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1 – 10 of over 2000
Open Access
Article
Publication date: 22 August 2023

Sabina Kołodziej, Ewa Wanda Maruszewska and Małgorzata Niesiobędzka

This paper aims to present a study on the effect of income and expense shifting on the corporate income tax evasion – an example of intentional noncompliance practiced by tax…

1011

Abstract

Purpose

This paper aims to present a study on the effect of income and expense shifting on the corporate income tax evasion – an example of intentional noncompliance practiced by tax agents. The authors expected that the tool used would differentiate the extent of understatement of tax liability.

Design/methodology/approach

Two experiments were conducted in which young (N = 62) and experienced (N = 68) tax agents read a scenario placing them in a position of an employee responsible for tax planning and calculations of tax liabilities. The respondents’ task was to decide about the extent of the tax liability understatement using income or expense shifting.

Findings

Research demonstrated significantly higher extent of corporate income tax understatement when using income shifting compared to expense shifting in case of experienced tax agents (Study 2) and on tendency level among young tax agents (Study 1).

Research limitations/implications

Results of the studies might be of interest to managers paying attention to tax procedures within the company, governmental agencies investigating corporate tax evasion, as well as educators responsible for tax agents’ initial training and lifelong learning.

Originality/value

This study concentrates on tax agents who are employed in companies and corporate income tax evasion, which has not been analyzed in the literature so far.

Details

Central European Management Journal, vol. 31 no. 3
Type: Research Article
ISSN: 2658-0845

Keywords

Book part
Publication date: 16 June 2023

Kaishu Wu

The existing literature documents mixed evidence toward the association between corporate social responsibility (CSR) and corporate tax planning (e.g., Davis, Guenther, Krull, &

Abstract

The existing literature documents mixed evidence toward the association between corporate social responsibility (CSR) and corporate tax planning (e.g., Davis, Guenther, Krull, & Williams, 2016; Hoi, Wu, & Zhang, 2013). In this study, I aim to identify a causal relationship between CSR and tax planning, leveraging the staggered adoptions of constituency statutes in US states, which is a plausibly exogenous shock to firms' emphasis on their social responsibility. In general, the statutes permit firm directors to consider the interests of all constituents when making business decisions, including those who benefit from firms paying their fair share of income taxes. Thus, the adoption of the statutes raises the importance of firms' social responsibility in paying income taxes. Employing a staggered difference-in-differences (DiD) method, I find that firms incorporated in states that have adopted constituency statutes exhibit significantly higher effective tax rates (ETRs) based on current tax expense. This causal relationship suggests that managers, with the legitimacy to consider the social impact of tax avoidance, become less aggressive in tax planning. I further find that the effect of adoption is stronger for financially unconstrained firms and firms in retail businesses, where the demand (cost) for tax avoidance is lower (higher). Finally, I show that my main results are driven by firms located in states with a high sense of social responsibility and firms with high levels of tax avoidance prior to the adoption. Overall, the findings in this chapter contribute to the literature by delineating a negative causal relationship between CSR and tax avoidance and identifying a positive social impact brought by the passage of constituency legislation.

Article
Publication date: 25 January 2023

Sameh Kobbi-Fakhfakh and Fatma Bougacha

This study aims to examine the impact of the COVID-19 pandemic on corporate tax avoidance (TA).

Abstract

Purpose

This study aims to examine the impact of the COVID-19 pandemic on corporate tax avoidance (TA).

Design/methodology/approach

This study used a panel data set of US publicly traded firms listed in the Standard & Poor 500 index. Based on available information in the DATASTREAM database covering the 2019–2021 period, three proxies for TA are used, namely the current effective tax rate (CUETR), the cash effective tax rate and book-tax differences (BTD). Multiple regression models including industry and year fixed effects are estimated. Additional analyses are performed using BTD components i.e. temporary and permanent BTD, and testing the impact of the COVID-19 pandemic across industries.

Findings

The results show that the outbreak of the novel coronavirus (COVID-19) affected positively the CUETRs and negatively BTD, indicating a reduction in TA, in the postpandemic period. Further analyses provide evidence that this effect is the same, regardless of the degree of industry failure probability, but it is more driven by the reduction of deferred tax expenses (temporary BTD component). These findings suggest that the US publicly listed firms have experienced a serious drop in their income in the postpandemic period, following the markets closure and the quarantine periods that hampered business. Therefore, with lower profits, they are not willing to evade taxes.

Social implications

This paper enriches taxation research during economic crises. The research findings have important policy implications. On the one hand, the fiscal policy should stimulate growth to allow firms to tackle the challenges they confronted post-COVID-19. On the other hand, the global economic crisis caused by the pandemic has led to a major deterioration in public finances and has raised inequalities across households. Therefore, it would be necessary to review public fiscal policies to achieve a balance of equity, growth and sustainability. In this context, tax reform focusing on tax progressivity could counter in part the negative economic effects of the COVID-19 pandemic and led to economy recovery.

Originality/value

This study contributes to the growing body of literature on the COVID-19 effects with a special focus on corporate practices. This study provides first evidence on the effect of the COVID-19 pandemic on manager’s behavior from taxation perspective. This study also enriches taxation research during economic crises.

Details

Journal of Financial Reporting and Accounting, vol. 21 no. 4
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 10 January 2024

Jayalakshmy Ramachandran, Joan Hidajat, Selma Izadi and Andrew Saw Tek Wei

This study investigates the influence of corporate income tax on two corporate financial decisions — dividend and capital structure policies, particularly for Shariah compliant…

Abstract

Purpose

This study investigates the influence of corporate income tax on two corporate financial decisions — dividend and capital structure policies, particularly for Shariah compliant companies in Malaysia.

Design/methodology/approach

The study considered data from a sample of 529 Malaysian listed companies from four industrial sectors from 2007–2021 (6,746 company-year observations, before eliminating outliers). Panel models such as Fixed Effect and Random effect models were used. The study specifically tested the effect of corporate income tax on dividend and capital structure policies for Shariah compliant companies (3,148 observations) and controlled for industrial sectors.

Findings

(1) Firms are mostly Shariah-compliant, less liquid, less profitable and smaller in size, (2) Broadly when analysed together, tax has no impact on debt-equity ratio while it has an impact on dividend per share, (3) However, when tested separately for Shariah compliant companies, the influence of effective tax on capital structure is very evident but not for dividend and (4) influence of industrial sector on the relationship between corporate tax and capital structure and dividend policy is significant. Results indicate that Shariah firms might be raising debt to gain tax advantage. Companies in general pay dividends to avoid reputational damage.

Research limitations/implications

This study assumes that leverage and dividend policy decisions are the main outcomes of the changing tax policies, while it seems that there could be other important outcomes that can be tested in future research. The study also shows the changing tax regimes of different ASEAN countries but they have not been tested to see the differences between countries. It will be indeed interesting for future researchers to focus on this aspect.

Originality/value

The findings contribute to the literature on tax planning of the Shariah-compliant firms, a high growth business segment in the Asian context. The study discussed potential tax-based Islamic market product development.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 June 2023

Udisifan Michael Tanko

Some researchers regard discretionary accrual (DA) as one of the factors that drive corporate managers to conduct tax planning (Scott, 2009; Basri and Buchari, 2017). Based on…

Abstract

Purpose

Some researchers regard discretionary accrual (DA) as one of the factors that drive corporate managers to conduct tax planning (Scott, 2009; Basri and Buchari, 2017). Based on agency theory and positive accounting theory, corporate managers can transform accounting information and manipulate firm earnings to reduce tax liability. There is a lot of research concerning earnings management and tax planning in the developed economy. These studies include Wang and Chen (2012) and Pettersson and Wu (2015). In the emerging economies, it includes Jamei and Khedri (2016), Kurniasih and Sulardi Suranta (2017), Prastiwi (2017), Almashaqbeh et al. (2018), Bayunanda et al. (2018), Rani et al. (2018) and Kałdoński and Jewartowski (2019). It is important to note that none of the research mentioned above has evaluated the impact of real earnings management (REM) on tax planning in Nigeria. While in the developed economy only Kałdoński and Jewartowski (2019) used REM as an explanatory variable, while the majority of studies used DA. Consequently, no study has used REM to moderate the relationship between financial attributes and tax planning. Despite the widespread notion, as well as positive accounting theory, tax planning theory that financial attributes (profitability, leverage, liquidity and firm growth), REM and DA motivate tax planning, previous investigations have produced mixed results (Dwenger and Steiner, 2009; Wang and Chen, 2012; Chen and Zolotoy, 2014; Aghouei and Moradi, 2015; Pettersson and Wu, 2015; Ribeiro, 2015; Chen et al., 2016; Jamei and Khedri, 2016; Ogbeide, 2017; Yuniawati et al., 2017; Chen and Lin, 2017; Firmansyah and Febriyanto, 2018; Prastiwi, 2018; Rani et al., 2018; Kibiya and Aminu, 2019; Kałdoński and Jewartowski, 2019 and Siyanbonla, 2021). This study aims to use REM as a moderator to examine the relationship between financial attributes and tax planning whether it will strengthen or weaken the relationship.

Design/methodology/approach

The study examines the impact of financial attributes on the corporate tax planning of listed manufacturing firms in Nigeria. It also tests for the moderating effect of REM on the relationship between financial attributes and tax planning. Data for the study was sourced from the annual reports of sampled manufacturing firms. The study used the panel data methodology for analysis. The study used fixed effect estimation to interpret the parsimonious model and random effect was used to interpret the moderated model. The study documented that financial leverage has a positive significant influence on the tax planning of the sampled manufacturing firms. While firm growth has a negative significant impact on the tax planning of listed manufacturing firms in Nigeria. REM has a positive significant impact on tax planning. Also, REM moderate significantly the relationship between financial attributes on one hand and tax planning on the other. The study recommends that firms should go for more debt to take advantage of the tax shield of interest on the debt. Also, firm management should use non-current debt to finance non-current assets and use current debt to finance current assets to avoid the risk of taking over or liquidation. The study also recommends that firm management should engage in intercompany and intracompany transactions by selling their goods to affiliates in countries with low prices and low tax rates. A firm should also overproduce goods to have high production costs and high closing inventory since real earning management significantly reduces tax liabilities by deferring income into a later year.

Findings

The study documented that financial leverage has a positive and significant influence on the tax planning of the sampled manufacturing firms. While firm growth has a negative but significant impact on the tax planning of listed manufacturing firms in Nigeria. REM has a positive and significant impact on tax planning. Also, REM moderate significantly the relationship between financial attributes on one hand and tax planning on the other.

Originality/value

There is a lot of research concerning earnings management and tax planning in the developed economy. These studies include Wang and Chen (2012) and Pettersson and Wu (2015). In the emerging economies, it includes Jamei and Khedri (2016), Kurniasih and Sulardi Suranta (2017), Prastiwi (2017), Almashaqbeh et al. (2018), Bayunanda et al. (2018), Rani et al. (2018) and Kałdoński and Jewartowski (2019). It is important to note that none of the research mentioned above has evaluated the impact of REM on tax planning in Nigeria. While in the developed economy only Kałdoński and Jewartowski (2019) used REM as an explanatory variable, while the majority of studies used DA. Consequently, no study has used REM to moderate the relationship between financial attributes and tax planning.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 24 May 2023

Wanyi Chen and Fanli Meng

Corporate digital transformation (CDT) has challenged traditional tax administration systems. This study examines the impact of CDT on tax avoidance behavior and tests whether tax…

Abstract

Purpose

Corporate digital transformation (CDT) has challenged traditional tax administration systems. This study examines the impact of CDT on tax avoidance behavior and tests whether tax authorities can identify this behavior.

Design/methodology/approach

Using data on listed companies on the Shanghai and Shenzhen Stock Exchanges from 2008 to 2020, this study applies the Heckman two-stage and cross-section models.

Findings

The results show that the higher the degree of CDT, the more aggressive the tax avoidance behavior. The CDT's impact on corporate tax avoidance is more significant under strong government tax efforts.

Originality/value

This study expands research on the economic consequences of CDT and the factors influencing corporate tax avoidance behavior. Moreover, it has important implications for governments to monitor tax avoidance behavior under the CDT, improve digital tax systems, and pay more attention to the tax administration of digital assets.

Details

International Journal of Managerial Finance, vol. 20 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Book part
Publication date: 8 April 2024

Jana Janoušková and Šárka Sobotovičová

It is important to consider economic and political factors when designing the tax mix and setting the level of corporate taxation. Increasing corporate taxation can be seen as an…

Abstract

It is important to consider economic and political factors when designing the tax mix and setting the level of corporate taxation. Increasing corporate taxation can be seen as an inefficient way to raise revenue for the state, as it can have a negative impact on investment and the competitiveness of firms. However, lowering corporate taxation can encourage investment and job creation, but it can also be perceived as supporting large corporations. The aim of this chapter is to evaluate corporate taxation, its position in the tax mix and its potential impact on economic growth. The revenues of corporate income tax (CIT) have an increasing tendency even though the tax rate was reduced from 41% to 19%. Revenues are influenced by both legislative changes and economic cycles. The level of taxation is also influenced by deductions, which include asset depreciations, research and development expenses, or loss deductions. The Pearson Correlation Coefficient was used to examine the correlation between the selected factors. A moderately strong positive correlation was found between GDP growth and CIT as a percentage of total taxes, as well as between GDP growth and CIT as a percentage of GDP.

Details

Modeling Economic Growth in Contemporary Czechia
Type: Book
ISBN: 978-1-83753-841-6

Keywords

Book part
Publication date: 16 June 2023

Andrew Duxbury

I examine patterns of making or deferring strategic repatriations that firms can use to either meet analysts' forecasts or defer to maintain future reported earnings flexibility…

Abstract

I examine patterns of making or deferring strategic repatriations that firms can use to either meet analysts' forecasts or defer to maintain future reported earnings flexibility. First, I examine the extent to which firms repatriate earnings from high foreign tax subsidiaries to decrease US tax expense, resulting in increased net income and lower cash taxes. Using federal tax return information, I find evidence that firms strategically repatriate these earnings to meet or beat current analysts' forecasts. Next, I find evidence that firms that are able to obtain current year tax reductions defer these repatriations in an attempt to build cookie-jar reserves. Lastly, I find that firms do not disclose high foreign tax repatriations (HTRs), even when required by SEC rules. This study contributes to the earnings management, tax avoidance, and disclosure literature by examining a discretionary tax planning strategy.

Article
Publication date: 17 July 2023

Ambareen Beebeejaun

Numerous policies are established in Mauritius to attract foreign direct investment, but at the same time, severe concerns were raised concerning the erosion of Mauritian tax…

Abstract

Purpose

Numerous policies are established in Mauritius to attract foreign direct investment, but at the same time, severe concerns were raised concerning the erosion of Mauritian tax base, which is witnessed by the decrease in the percentage of tax revenue to gross domestic product in recent years. To avoid these issues, in 2019, the Mauritian legislator has domesticated the Organisation for Economic Co-operation and Development (OECD) BEPS 2013 Action 3 on controlled foreign company (CFC) in its income tax legislation. As such, the purpose of this study is to critically assess the implications of CFC rules of Mauritius to reduce tax avoidance in the light of international tax competition.

Design/methodology/approach

To achieve the research objective, this study will adopt a black letter approach by analysing the rules and regulations of various jurisdiction as well as international standards on CFCs and other tax avoidance legal provisions. A comparative analysis will be conducted between Mauritian laws on CFCs and the corresponding legislation of the UK and the USA, which are selected to assess the developed world’s position on strict CFC rules.

Findings

A hasty implementation of CFC rules leads to various complexities like interpretation issues and diminishing the competitiveness of the country to multinationals. In this respect, there is the risk of a trade-off between tax collected and foreign direct investment in the country. Consequently, the research recommends that Mauritius reforms its CFC legislation by extending the scope of tax exemptions for intra-group financing income, for the first year of CFC’s operation with the possibility of offsetting foreign taxes and for the Mauritius Revenue Authority to establish detailed guidelines on the determination of CFC income and its attribution for tax purposes in Mauritius.

Originality/value

Existing literature has to a great extent focused on the role of CFC rules as a tax avoidance measure and on the divergence or convergence between domestic CFC legislation against the OECD recommendations (Dourado, 2015; Xu, 2018; Beebeejaun et al., 2023). However, limited literature is available on the evaluation of the purpose of CFC rules enacted by a developing country being Mauritius in the context of the global competitive market, to which this research aims at filling the gap.

Article
Publication date: 18 August 2023

Mohamed Mihilar Shamil, Dulni Wanya Gooneratne, Dasitha Gunathilaka and Junaid M. Shaikh

This study examines the effect of board characteristics on the tax aggressiveness of listed companies on the Colombo Stock Exchange in Sri Lanka.

Abstract

Purpose

This study examines the effect of board characteristics on the tax aggressiveness of listed companies on the Colombo Stock Exchange in Sri Lanka.

Design/methodology/approach

The sample consists of 264 firm-year observations of non-financial listed companies in Sri Lanka from 2014 to 2019. The dynamic panel system GMM technique was used to test the hypotheses, and further analyses were performed using the propensity score matching technique.

Findings

All four effective tax rate measures' mean values were lower than the statutory tax rate, indicating the likelihood of tax planning. Whether board attributes are likely to mitigate tax aggressiveness is uncertain because the results are inconsistent and depend on the ETR measure. Similarly, the logistic regression results derived using the PSM approach are inconsistent, suggesting that board characteristics may have a limited effect on tax aggressiveness. Hence, the corporate governance-tax aggressiveness nexus is limited in the case of Sri Lanka.

Research limitations/implications

This investigation is limited to non-financial listed companies in Sri Lanka and incorporates only four tax aggressiveness measures. Findings are imperative for policymakers, regulators, and professional bodies to improve corporate governance codes and rules to enhance organisational transparency toward corporate tax payments.

Social implications

Aggressive tax planning by companies will reduce government tax revenue, hinder social progress, and cause public mistrust of large corporations and institutions.

Originality/value

This study provides insight into the nexus between corporate governance and tax aggressiveness in a middle-income economy in South Asia hit by an economic crisis where tax revenue has fallen and tax enforcement is weak.

Details

Journal of Accounting in Emerging Economies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2042-1168

Keywords

1 – 10 of over 2000