The Use of Compensation for Tax Avoidance by Owners of Small Corporations

2005 ◽  
Vol 27 (1) ◽  
pp. 73-90
Author(s):  
Gregory G. Geisler ◽  
Sally Wallace
Keyword(s):  
Empirical Evidence ◽  
Tax Avoidance ◽  
Professional Services ◽  
Corporate Tax ◽  
Taxable Income ◽  
Marginal Change ◽  
Tax Returns ◽  
Using Data

This study provides empirical evidence on the extent to which taxes influence owners' compensation in small (fewer than 500 employees) Subchapter Selecting corporations (S corporations), taxable corporations that provide professional services (PSC corporations), and other taxable corporations (C corporations). Paying additional compensation to owner-employees likely increases the total after-tax income for PSC corporations with positive taxable income. Paying additional compensation to owner-employees is, however, less likely to increase the total after-tax income for C corporations and does not increase the total after-tax income for S corporations. Using data from the corporate tax returns of 503 small corporations, this study examines the marginal change in owners' compensation as taxable income changes. The study finds that, per dollar of taxable income, PSC corporations increase compensation to owneremployees significantly more than C corporations.

scholarly journals Covid-19 and corporate tax avoidance: Measuring long-run tax burdens as an alternative bailout test

2021 ◽  
Vol 4 (3) ◽  
pp. 216-244
Author(s):  
Subagio Efendi
Keyword(s):  
Financial Aid ◽  
Income Tax ◽  
Tax Avoidance ◽  
Tax Compliance ◽  
Total Sample ◽  
Ordinary Least Squares ◽  
Corporate Tax ◽  
Long Run ◽  
Tax Returns ◽  
Avoidance Measures

This study fills the gap in the tax authority’s Covid-19 financial aid verifications by examining, and nominating, Long-run ETR (Dyreng et al., 2008) as the better corporate tax avoidance measure in excluding tax evader firms from the broad stimulus programs. Analysing confidential tax returns of 4,752 largest firms (32,120 firm-years) in Indonesia over 2009 to 2017 periods, this study found 18.12 percent of total sample firms is able to retain its Long-run ETR below 10 percent, which indicates continual tax avoidance activities by these firms during observation periods. Moreover, applying univariate and multivariate Ordinary Least Squares and Panel Data estimations, this study reveals, relative to other tax avoidance measures, Lagged Cash ETR (Lisowsky, 2010; Lisowsky et al., 2013) present the most consistent reliability in predicting long-run income tax burdens. Thus, this study asserts, in the conditions of computing Long-run ETR is costly and impractical (i.e. because of data unavailability), tax authority and policymakers can directly analyse firms’ Lagged Cash ETR to gauge their long-run income tax burdens and tax compliance behaviours prior the economic downturn. 

International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

2020 ◽  
Vol 102 (4) ◽  
pp. 766-778 ◽  
Author(s):  
Li Liu ◽  
Tim Schmidt-Eisenlohr ◽  
Dongxian Guo
Keyword(s):  
United Kingdom ◽  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
The United Kingdom ◽  
Tax Returns ◽  
Medium Level ◽  
Transfer Prices

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It shows that the 2009 tax reform in the United Kingdom, which changed the taxation of corporate profits from a worldwide to a territorial system, led to a substantial increase in transfer mispricing. It also provides evidence for a trade creation effect of transfer mispricing and estimates substantial transfer mispricing in non-tax-haven countries with low- to medium-level corporate tax rates, and in R&D intensive firms.

scholarly journals Corporate Tax Avoidance of Malaysian Public Listed Companies: A Multi-Measure Analysis

2021 ◽  
Vol 12 (1) ◽  
pp. 4-4
Author(s):  
Nirmala Devi Mohanadas ◽  
Abdullah Sallehhuddin Abdullah Salim ◽  
Suganthi Ramasamy
Keyword(s):  
Empirical Studies ◽  
Tax Avoidance ◽  
Listed Companies ◽  
Developed Countries ◽  
The United States ◽  
Corporate Tax ◽  
Single Measure ◽  
Corporate Strategies ◽  
Tax Returns ◽  
Avoidance Level

While the topic of corporate tax avoidance has been experiencing ceaseless attention among researchers, its empirical aspect is still facing the challenge of constructing a single universally accepted measure of such practice. Due to the confidential nature of tax returns, most empirical studies have had to rely on financial statements information to developed proxy measures such as effective tax rates (ETRs) and book-tax differences (BTDs) (Hanlon & Heitzman, 2010). Nevertheless, these proxies possess their individual advantages as well as limitations. Such available choices may therefore cause confusions to the researchers in choosing the most suitable measure for their corporate tax avoidance studies. As the mainstream studies on corporate tax avoidance have focused mostly on developed economies like the United States, United Kingdom, and Australia, there is a scarcity of such studies in developing countries (Salihu et al., 2015). The unique jurisdictional nature of tax laws and enforcement systems hinder the extant findings' applicability on less economically-developed countries, especially those highly dependent on their corporate income tax revenue which is especial true with regard to Malaysia (Mohanadas et al., 2020). Though not as abundant in numbers, extant published studies had found that Malaysian public listed companies were indeed being consistently tax-avoidant since the 1990s. Nevertheless, these studies had respectively employed only a single measure of corporate tax avoidance. Indeed, nearly all had used variations of ETR while only a few had applied BTD measures. Their mutually exclusive application of ETR and BTD measures could negatively impact their findings' ability to capture tax-deferring corporate strategies (Hanlon & Heitzman, 2010; Lennox et al., 2013). It thus worsened the risk of potential distortion in the results of tax avoidance level which would led to flawed conclusions being made. In view of the above, this study seeks to measure corporate tax avoidance level of Malaysian public listed companies for the years 2015 until 2019 using both ETR and BTD measures. Furthermore, this study aims to analyse how closely these two measure are related in their respective appraisals of the companies' tax avoidance level. Keywords: Corporate Tax Avoidance; GAAP ETR; Cash ETR; Total BTD; Permanent BTD.

The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records

2014 ◽  
Vol 6 (2) ◽  
pp. 19-53 ◽  
Author(s):  
Michael P. Devereux ◽  
Li Liu ◽  
Simon Loretz
Keyword(s):  
Tax Revenue ◽  
Tax Rates ◽  
Corporate Tax ◽  
Marginal Rate ◽  
Tax Rate ◽  
Taxable Income ◽  
Corporation Tax ◽  
Tax Returns ◽  
The Difference ◽  
New Evidence

We estimate the elasticity of corporate taxable income with respect to the statutory corporation tax rate using the population of UK corporation tax returns. We analyze bunching in the distribution of taxable income at kinks in the marginal rate schedule. We decompose this elasticity into an elasticity of total income with respect to the corporation tax rate, and an elasticity of the share of income taken as profit with respect to the difference between the personal and corporate tax rates. This implies a marginal deadweight cost at the £10,000 kink of around 29 percent of tax revenue. (JEL G32, H24, H25, L25)

Returnee Directors and Corporate Tax Avoidance

2021 ◽  
pp. 0148558X2110173
Author(s):  
Jia Chen ◽  
Dongjie Chen ◽  
Li Liu ◽  
Zhong Wang
Keyword(s):  
Instrumental Variable ◽  
Tax Avoidance ◽  
Independent Directors ◽  
Positive Relation ◽  
Corporate Tax ◽  
Listed Firms ◽  
Board Directors ◽  
Low Levels ◽  
Using Data ◽  
Work Abroad

This study evaluates the effect of returnee directors on corporate tax avoidance by using data on publicly listed Chinese companies from 2000 to 2012. Returnee directors grow up in China and then study or work abroad before returning home to be listed firms’ board directors. We use the introduction of provincial policies toward attracting skilled individuals with foreign experience as an instrumental variable for Returnee directors, which is the fraction of returnee directors divided by the total number of directors within a firm. Using quantile regression, we find a positive relation between Returnee directors and corporate tax avoidance for low levels of tax avoidance but a negative relation for high levels of tax avoidance. The result is robust to a battery of tests. The relation between returnee directors and tax avoidance is stronger for state-owned enterprises (SOEs) than non-SOEs and stronger for returnees who hold MBA degrees, possess a background in accounting or auditing, or are independent directors than other returnees.

scholarly journals Combating corporate tax avoidance by requiring large companies to file their tax returns

2018 ◽  
Vol 2 (1) ◽  
pp. 9-20 ◽  
Author(s):  
Prem Sikka
Keyword(s):  
Public Policy ◽  
Design Methodology ◽  
Tax Avoidance ◽  
Public Accountability ◽  
Corporate Tax ◽  
Content Type ◽  
Policy Proposal ◽  
Large Company ◽  
Fair Competition ◽  
Tax Returns

Purpose The purpose of this paper is to develop arguments for a public policy of requiring all large companies to make their tax returns publicly available. It is argued that such a policy would help to check tax avoidance, strengthen public accountability and secure fair competition. Design/methodology/approach The policy proposal rests on notions of transparency and public accountability. Findings The paper argues that the proposed policy is feasible. Research limitations/implications The paper hopes to stimulate debates about the value of public filing of corporate returns and limits of public accountability. Social implications The paper extends the range of public policies which might be able to check organised tax avoidance. Originality/value It is one of the few papers to call for public filings of large company tax returns.

Performance Aspirations and Corporate Tax Avoidance

2021 ◽  
Vol 8 (2) ◽  
pp. 40-58
Author(s):  
Timbate Lukas
Keyword(s):  
Theory Of The Firm ◽  
Tax Avoidance ◽  
Aspiration Level ◽  
Corporate Tax ◽  
Subsequent Period ◽  
Aspiration Levels ◽  
Significant Difference ◽  
Using Data ◽  
Performance Discrepancy ◽  
Avoidance Level

The current study examines whether performance discrepancy from the aspiration level affects corporate tax avoidance. Prior studies show that performance discrepancies from the aspiration level significantly affect firms' behavior; thus, it is important to examine whether such discrepancies affect corporate tax avoidance. Based on the behavioral theory of the firm (BTOF), this study posits that firms performing below the aspiration levels avoid more taxes in the subsequent period than other firms. Empirical findings using data from a sample of U.S. firms for the period covering 1993-2016 support the hypothesis. The findings also show that, while there is a difference among firms meeting or beating the aspiration level, there is no statistically significant difference in tax avoidance level among firms performing short of their aspiration level. The study contributes to the existing literature by providing additional evidence extending the scope of literature in BTOF and tax avoidance areas.

Can Paying “Too Much” or “Too Little” Tax Contribute to Forced CEO Turnover?

2017 ◽  
Vol 93 (1) ◽  
pp. 103-130 ◽  
Author(s):  
James A. Chyz ◽  
Fabio B. Gaertner
Keyword(s):  
Empirical Evidence ◽  
Tax Avoidance ◽  
Ceo Turnover ◽  
Corporate Tax ◽  
Tax Rate ◽  
Forced Turnover ◽  
Reputational Costs ◽  
Jel Classifications ◽  
Reputational Concerns

ABSTRACT Our study examines the effect of corporate tax outcomes on forced CEO turnover. While prior research argues that firms often do not engage in tax avoidance due to reputational concerns, the empirical evidence suggesting the existence of reputational costs is scarce. In a broad sample of firms, we find evidence of a relation between the payment of low taxes and forced turnover. We also find that forced CEO turnover is more likely when the firm pays a high tax rate relative to its peers. Our results are consistent with the existence of previously unexplored individual reputational costs for not engaging in tax avoidance. JEL Classifications: M40; H25.

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