An Evaluation of Alternative Measures of Tax Avoidance Using Effective Tax Rates

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.

Download Full-text

An Examination of Reputational Costs and Tax Avoidance: Evidence from Firms with Valuable Consumer Brands

Journal of the American Taxation Association ◽

10.2308/atax-51634 ◽

2017 ◽

Vol 39 (1) ◽

pp. 67-93 ◽

Cited By ~ 52

Author(s):

Chelsea Rae Austin ◽

Ryan J. Wilson

Keyword(s):

Tax Avoidance ◽

Tax Rates ◽

Effective Tax Rates ◽

Reputational Costs

ABSTRACT We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms' reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive's EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find a positive and significant association between our measure of reputation and both the GAAP and cash effective tax rates (measured over one and three years). We find mixed evidence on whether there is a negative and significant association between reputation and the probability the firm is engaging in tax sheltering.

Download Full-text

Top Management Team Intrapersonal Functional Diversity and Tax Avoidance

Journal of Management Accounting Research ◽

10.2308/jmar-19-058 ◽

2020 ◽

Author(s):

James M. Plecnik ◽

Shan Wang

Keyword(s):

High Risk ◽

Functional Diversity ◽

Work Experience ◽

Top Management Team ◽

Tax Avoidance ◽

Management Team ◽

Top Management ◽

Tax Rates ◽

Effective Tax Rates ◽

Prior Literature

Top management team (TMT) members have been shown to influence tax avoidance; however, prior literature has not identified whether the intrapersonal diversity of TMT functional backgrounds leads to higher levels of tax avoidance. To study this relationship, we utilize TMT intrapersonal functional diversity, which captures the average heterogeneity of the TMT members' work experience. The skills associated with intrapersonal functional diversity may allow managers to better understand and communicate with various parties related to firm tax policies, thereby facilitating tax avoidance. Overall, we find that TMTs with higher levels of intrapersonal functional diversity achieve lower cash effective tax rates and that these TMTs do not rely on tax strategies that pose high risk.

Download Full-text

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.

Download Full-text

Challenges of Monitoring Tax Compliance by Multinational Firms: Evidence from Chile

AEA Papers and Proceedings ◽

10.1257/pandp.20191045 ◽

2019 ◽

Vol 109 ◽

pp. 500-505

Author(s):

Sebastián Bustos ◽

Dina Pomeranz ◽

José Vila-Belda ◽

Gabriel Zucman

Keyword(s):

Multinational Firms ◽

Transfer Pricing ◽

Tax Avoidance ◽

Tax Compliance ◽

Tax Rates ◽

Profit Shifting ◽

Effective Tax Rates ◽

Arm’S Length Principle ◽

Debt Shifting

This paper reviews common challenges of taxing multinational firms, using Chile as a case study. We briefly describe key international tax avoidance methods: profit shifting to low-tax jurisdictions through transfer pricing and debt shifting. We discuss the prevalent policy to tax multinationals--the arm's length principle--and alternative proposals using apportionment formulas. Novel data from Chile show that multinationals make up a large share of GDP but report lower profit and effective tax rates than local firms. In 2011, Chile implemented a reform following OECD guidelines to enforce the arm's length principle. We discuss potential effects on tax collection and welfare.

Download Full-text

Do IRS Audits Deter Corporate Tax Avoidance?

The Accounting Review ◽

10.2308/accr-50187 ◽

2012 ◽

Vol 87 (5) ◽

pp. 1603-1639 ◽

Cited By ~ 166

Author(s):

Jeffrey L. Hoopes ◽

Devan Mescall ◽

Jeffrey A. Pittman

Keyword(s):

Tax Avoidance ◽

Tax Rates ◽

Coefficient Estimates ◽

Corporate Tax ◽

Effective Tax Rates ◽

Tax Enforcement ◽

Public Firms ◽

Large Samples ◽

Percentage Points

ABSTRACT We extend research on the determinants of corporate tax avoidance to include the role of Internal Revenue Service (IRS) monitoring. Our evidence from large samples implies that U.S. public firms undertake less aggressive tax positions when tax enforcement is stricter. Reflecting its first-order economic impact on firms, our coefficient estimates imply that raising the probability of an IRS audit from 19 percent (the 25th percentile in our data) to 37 percent (the 75th percentile) increases their cash effective tax rates, on average, by nearly two percentage points, which amounts to a 7 percent increase in cash effective tax rates. These results are robust to controlling for firm size and time, which determine our primary proxy for IRS enforcement, in different ways; specifying several alternative dependent and test variables; and confronting potential endogeneity with instrumental variables and panel data estimations, among other techniques. JEL Classifications: M40; G34; G32; H25.

Download Full-text

Profitabilitas, Leverage, dan Komite Audit Pada Tax Avoidance

E-Jurnal Akuntansi ◽

10.24843/eja.2019.v26.i03.p13 ◽

2019 ◽

pp. 2020

Author(s):

Putu Novia Hapsari Ardianti

Keyword(s):

Tax Avoidance ◽

Tax Rates ◽

Effective Tax Rates ◽

Purposive Sampling ◽

Equity Ratio

Penghindaran pajak merupakan tindakan menurunkan laba kena pajak melalui perencanaanpajaknya baik dengan mengikuti aturan yang berlaku maupun tidak. Penelitian ini bertujanuntuk menguji pengaruh profitabilitas, leverage, dan komite audit, pada penghindaran pajak(tax avoidance) yang diukur menggunakan proksi effective tax rates (ETR) pada perusahaanmanufaktur yang terdaftar di Bursa Efek Indonesia selama periode pengamatan 2015-2017.Metode penentuan sampel penelitian ini menggunakan metode purposive sampling danmemperoleh 14 perusahaan manufaktur. Teknik analisis dalam penelitian ini menggunakanteknik analisis regresi berganda. Hasil Pengujian menunjukkan bahwa profitabilitas dankomite audit tidak berpengaruh terhadap tax avoidance. Sedangkan Leverage berpengaruhnegatif terhadap tax avoidance. Implikasi teoritis penelitian ini yaitu dapat menjadi sumberreferensi penelitian yang berkaitan dengan aktivitas tax avoidance serta dapat mendukungteori kepentingan, sedangkan implikasi praktis yaitu sebagai bahan pertimbangan bagiperusahaan-perusahaan dalam mengambil keputusan bisnis, terutama dalam aktivitasperpajakannya. Kata Kunci: Return On Asset (ROA), Debt To Equity Ratio (DER), Komite Audit, EffectiveTax Rate (ETR).

Download Full-text

When Does Tax Avoidance Result in Tax Uncertainty?

The Accounting Review ◽

10.2308/accr-52198 ◽

2018 ◽

Vol 94 (2) ◽

pp. 179-203 ◽

Cited By ~ 34

Author(s):

Scott D. Dyreng ◽

Michelle Hanlon ◽

Edward L. Maydew

Keyword(s):

Transfer Pricing ◽

Tax Avoidance ◽

Pricing Strategies ◽

Tax Rates ◽

Effective Tax Rates ◽

Time Period ◽

Tax Haven ◽

Tax Benefits ◽

Tax Uncertainty

ABSTRACT We investigate the relation between tax avoidance and tax uncertainty, where tax uncertainty is the amount of unrecognized tax benefits recorded over the same time period as the tax avoidance. On average, we find that tax avoiders, i.e., firms with relatively low cash effective tax rates, bear significantly greater tax uncertainty than firms that have higher cash effective tax rates. We find that the relation between tax avoidance and tax uncertainty is stronger for firms with frequent patent filings and tax haven subsidiaries, proxies for intangible-related transfer pricing strategies. The findings have implications for several puzzling results in the literature.

Download Full-text

Determinan Penghindaran Pajak dengan Komisaris Independen sebagai Moderasi pada Perusahaan Manufaktur Sektor Industri Barang Konsumsi

Jurnal Riset Akuntansi & Perpajakan (JRAP) ◽

10.35838/jrap.2021.008.02.21 ◽

2021 ◽

Vol 8 (02) ◽

pp. 112-126

Author(s):

Anna Mei Rani ◽

Mulyadi ◽

Dwi Prastowo Darminto

Keyword(s):

Regression Analysis ◽

Firm Size ◽

Annual Report ◽

Tax Avoidance ◽

Capital Intensity ◽

Tax Rates ◽

Sales Growth ◽

Manufacturing Companies ◽

Effective Tax Rates ◽

Purposive Sampling

ABSTRACT Tax avoidance is an effort to minimize the tax burden by exploiting the loophole of the tax law. This study aims to further examine the effect of profitability, leverage, firm size, capital intensity, sales growth, and independent commissioners as moderating variables which are estimated to have an effect on tax avoidance as the dependent variable which is proxied through Cash Effective Tax Rates (CETR). The source of data in this study is the annual report data of manufacturing companies in the consumer goods industry sector listed on the Indonesia Stock Exchange (IDX), namely www.idx.co.id as many as 37 companies for the period 2015 - 2019. The number of population obtained is 525 companies, then the sample of this research is obtained by purposive sampling technique which produces a sample of 148 for further research. The analysis technique used is Moderated Regression Analysis (MRA). The results of this study indicate that leverage, firm size, and profitability as well as leverage moderated by independent commissioners have an effect on tax avoidance. Meanwhile, profitability, capital intensity, and sales growth have no effect on tax avoidance. ABSTRAK Tax avoidance merupakan upaya meminimalkan beban pajak dengan memanfaatkan kelemahan (loophole) undang- undang perpajakan. Penelitian ini bertujuan untuk menguji lebih lanjut pengaruh profitabilitas, leverage, ukuran perusahaan, capital intensity, sales growth, dan komisaris independen sebagai variabel moderasi yang diperkirakan mampu memberikan pengaruh terhadap tax avoidance sebagai variabel terikat yang diproksikan melalui Cash Effective Tax Rates (CETR). Sumber data dalam penelitian ini adalah data laporan keuangan tahunan (annual report) perusahaan manufaktur sektor industri barang konsumsi yang terdaftar pada Bursa Efek Indonesia (BEI) yaitu www.idx.co.id sebanyak 37 perusahan periode tahun 2015 – 2019. Jumlah populasi diperoleh sebanyak 525 perusahaan, selanjutnya sampel penelitian ini didapat dengan teknik purposive sampling yang menghasilkan sampel yang berjumlah 148 untuk dilakukan penelitian lebih lanjut. Teknik analisis yang digunakan adalah Moderated Regression Analysis (MRA). Hasil penelitian ini menunjukkan bahwa leverage, ukuran perusahaan, dan profitabilitas serta leverage yang dimoderasi oleh komisaris independen berpengaruh terhadap tax avoidance. Sedangkan profitabilitas, capital intensity, dan sales growth tidak berpengaruh terhadap tax avoidance.

Download Full-text

PENGARUH THIN CAPITALIZATION TERHADAP PENGHINDARAN PAJAK PERUSAHAAN INDEX SAHAM SYARIAH INDONESIA

AKUNTABILITAS ◽

10.29259/ja.v13i1.9342 ◽

2019 ◽

Vol 13 (1) ◽

pp. 49-68

Author(s):

Ayu Andawiyah ◽

Ahmad Subeki ◽

Arista Hakiki

Keyword(s):

Key Management ◽

Manufacturing Sector ◽

Sample Selection ◽

Control Variable ◽

Tax Avoidance ◽

Tax Rates ◽

Management Compensation ◽

Effective Tax Rates ◽

Avoidance Control ◽

Thin Capitalization

The purpose of this study was to examine the effect of thin capitalization with to cash effective tax rates as the proxy for tax avoidance. Control Variable used in this research is key management compensation, firms size, and profitability.The method used in this research is an analytical descriptive. The sample used in this research consist of 20 companies from manufacturing sector listed in Indonesian Stock Shariah Index (ISSI) in 2011– 2016. Sample selection methods used in this research is purposive sampling. The analysis methods used in this research is multiple regression analysis.The results show that the thin capitalization has a significant influence on cash effective tax rates as the proxy for tax avoidance. Key management compensation as control variable has not been able to prove the effect on tax avoidance and firms size profitability have a significant effect on cash effective tax rates as the proxy for tax avoidance.

Download Full-text