Entity Structure and Taxes: An Analysis of Embedded Pass-Through Entities

2021 ◽  
Author(s):  
Ashish Agarwal ◽  
Shannon Chen ◽  
Lillian F. Mills
Keyword(s):  
Tax Avoidance ◽  
Financial Statements ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Large Sample ◽  
Tax Effects ◽  
Pass Through ◽  
Tax Reserves ◽  
Return Data ◽  
Tax Noncompliance

We examine the effect of pass-through entities embedded in corporate structures on tax avoidance, tax uncertainty, and tax noncompliance using unique, confidential tax return data that link corporations and pass-through entities together through Schedules K-1. We develop measures of the use of pass-through entities such as the number and "connectedness" of pass-throughs within the structure, the presence of loss pass-throughs or asymmetric allocations of such losses, and connections to entities external to the firm. We predict and find that these features are associated with lower effective tax rates, higher current year additions to tax reserves, and larger amounts of proposed IRS audit adjustments, controlling for probability of audit selection. This large-sample evidence could help the IRS understand how pass-throughs affect compliance and financial statements users anticipate the tax effects related to entity structure

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.

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

2017 ◽  
Vol 39 (1) ◽  
pp. 67-93 ◽  
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.

EFFECTIVE TAX RATES FROM FINANCIAL STATEMENTS

1986 ◽  
Vol 39 (3) ◽  
pp. 293-306
Author(s):  
GILLIAN M. SPOONER
Keyword(s):  
Financial Statements ◽  
Tax Rates ◽  
Effective Tax Rates

Taxes and Haven Activities: Evidence from Linguistic Cues

2021 ◽  
Author(s):  
Kelvin K. F. Law ◽  
Lillian Mills
Keyword(s):  
Tax Rates ◽  
Economic Activities ◽  
Effective Tax Rates ◽  
Tax Effects ◽  
Tax Haven ◽  
Linguistic Cues ◽  
Different Types ◽  
Information Set ◽  
Mere Existence ◽  
Offshore Activities

Users of Exhibit 21 cannot tell whether a tax haven subsidiary is actively operating or a dormant shell company.  In this paper, we develop a new set of parsimonious measures to highlight the distinct mechanisms and tax effects of offshore sales to, as opposed to purchases from, tax haven countries, offering insights on the effects of certain types of offshoring activities on firms’ tax burdens.  Our main measure has about three times the effect of the mere existence of a haven subsidiary in explaining firms’ effective tax rates.  We detail the processes to predict the offshore activities in tax haven countries for firms without an Exhibit 21 and firms reporting no subsidiary operations in a tax haven country.  Relative to the mere mention of a tax haven subsidiary in Exhibit 21, our new measures provide a richer information set to capture different types of economic activities in tax haven countries.

Top Management Team Intrapersonal Functional Diversity and Tax Avoidance

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.

Visualization of tax avoidance and tax rate convergence

2019 ◽  
Vol 27 (5) ◽  
pp. 695-724 ◽  
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.

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

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.

Do IRS Audits Deter Corporate Tax Avoidance?

2012 ◽  
Vol 87 (5) ◽  
pp. 1603-1639 ◽  
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.

scholarly journals Profitabilitas, Leverage, dan Komite Audit Pada Tax Avoidance

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).

scholarly journals When Does Tax Avoidance Result in Tax Uncertainty?

2018 ◽  
Vol 94 (2) ◽  
pp. 179-203 ◽  
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.

Sign in / Sign up

Export Citation Format

Share Document