Proposal for a Tax Rate Swap to Shield Against the Gap Between Statutory and Effective Tax Rates—A Boost for Entrepreneurship and a Motive for New Investments

SYNOPSIS U.S. corporations have the ability to avoid paying domestic taxes to achieve an effective tax rate that is much lower than the statutory federal tax rate. This study evaluates the extent that individuals differ in their attitudes about the ethicality of corporations avoiding domestic taxes to achieve low effective tax rates. We also examine the extent to which the specific tax avoidance method used by corporations to access a low effective tax rate affects perceived ethicality. Eighty-two members of the general public and 112 accountants participated in an experiment with two participant groups and three tax avoidance methods manipulated randomly between subjects. The results indicate a significant interaction between participant group and tax avoidance method, with the general public considering shifting profits out of the country to achieve a low effective tax rate to be highly unethical, while the accountants find tax avoidance from carrying forward prior operating losses to be highly ethical. Further, mediation analysis indicates that perceived fairness and legality mediate the effects of participant type on perceived ethicality. Mediation analysis also reveals that sense of fairness and legality mediate the link between tax avoidance method and perceived ethicality. We conclude by considering the study's policy, practice, and research implications.

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A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

Journal of the American Taxation Association ◽

10.2308/atax-50817 ◽

2014 ◽

Vol 36 (2) ◽

pp. 27-53 ◽

Cited By ~ 18

Author(s):

Kenneth J. Klassen ◽

Stacie K. Laplante ◽

Carla Carnaghan

Keyword(s):

Tax Planning ◽

Investment Model ◽

Income Shifting ◽

Tax Rates ◽

Foreign Investments ◽

Effective Tax Rates ◽

Tax Rate ◽

Foreign Earnings ◽

Joint Consideration ◽

The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

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Taxation in a mixed economy: the case of China

Studies in Economics and Finance ◽

10.1108/sef-08-2015-0183 ◽

2017 ◽

Vol 34 (1) ◽

pp. 49-61 ◽

Cited By ~ 2

Author(s):

Davidson Sinclair ◽

Larry Li

Keyword(s):

Income Tax ◽

Central Government ◽

Corporate Income Tax ◽

Tax Rates ◽

Government Ownership ◽

Effective Tax Rate ◽

Effective Tax Rates ◽

Content Type ◽

Tax Rate ◽

For Profit

Purpose The purpose of this paper is to investigate how Chinese firms’ ownership structure is related to their effective tax rate. The People’s Republic of China provides an interesting environment to examine the corporate income tax. Government has significant ownership stakes in the for-profit economy and state-owned enterprises (SOEs) are liable to the corporate income tax. This is very different to most other economies where SOE tends to dominate the not-for-profit economy and pays no corporate income tax. Government ownership also varies between the central government and local government in addition to state asset management bureaus. This provides a rich institutional background to examining the corporate income tax. Design/methodology/approach A panel data analysis approach is used to examine relationship between ownership structure and effective tax rates of all public firms in China from 1999 to 2009. Findings The authors report that effective tax rates do appear to vary across the ownership types, but that SOEs pay a statistically higher effective tax rate than to non-state-owned. In addition, local government owned SOE pay higher effective tax rates than central government and SAMB owned SOE. The authors also investigate Zimmerman’s (1983) political cost hypothesis. Unfortunately, these results are econometrically fragile with the statistical significance of those results varying by empirical technique. Originality/value This paper provides insight into government ownership and taxation in China.

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Strategic Choice of Presentation Format: The Case of ETR Reconciliations

The Accounting Review ◽

10.2308/tar-2019-0333 ◽

2021 ◽

Author(s):

Roman Chychyla ◽

Diana Falsetta ◽

Sundaresh Ramnath

Keyword(s):

Income Tax ◽

Strategic Choice ◽

Presentation Format ◽

Tax Rates ◽

Effective Tax Rate ◽

Effective Tax Rates ◽

Tax Rate ◽

Explicit Mention ◽

Disclosure Strategy ◽

Minimize Costs

To minimize costs related to unfavorable perceptions of their tax-related activities, firms with low effective tax rates (ETR) could avoid, where possible, explicit mentions of their effective tax rates. Using this reputational cost perspective we study an item of required disclosure in the income tax footnote of the 10-K, the ETR reconciliation table, where firms can choose a presentation format that reveals the tax rate (the percentage format) or one that avoids explicit mention of the effective tax rate (the dollar format). We find that firms with low ETRs are 24 percent more likely to use the dollar format, and are also less likely to mention their tax rates elsewhere in their disclosures, consistent with the choice of dollar format reflecting a firm's overall tax disclosure strategy. Analysts' tax expense forecasts are less accurate for dollar format firms, suggesting higher processing costs associated with tax-related disclosures for these firms.

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Visualization of tax avoidance and tax rate convergence

Meditari Accountancy Research ◽

10.1108/medar-02-2018-0298 ◽

2019 ◽

Vol 27 (5) ◽

pp. 695-724 ◽

Cited By ~ 1

Author(s):

Chika Saka ◽

Tomoki Oshika ◽

Masayuki Jimichi

Keyword(s):

Tax Avoidance ◽

Tax Rates ◽

Cross Sectional ◽

Effective Tax Rates ◽

Accounting Data ◽

Content Type ◽

Tax Rate ◽

Objective Evidence ◽

New Perspective ◽

Convergence Trend

Purpose This study aims to explore the evidence of the probability of firms’ tax avoidance and the downward convergence trend of national statutory tax rates and firms’ effective tax rates. Design/methodology/approach This research employs exploratory data analysis using interactive data manipulation and visualization tools, namely, R with SparkR, dplyr, ggplot2 and googleVis (GeoChart and Motion Chart) packages. This analysis is based on the world-scale accounting data of all listed firms from 148 countries spanning 30 years. Findings The results reveal the following: three types of evidences on probability of firms’ tax avoidance, showing a non-random distribution of firms’ effective tax rates and return on assets, cross-sectional variation of firms’ effective tax rates in each country, and the trend of difference between effective tax rates and statutory tax rates, and the downward convergence trend of statutory tax rates and firms’ effective tax rates. Practical implications The results highlight the prominent issues of world-scale tax avoidance and tax rate competition and facilitate a collaborative discussion between laymen and professionals using objective evidence. Originality/value A novel methodology is adopted through the visualization of world-scale accounting data, which can facilitate a new perspective, revealing unexpected patterns and trends in otherwise hidden information. This study also highlights the importance of global consideration of firms’ tax avoidance and tax rate competition, using objective evidence.

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An Investigation of the Firm Size—Effective Tax Rate Relation in the 1980s

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x9300800206 ◽

1993 ◽

Vol 8 (2) ◽

pp. 167-182 ◽

Cited By ~ 70

Author(s):

Thomas C. Omer ◽

Karen H. Molloy ◽

David A. Ziebart

Keyword(s):

Firm Size ◽

Tax Burden ◽

Tax Rates ◽

Corporate Tax ◽

Effective Tax Rate ◽

Effective Tax Rates ◽

Policy Makers ◽

Tax Rate ◽

Sample Composition ◽

Rate Relation

Given the recent emphasis on effective tax rates by policy makers and accounting researchers, this study investigates the relation between firm size and corporate tax burdens on a yearly and an industry basis. The analysis is conducted using five effective tax measures employed in previous studies in order to determine the degree to which inferences between size and tax burden are robust across these different effective tax measures. The results indicate that the relation is fairly robust across measures and, in instances in which the relation is not upheld by our analysis, sample composition explains differences in the observed relation between firm size and corporate tax burden.

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