Avoiding Tax Avoidance: A Rational Proposal to Close Existing Loopholes in the U.S. Corporate Tax System

ABSTRACT This instructional case explores the ethical issues surrounding the corporate tax-planning and tax-avoidance strategies of multinational organizations. Drawing on the real-world experiences of SABMiller, one of the world's largest beverage companies, this case provides a launching point for students to consider the ethics of corporate tax planning. The ethics of multinational tax practices, especially the use of tax havens, has recently become the focus of media and legislative debate in both the U.S. and the U.K., and many well-respected companies, such as General Electric, Apple Inc., and Starbucks are now feeling the pressure to reform. In a post-case learning assessment, students demonstrated significant improvement in their understanding and indicated that they enjoyed discussing this controversial issue. The “Implementation Guidance” section and Teaching Notes offer guidance for in-class discussion of the ethical and tax issues in this case.

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Home Country Tax System Characteristics and Corporate Tax Avoidance: International Evidence

The Accounting Review ◽

10.2308/accr-50222 ◽

2012 ◽

Vol 87 (6) ◽

pp. 1831-1860 ◽

Cited By ~ 111

Author(s):

T. J. Atwood ◽

Michael S. Drake ◽

James N. Myers ◽

Linda A. Myers

Keyword(s):

Tax Avoidance ◽

Data Availability ◽

Tax Rates ◽

Corporate Tax ◽

Tax System ◽

Earnings Volatility ◽

Variable Pay ◽

Country Factors ◽

Specific Factors ◽

System Characteristics

ABSTRACT We examine whether three tax system characteristics—required book-tax conformity, worldwide versus territorial approach, and perceived strength of enforcement—impact corporate tax avoidance across countries after controlling for firm-specific factors previously shown to be associated with tax avoidance (i.e., performance, size, operating costs, leverage, growth, the presence of multinational operations, and industry) and for other cross-country factors (i.e., statutory corporate tax rates, earnings volatility, and institutional factors). We find that, on average, firms avoid taxes less when required book-tax conformity is higher, a worldwide approach is used, and tax enforcement is perceived to be stronger. However, the relations between tax avoidance and all three tax systems characteristics are contextual and depend on the extent to which management compensation comes from variable pay, including bonuses, stock awards, and stock options. Data Availability: Data are available from sources identified in the text.

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Reforming the U.S. Corporate Tax System to Increase Tax Competitiveness

SSRN Electronic Journal ◽

10.2139/ssrn.732503 ◽

2005 ◽

Cited By ~ 2

Author(s):

Jason J. Fichtner

Keyword(s):

Corporate Tax ◽

Tax System ◽

The U.S

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Making Tax Havens Work: The Necessity of Tax Professionalism

Accounting and the Public Interest ◽

10.2308/apin-52181 ◽

2018 ◽

Vol 18 (1) ◽

pp. 53-80

Author(s):

Martin T. Stuebs ◽

Helen (Janie) Whiteaker-Poe

Keyword(s):

Tax Policy ◽

Tax Reform ◽

Corporate Tax ◽

Tax System ◽

Tax Havens ◽

Earned Income ◽

Tax Professionals ◽

Jobs Act ◽

Influence Behavior ◽

The U.S

ABSTRACT The Tax Cuts and Jobs Act of 2017 overhauled the U.S. corporate tax system, lowering the statutory rate, exempting foreign earned income, and strengthening anti-abuse provisions. However, opportunities and incentives for abuse remain. Therefore, while developing tax policy is helpful, this paper posits that developing tax professionalism—not only tax policy—is needed. Efforts to reform tax policy should be balanced with efforts to develop and guard tax professionalism. Implementing tax policies in a flourishing tax system requires flourishing tax professionals. We develop theoretical and moral analyses to assess tax policy and tax professionalism approaches to tax reform. By targeting processes in the tax system, the tax policy approach attempts to influence practitioner behavior by restricting opportunities and incentives for corporate tax aggression. The tax professionalism approach recognizes that beneath efforts to influence behavior is a deeper, fundamental challenge to develop and protect tax professionals as reflexive agents capable of responsibly handling tax system opportunities and incentives. The tax professionalism approach focuses on persons in the tax system—not processes. This paper draws attention to the limitations of the tax policy approach and to the complementary need for the tax professionalism approach and proposes practical approaches to developing tax professionalism.

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Earnings Management in Response to Corporate Tax Rate Reduction Under an Imputation Tax System

The International Journal of Accounting ◽

10.1142/s1094406019500021 ◽

2019 ◽

Vol 54 (01) ◽

pp. 1950002

Author(s):

Nan-Ting Kuo ◽

Cheng-Few Lee

Keyword(s):

Earnings Management ◽

Tax Avoidance ◽

Rate Reduction ◽

Rent Extraction ◽

Corporate Tax ◽

Tax System ◽

Tax Rate ◽

Tax Benefits ◽

Tax Savings ◽

Institutional Shareholders

Our study explores how firms respond to a tax rate reduction under an imputation tax system. By exploring Taiwanese data, we find that firms engage in significant downward earnings management preceding a tax rate reduction, and this earnings management behavior reverses in the following year. We further explore what factors drive this finding, given that corporate tax avoidance reduces shareholder imputation credits and thus generates limited tax benefits to most shareholders. We argue and find evidence that three factors explain the tax-induced earnings management: (1) financing benefits from tax savings, (2) managerial rent extraction, and (3) the influence of foreign and domestic institutional shareholders. Our results suggest that factors other than shareholder tax benefits have significant effects on corporate tax avoidance, suggesting that firms still have strong incentives to avoid taxes under an imputation tax system.

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