The Governance of Accounting Rules and Tax Rules: Analysis of SMEs' Tax Avoidance Strategies

2013 ◽  
Vol 3 (3) ◽  
pp. 26-34
Author(s):  
Hariyanti D. ◽  
Rohaya M.N ◽  
Normah O. ◽  
Rozainun A.A.
Keyword(s):  
Reporting System ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Tax System ◽  
Tax Rate ◽  
Avoidance Strategies ◽  
Tax Gap ◽  
Accounting Rules ◽  
The Government ◽  
Statutory Tax Rate

Objective- This study examined the governance of accounting rules and tax rules on the level of tax burdens paid by SMEs in Malaysia. According to the tax gap theory, taxpayers utilize the different rules between accounting and tax which is known as the dual reporting system in their tax avoidance strategies in order to pay lower taxes. The tax gap is the difference between the statutory tax rate (STR) and effective tax rates (ETRs). Methodology/Technique - This study analysed financial statements of 148 SMEs (740 firm-years) prepared for the years 2008 to 2012. Findings The statistical results revealed that the dual reporting system had caused a significant gap between the STR (the tax rate that SMEs supposed to pay) and ETRs (the actual tax rates paid by SMEs) in the Malaysia tax system. In addition, the findings provided evidence of the tax avoidance strategies utilised by SMEs which cause lower ETRs as follows: exempt income and tax incentives, disallowable expenses, absorbed losses and capital allowances, deferred tax expenses, size and leverage. Thus, the findings confirmed the tax gap theory in the SMEs tax system which implied a loss of tax revenue to the government due to tax avoidance activities. Findings The findings had provided useful feedbacks to the policymakers such as accounting bodies and the relevant tax authorities to address the issue and realign the two systems which are accounting standards and tax system to minimize the gap. Type of Paper Empirical paper Keywords: , Dual Reporting System; ETRs; SMEs; STR; Tax Gap

Is Tax Avoidance Related to Firm Risk?

2016 ◽  
Vol 92 (1) ◽  
pp. 115-136 ◽  
Author(s):  
David A. Guenther ◽  
Steven R. Matsunaga ◽  
Brian M. Williams
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Firm Risk ◽  
Corporate Tax ◽  
Stock Volatility ◽  
Tax Rate ◽  
Avoidance Strategies ◽  
Jel Classifications

ABSTRACT We test whether tax avoidance strategies are associated with greater firm risk. We find that low tax rates tend to be more persistent than high tax rates and that measures of tax avoidance commonly used in the literature are generally not associated with either future tax rate volatility or future overall firm risk. Our evidence suggests that, on average, corporate tax avoidance is accomplished using strategies that are persistent and do not increase firm risk. We also find that the volatility of cash tax rates is associated with future stock volatility, suggesting that tax rate volatility and overall firm risk are related. JEL Classifications: M41.

scholarly journals Assessing Profit Shifting in Lithuanian Firms

2021 ◽  
Vol 92 ◽  
pp. 02037
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova ◽  
Julijonas Kartanas
Keyword(s):  
Open Economy ◽  
Fixed Effects ◽  
Multinational Enterprises ◽  
Tax Avoidance ◽  
Value Added ◽  
Tax Rates ◽  
Profit Shifting ◽  
Tax Rate ◽  
Small Economies ◽  
Statutory Tax Rate

Research background: Multinational enterprises (MNEs) employ tax avoidance by ability to use differences in tax systems of various countries to successfully incur effective tax rate that is lower than the statutory one. Literature analysis revealed that previous research rarely concentrated on profit shifting practices in small economies. It mostly covered large countries (USA, Germany) or regions (e.g. Europe). Research on Lithuania, as a small open economy characterized by lower corporate income tax rates, is a relevant case for the analysis. Purpose of the article: The purpose of the article is to assess profit shifting via transfer mispricing in Lithuanian companies. Methods: Regression analysis with fixed effects was applied to a sample of 3,563 Lithuanian companies for the period of 2010–2018. The data was retrieved from Amadeus database. Findings & Value added: The results of testing profit shifting channel – transfer mispricing – showed that tax incentives significantly affect earnings of MNEs in the sample while results of domestic firms are puzzling. Earnings of multinationals in the sample are strongly affected by statutory tax rate difference between the subsidiary operating in Lithuania and the parent company in a foreign country. Such results may imply that in small economies like Lithuania (characterized by lower tax rates and lower tax avoidance costs) profit shifting via transfer mispricing is used by MNEs as a channel of corporate tax avoidance.

scholarly journals ASSESSMENT OF FAVOURABLENESS FOR THE TAX SYSTEM OF UKRAINE IN THE INTERNATIONAL CONTEXT

2019 ◽  
Vol 5 (2) ◽  
pp. 124 ◽  
Author(s):  
Valentyna Martynenko
Keyword(s):  
Income Tax ◽  
Corporate Income Tax ◽  
Tax Administration ◽  
Tax Rates ◽  
Tax System ◽  
Tax Rate ◽  
The Government ◽  
Tax Payments ◽  
The Impact ◽  
Average Index

The purpose of the article is to study the background and key factors that ensured an increase in the ranking of the Ukrainian tax system favourableness from the 174th position to the 43-d position during 2005–2016 – the greatest progress in the whole history of the “Paying Taxes” ranking. Methodology. The research was made on the basis of the countries ranking method according to the tax system favourableness, conducted by the World Bank together with the consulting firm PricewaterhouseCoopers for the implementation of the annual “Paying Taxes” ranking. The ranking is based on the analysis of: taxes and mandatory deductions that a typical medium-sized enterprise must pay in the concerned year; the administrative burden connected with the payment of taxes and deductions; processes after filing and paying taxes. Another method used in the article is the regression analysis of the impact of the unified social tax rate, the corporate income tax rate, the personal income tax rate, the volume of tax revenues, consolidated budget revenues and gross domestic product (GDP) in actual prices on the ranking position of Ukraine in the “Paying Taxes”. Results. In course of the study, it was found that the increase of the ranking of Ukraine from the 174th to the 43-d position in the “Paying Taxes” during 2005–2016 became possible due to the liberalization of taxation for 2013–2017, in particular, the reduction of the corporate income tax rate by 7% and the unified social tax rate by 10%. Other factors are as such: improving the tax administration quality: reducing the time for registration, filing and tax payment from 2185 hours in 2005 to 328 hours in 2016, with the worldwide average index of 240 hours per year; reducing the number of tax payments from 98 in 2005 to 5 (the worldwide average index is 24 payments) in 2016. Practical implications. The result of the effective tax policy of the Government of Ukraine was the reduction of the total tax burden on business from 60.3% in 2005 to 37.8% in 2016 at the worldwide average index of 40.5% at the end of the investigated period. Also, during 2005–2016, the consolidated budget revenues grew from 131.3 to 782.7 billion UAH, including tax ones – from 100.7 to 650.8 billion UAH. Value/originality. Based on the results of the study, the author substantiated that the main factor of the significant progress of the tax system of Ukraine in the “Paying Taxes” ranking (from the 174th to the 43-d position during 2005–2016) was the liberalization of taxation by reducing the tax rates of corporate income tax and a unified social tax, as well as improving the quality and efficiency of tax administration.

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.

Relationship between corporate social responsibility and tax avoidance: international evidence

2019 ◽  
Vol 15 (2) ◽  
pp. 244-257 ◽  
Author(s):  
Tao Zeng
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Tax Avoidance ◽  
Content Type ◽  
Tax Rate ◽  
Country Level ◽  
International Setting ◽  
Corporate Social ◽  
Statutory Tax Rate ◽  
The Relationship

Purpose This paper aims to examine the relationship between corporate social responsibility (CSR) and tax avoidance as well as how CSR and country-level governance interplay in affecting tax avoidance in an international setting. Design/methodology/approach This paper is an empirical work using listed companies from 35 countries and relying on several proxies for corporate tax avoidance activities including the difference between the statutory tax rate and the annual effective tax rate, the book-tax difference and the residual book-tax difference. Findings This study finds strong evidence that CSR is positively related to tax avoidance. It also finds that in countries with weak country-level governance, firms with higher CSR scores engage in less tax avoidance, implying that CSR and country-level governance are substitutes. Originality/value This paper is the first study that examines the relationship between CSR and tax avoidance in an international setting with different legal and institutional environment.

scholarly journals PENGARUH PENGHINDARAN PAJAK TERHADAP BIAYA HUTANG PASCA PERUBAHAN TARIF PAJAK BADAN PADA PERUSAHAAN MANUFAKTUR YANG TERDAFTAR DI BURSA EFEK INDONESIA

2016 ◽  
Vol 3 (2) ◽  
pp. 113
Author(s):  
Nining Purwanti
Keyword(s):  
Panel Data Analysis ◽  
Tax Avoidance ◽  
Negative Influence ◽  
Cost Of Debt ◽  
Tax Rates ◽  
Rate Reduction ◽  
Tax Rate ◽  
Study Find ◽  
Tax Reduction ◽  
The Cost

The aim of the research is to analyze tax avoidance behavior to cost of debt moderated by tax rates changes, on manufacturing company in Indonesia in 2008-2010. Panel data analysis is used in this research. In this study usingbook tax gap to measure tax avoidance and using the models used by Lim (2010), Dwi Martani (2011) and Widya Sartika (2012) to meansure cost of debt. The study find that tax avoidance has negative influence on cost of debt. Tax avoidance creates a risk thereby increasing the cost of debt. In the period before tax rate reduction the influence of tax avoidance on cost of debt smaller compare after period of tax reduction, this indicates the presence of earning management conducted by the company before tax rate reduction.

scholarly journals Impact of Implementation of Goods and Service Tax on Indian Banking Sector

2018 ◽  
pp. 18-32
Author(s):  
Revathi R. ◽  
Madhushree ◽  
P. S. Aithal
Keyword(s):  
Economic Growth ◽  
Banking Sector ◽  
Value Added ◽  
Tax System ◽  
Tax Rate ◽  
Bank Branches ◽  
Goods And Services ◽  
The Government ◽  
One Year ◽  
The Impact

The banking sector is one of the biggest and revenue generating sector in our economy. Indiais a country with impressively splendid banks with sufficient capital and well-regulated rulesand regulations. One of the biggest transformations that the sector faced during this period isGST i.e., Goods and Service Tax, a new tax regime introduced in the midnight of 1 July2017. Now the new tax regime has become one year old and there are so many changeswhich happened in the banking sector during this one-year periods. Introduction of GST tothe banking sector was one the highly risky and challenging role for the government. GST isa replacement to the Value Added Tax (VAT) which was implied on goods and services. Themain purpose of studying the impact of implementation of GST is to avoid double taxationon goods and services. It is a self-regulated tax system with a simplifies tax regime whichreduces the multiplicity of tax. The purpose of this study is to know the challenges faced bythe Banking sector and its effects on the customers after the implementation of the GST.New tax regime made an incredible step by the abolish of centralized registration of thebanks. Now all the bank branches have to register under GST in each state for the smoothfunctioning. The tax rate has created an impression in the banking sector that the sector iscontributing much toward the economic growth of the country. Tax slabs is anotherimportant and critical thing discussed in this paper which has substantially increasedcompared to the old tax regime. Data for the study have been collected from secondary datasources such as journals, internet, and news articles. Using the ABCD qualitative analysistechnique, advantages, benefits, constraints, and disadvantages for both banks and thecustomers for payment of GST are identified.

scholarly journals Management Of Accrual Components In Response To Corporate Income Tax Rate Changes: Evidence From Korea

2013 ◽  
Vol 29 (5) ◽  
pp. 1421 ◽  
Author(s):  
Won-Wook Choi ◽  
Hyun-Ah Lee
Keyword(s):  
Financial Reporting ◽  
Income Tax ◽  
Tax Avoidance ◽  
Corporate Income Tax ◽  
Tax Rate ◽  
Taxable Income ◽  
Accruals Management ◽  
Accrual Management ◽  
Aggressive Tax Avoidance ◽  
Statutory Tax Rate

Changes in the statutory corporate income tax rate provide firms with an opportunity to reduce their tax burden by shifting their taxable income from higher to lower tax rate years. One negative consequence of shifting taxable income across years is higher variation in book income for financial reporting purposes. Taxable income and book income are closely related in most countries, and, in general, reporting volatile book income across years is not a favorable signal to investors. This study investigates how firms shift taxable income and concurrently mitigate book income fluctuation by managing accrual components separately when the statutory income tax rate changes. Unlike prior studies, we decompose discretionary accruals into two components and examine distinctive patterns of accrual management in Korea, where book-tax conformity is high and aggressive tax avoidance is restricted. We find that firms manage book-tax accruals for taxable income shifting and manage book-only accruals to mitigate book income fluctuation. Furthermore, we find the extent of book-tax and book-only accruals management varies depending on the firms tax and financial reporting costs. The results of this study provide clear and compelling evidence of firms opportunistic accrual management behavior in response to statutory tax rate reduction.

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.

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

2012 ◽  
Vol 87 (6) ◽  
pp. 1831-1860 ◽  
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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