The Determinants and Consequences of Tax Audits: Some Evidence from China

2018 ◽  
Vol 41 (1) ◽  
pp. 91-122 ◽  
Author(s):  
Wanfu Li ◽  
Jeffrey A. Pittman ◽  
Zi-Tian Wang
Keyword(s):  
Financial Reporting ◽  
Discretionary Accruals ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Difference In Differences ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Using Data ◽  
Tax Reporting ◽  
The Impact

ABSTRACT Using data obtained from a local tax office in China, we examine the determinants of corporate tax audits and the consequences of those audits. We find that the tax authority is more likely to select a firm for an audit when the firm has a lower effective tax rate, a higher book-tax difference, and more income-decreasing discretionary accruals. Applying a difference-in-differences research design, we find that after firms have been audited, they significantly increase their effective tax rates, reduce their book-tax differences, and reduce their income-decreasing discretionary accruals. Our study provides important insights on the determinants of the tax authority's decision on whether to initiate an audit and the impact of tax audits on both tax reporting and financial reporting. JEL Classifications: H26; L51; M41.

A Study of Perceived Ethicality of Low Corporate Effective Tax Rates

2017 ◽  
Vol 32 (1) ◽  
pp. 87-104 ◽  
Author(s):  
F. Todd DeZoort ◽  
Troy J. Pollard ◽  
Edward J. Schnee
Keyword(s):  
Mediation Analysis ◽  
General Public ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Perceived Fairness ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Policy Practice ◽  
Participant Group

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.

Taxation in a mixed economy: the case of China

2017 ◽  
Vol 34 (1) ◽  
pp. 49-61 ◽  
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.

Strategic Choice of Presentation Format: The Case of ETR Reconciliations

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.

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

1993 ◽  
Vol 8 (2) ◽  
pp. 167-182 ◽  
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.

scholarly journals Agressividade fiscal e evidenciação tributária: Um estudo das companhias brasileiras de capital aberto

2021 ◽  
Vol 19 ◽  
pp. 197-216
Author(s):  
Gabriela Silva de Castro Moraes ◽  
Eduardo Mendes Nascimento ◽  
Sandro Vieira Soares ◽  
Bernardo Fernandes Lott Prímola
Keyword(s):  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate

O objetivo deste estudo consiste em analisar o efeito da agressividade fiscal sobre a transparência corporativa nas companhias brasileiras de capital aberto. A pesquisa partiu de uma amostra de 256 empresas não financeiras, listadas na B3 do período de 2010 a 2018. Foi desenvolvido um índice de disclosure a partir do CPC 32 para, então, proceder a um painel com as medidas de agressividade fiscal (Effective Tax Rates – ETR, Cash Effective Tax Rate – CashETR e Book-Tax-Differences – BTD) como variáveis explicativas. Os achados revelaram que agressividade fiscal influencia negativamente a transparência corporativa; e que os setores de indústria e comércio, o tamanho da companhia, o nível de alavancagem e a rentabilidade influenciam positivamente a divulgação informacional.

scholarly journals Earnings Management, Effective Tax Rate (ETR) and Book-Tax Gap (BTG)

2018 ◽  
Vol 3 (1) ◽  
pp. 33-43
Author(s):  
Jasrial Jasrial ◽  
Susy Puspitasari ◽  
Ali Muktiyanto
Keyword(s):  
Earnings Management ◽  
Behavior Management ◽  
Banking Sector ◽  
Capital Intensity ◽  
Jel Classification ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Tax Gap

Objective - This research examines the effect of company size, changes in out-cash flow, return on assets, conservatism, and profit levelling on earnings management. Methodology/Technique - The results of this research show that banking capital structure, capital intensity, intensity of inventory, and intensity of R & D have a significant impact on effective tax rates. Further, the results also show that, with respect to the non-banking sector, R & D expenditure contributes significantly to effective tax rates. Simultaneously, earnings management and effective tax rates, as well as other factors, also have an effect on book tax gap. Findings - This study shows that profit management has a significantly positive effect on book tax gap, and effective tax rates has a significant negative effects o book tax gap. In terms of the non-banking sector, earnings management and effective tax rate have no effect on book tax gap. Deferred tax expenses have a lower capability to detect earnings management than accrual, in both the banking and non-banking sector. Novelty - The study of management capabilities optimizes the role of book tax gap and effective tax rate for earning management. Both tax management and earnings management are closely related to behavior management in managing a company based on the agency theory. Furthermore, the study identifies a relationship between earnings management and book tax gap. Type of Paper: Empirical Keywords: Book Tax Gap; Effective Tax Rate; Earnings Management; Accrual Total; Indonesia. JEL Classification: H26, H29.

scholarly journals Will Problems Arise When Banks are Exempted from Thin Capitalization Regulation?

2018 ◽  
Vol 14 (3) ◽  
pp. 157-167
Author(s):  
Arfah Habib Saragih
Keyword(s):  
Fixed Effects ◽  
Quantitative Method ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Negative Effect ◽  
Thin Capitalization ◽  
Unbalanced Panel Data

This research was intended to provide empirical evidences that the exemption of banks from Minister of Finance Decree Number 169/PMK.010/2015 did not raise any significant problem on banks tax avoidance which was measured by effective tax rates. Quantitative method was used in this study by conducting regression-fixed effects method on unbalanced panel data. This study found that thin capitalization in banks did not impact effective tax rates significantly. Present research also found that the banks size and profitability were other determinants of the level of tax avoidance in the banks sample. Bank size and profitability had a significant and negative effect on effective tax rate.

No woman, no aggressive tax planning? A study on CEO gender and effective tax rates in the Lithuanian retail sector

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aras Zirgulis ◽  
Maik Huettinger ◽  
Dalius Misiunas
Keyword(s):  
Retail Sector ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Content Type ◽  
Tax Rate ◽  
Tax Aggressiveness ◽  
Female Ceos ◽  
Opposite Sex ◽  
Ceo Gender

PurposeThe purpose of this paper is to investigate whether switching to a CEO of the opposite sex affects the tax aggressiveness of firms.Design/methodology/approachRegression analysis using a difference in difference approach and propensity score matching on a dataset of 8,798 firms from 2007 to 2017.FindingsThe authors find evidence that switching to a female CEO reduces the effective tax rate paid, implying a higher level of tax aggressiveness.Social implicationsThe findings contradict the narrative that female CEOs are less tax aggressive.Originality/valueThe authors are the first (to the best of the authors' knowledge) to specifically investigate if changing the CEO gender has an impact on the effective tax rate paid by the firm.

Bias in Quarterly Estimates of Annual Effective Tax Rates and Earnings Management

2012 ◽  
Vol 34 (1) ◽  
pp. 31-53 ◽  
Author(s):  
Joseph Comprix ◽  
Lillian F. Mills ◽  
Andrew P. Schmidt
Keyword(s):  
Earnings Management ◽  
Earnings Forecast ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Sarbanes Oxley ◽  
Jel Classifications

ABSTRACT We investigate whether quarterly annual effective tax rate (ETR) estimates are systematically biased in comparison to year-end actual ETRs. We find that estimated annual ETRs in the first, second, and third quarters are systematically higher than year-end ETRs. We then investigate whether firms' overstatement of quarterly ETRs creates slack that is used for earnings management. We find that quarterly ETR increases are more likely to be reversed in subsequent quarters when firms would have missed their analysts' earnings forecast absent the reversal. Finally, we show that in the years subsequent to the passage of the Sarbanes-Oxley Act (SOX), changes in the ETR continue to be associated with earnings management. These results, documenting patterns of annual ETR estimates and revisions, contribute to research about how earnings management is accomplished. JEL Classifications: H25; M41.

scholarly journals THE COST OF DIRECT TAXATION ON INVESTMENT IN BRAZIL

2017 ◽  
Vol 21 (1) ◽  
Author(s):  
Nelson Leitão Paes
Keyword(s):  
Tax Rates ◽  
Marginal Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Direct Taxation ◽  
Economic Profit ◽  
The Rich ◽  
The Cost ◽  
Rich Countries ◽  
The Impact

ABSTRACT This paper analyzed the impact of taxation on the investment in Brazil, focusing on the taxation of corporate income. Following the literature, it was used an economic model to calculate two indicators of effective tax rates - Effective Marginal Tax Rate (EMTR) and Effective Average Tax Rate (EATR). The EMTR measures the increase of the cost of capital due to corporate income tax. The EATR represents a measure of the average tax rate levied on an investment that has a pre-defined economic profit. The results suggest Brazil may face some difficulties to attract foreign investment. The country presents high rates for EATR and EMTR, higher than the average of the rich countries and well above the figures of development countries like Chile, Mexico, South Africa, Russia and China, potential competitors in attracting investments.

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