit margin of quoted manufacturing companies in Nigeria. The study concludes that corporate taxes have insignificant effect on financial performance of quoted manufacturing companies in Nigeria. The study recommends, among others, that the government should introduce new tax incentives, tax exemptions, tax allowances, tax relief, tax rebates, and tax shelters for corporate taxes. Capital gains tax should be scrapped to enable companies to plough back profit on sale of assets into their business operations. The government should create a corporate tax management database through modern information technology to ensure effective and efficient corporate tax administration.

The current study looks at the factors that affected conventional and Islamic banks' profitability between 2007 and 2013. This period is further classified into two periods, i.e.2007-2009 and 2010-2013, the tenure during and the tenure after the financial crisis. Descriptive research design and logical reasoning are employed in this study to analyze fourteen conventional and Five Islamic banks. We used Return on Assets to measure the profitability, whereas two macro-economic variables, i.e. Inflation and GDP (gross domestic product), and three industry-specific constructs, i.e. Size, Leverage and Liquidity as independent constructs. According to panel regression results, the profitability of both banking sectors during both tenures was unaffected by macroeconomic factors. In the case of financial or variables that are specific to an industry, both types of banking sectors had a negative impact on profitability under pre-economic crisis tenure. However, the profitability of traditional banks is considerably enhanced by liquidity. The scale of both banking sectors greatly boosts profitability while the financial crisis is ongoing. Conventional banks’ leverage had a significant negative and liquidity had a significant positive impact on profitability during the financial crunch. In the years following the crisis, once again Islamic banks increased in profitability despite being inefficient, providing them with a tax shelter, with an increase in leverage significantly. On the other hand, conventional banks had the inverse impact of leverage on their profitability but they managed their liquidity much better than the previous two tenures and generated more profit. The outcomes will be useful for the banking institutions to develop their strategies consequently.

The objectives of the study were to (1) analyze the effectiveness of tax audits by detecting earnings management and tax sheltering and those carried out by audited taxpayers, (2) to examine the effect of Book Tax Difference on earnings management, and (3) to examine the impact of earnings management on tax sheltering. This research uses a quantitative approach with philosophical considerations of positivism, belongs to applied research, and includes descriptive research. The research design used is correlational research, namely testing and estimating the relationship of many variables either partially or simultaneously by using the multiple regression method of panel data. This study uses panel data regression analysis with (1) Common Effects using an ordinary least square (OLS) approach, (2) Fixed Effects using a dummy variable technique, (3) Random Effect Model (REM) or Generalized Least Square techniques. The research data was obtained from the Financial Statements of Manufacturing Companies listed on the IDX (2017-2020). The results of this study indicate that Earning Management is influenced by Book Tax Difference, Tax Sheltering is influenced by Earning Management, and the effectiveness of tax audits can be achieved by detecting earnings management and tax sheltering and by audited taxpayers. The novelty of this research is that the understanding of earning management and tax sheltering practices by taxpayers can be supported by providing access for tax examiners to audited financial statements and financial audit information.