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.

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.

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

scholarly journals The neutrality of taxation of investment projects in Serbia

2021 ◽  
Vol 66 (230) ◽  
pp. 101-133
Author(s):  
Stevan Lukovic ◽  
Stefan Vrzina ◽  
Milka Grbic ◽  
Milos Pjanic
Keyword(s):  
The Other ◽  
Tax Burden ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Research Results ◽  
Tax Neutrality ◽  
Investment Projects ◽  
Marginal Tax Rates ◽  
Different Types ◽  
Marginal Effective Tax Rates

The paper analyses the neutrality of taxation of investment projects on the example of Serbia. The aim of the research is to confirm/reject the existence of uniformity of the tax burden on investment projects that differ regarding the asset type, industry and the source of finance. The uniformity of tax burden, that is, the absence of discrimination and distortive effects of taxation, may be considered a confirmation of the tax neutrality. To investigate neutrality of taxation the analysis employed King-Fullerton framework of calculating effective marginal tax rates. The research results show that the tax treatment of investment projects in Serbia is nondiscriminatory. Marginal effective tax rates for different types of investment projects do not vary widely; that is, there are no investment projects that have a markedly favourable (unfavourable) tax treatment compared to the other types of investment projects.

scholarly journals The Interplay Between Tax Havens, Geographic Disclosures and Corporate Tax Avoidance: Evidence from European Union

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Sameh Kobbi-Fakhfakh
Keyword(s):  
Tax Avoidance ◽  
Positive Association ◽  
Tax Rates ◽  
Corporate Tax ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Havens ◽  
Tax Rate ◽  
Reporting Practices ◽  
Tax Haven

Abstract This study examines the interplay between tax haven use, geographic disclosures and corporate tax avoidance. Based on a panel of 497 non-financial EU listed firms during the period 2006–2012, we provide evidence that corporate groups with affiliates in tax havens tend to have lower effective tax rates and lower geographic disclosures fineness scores. We, also, find a positive association between geographic disclosures fineness scores and the firms’ effective tax rates. We, further, find that the negative association between tax haven use and the effective tax rate is more pronounced for firms disclosing geographic information at a more aggregated level, showing a moderating effect of geographic disclosures fineness on such association. Our findings are based upon hand-collected data on corporate geographical dispersion, and corroborated by several additional and robustness tests. The research results should be of concern to policymakers and others interested in multinational companies’ segment reporting practices and tax planning activities.

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.

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

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
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.

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
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