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Book part
Publication date: 18 November 2014

Rebekah D. Moore and Donald Bruce

We examine whether variations in the most fundamental aspects of state corporate income tax regimes affect state economic activity as measured by personal income, gross state…

Abstract

We examine whether variations in the most fundamental aspects of state corporate income tax regimes affect state economic activity as measured by personal income, gross state product, and total non-farm employment. We focus on a variety of statutory components of state corporate income taxes that apply broadly in most U.S. states and for most multi-state corporate taxpayers. Our econometric strategy consists of a series of fixed effects panel regressions using state-level data from 1996 through 2010. Our results reveal important interaction effects of tax rates and policies, suggesting that policy makers should avoid making decisions about tax rates in isolation. The results demonstrate a relatively consistent negative economic response to the combination of high tax rates with throwback rules and heavy sales factor weights. Combined reporting has no discernible effect on personal income, GSP, or employment after controlling for tax rates, apportionment, and throwback rules. In an effort to gauge the relative impacts of tax policies on the location of economic activity, we also estimate alternative models in which each state’s economic activity is measured as a share of the national economic activity in each year. Statistically significant effects for tax rates, apportionment formulas, and throwback rules in the shares models suggest that at least some of their impact involves the movement of activity across state lines, thereby leaving open the possibility of a zero-sum game among the states.

Book part
Publication date: 22 November 2017

Duane Windsor

This chapter examines the ethics and business diplomacy of legal tax avoidance by multinational enterprises (MNEs).

Abstract

Purpose

This chapter examines the ethics and business diplomacy of legal tax avoidance by multinational enterprises (MNEs).

Design/methodology/approach

The methodology assembles the relevant literature and examines alternative interpretations of corporate tax strategy. Key topics include business ethics and responsibility, business sustainability, economic patriotism and corporate inversions, tax havens, and possible solutions.

Findings

The debate concerns whether legal tax avoidance is unethical and/or poor business diplomacy. There are three possible strategies for MNEs. One strategy is intentional tax avoidance. Another strategy is business–government negotiation concerning tax liability. Another strategy is business diplomacy aimed at maximizing the social legitimacy of the firm across multiple national tax jurisdictions.

Social implications

The chapter assesses four possible solutions for corporate tax avoidance. One solution is voluntary tax payments beyond legal obligations whether out of a sense of ethics or a strategy of business diplomacy. A second solution is international tax cooperation and tax harmonization in ways that minimize opportunities for tax avoidance. A third solution is increased stakeholder pressure emphasizing business diplomacy and tax cooperation and harmonization. The fourth solution is negotiated tax liabilities between each business and each jurisdiction.

Originality/value

The chapter provides an original systematic survey of the key aspects of corporate international tax avoidance in an approach in which business ethics and business diplomacy are better integrated. The value of the chapter is that it provides information and assembles relevant literature concerning corporate international tax avoidance, and addresses possible solutions for this problem.

Book part
Publication date: 14 December 2018

Syed Munawar Shah and Mariani Abdul-Majid

This study analyses the threshold for debt of corporations under the debt-bias corporate tax system. We adopt a contingent claim model of the corporation to reflect the incentive…

Abstract

This study analyses the threshold for debt of corporations under the debt-bias corporate tax system. We adopt a contingent claim model of the corporation to reflect the incentive effect of the debt-bias corporate tax system. This framework is based on aspiration level theory and the required probability for the successful completion of a project that is identical to decision weight probability in prospect theory. The proposed framework incorporates the debt-bias tax regulations prevailing in Organization for Economic Co-operation and Development (OECD) countries. When the OECD countries’ financial and non-financial corporation data were applied into framework, we observe that the government achieve equilibrium by employing contradictory corporate tax regulations. Moreover, we observe that corporations are intrinsically equity-loving, although the debt-bias corporate tax system stimulates corporations toward debt. This situation makes the government corporate revenue sensitive by placing it at the disposal of corporations’ financing choice instead of corporate profitability. The corporations’ threshold for debt assists in distinguishing between debt and equity-loving corporations. Moreover, corporations’ threshold for debt assists policy makers in deciding the appropriate combination of such reform policies as the Allowance on Corporate Equity and Comprehensive Business Income Tax. A transition from debt-oriented capital structure to equity-oriented capital structure may play an important role in promoting Islamic finance.

Article
Publication date: 30 September 2022

Dawei Jin, Hao Shen, Haizhi Wang and Desheng Yin

The purpose of this paper is to empirically explore whether and to what extent the changes in state corporate income tax rates affect corporate tax aggressiveness.

Abstract

Purpose

The purpose of this paper is to empirically explore whether and to what extent the changes in state corporate income tax rates affect corporate tax aggressiveness.

Design/methodology/approach

Using a differences-in-differences approach with dynamic treatment, the authors investigate the effect of staggered changes in state corporate income tax rates in the USA on corporate tax aggressiveness.

Findings

Firms become more aggressive in avoiding taxes following state tax increases but are insensitive to tax cuts. The effect of state tax increases on tax aggressiveness is weaker for firms with greater debt tax shields and marginal tax rates. Firms are more likely to shift their operations and relocate their headquarters out of states experiencing tax increases.

Originality/value

To the best of the authors' knowledge, this paper is the first to study the relation between state tax policy changes and corporate tax aggressiveness. This paper finds an asymmetrical pattern of corporate tax aggressiveness in response to state tax changes.

Details

Pacific Accounting Review, vol. 35 no. 1
Type: Research Article
ISSN: 0114-0582

Keywords

Article
Publication date: 7 December 2021

Anissa Dakhli

The purpose of this paper is to investigate the direct and indirect relationship between board gender diversity and corporate tax avoidance using corporate social responsibility…

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Abstract

Purpose

The purpose of this paper is to investigate the direct and indirect relationship between board gender diversity and corporate tax avoidance using corporate social responsibility (CSR) as a mediating variable.

Design/methodology/approach

This study uses a panel dataset of 200 French firms listed during 2007–2018 period. The direct and indirect effects between board gender diversity (BGD) and tax avoidance were tested by using structural equation model analysis.

Findings

The results indicate that the presence of women on corporate boardrooms negatively affects tax avoidance. The greater the proportion of women in boards, the lower the likelihood of tax avoidance practice. In the mediation test, CSR appears to partially mediate the link between women on boards and corporate tax avoidance. Additional analysis shows that the social dimension of CSR produces this mediating effect.

Practical implications

The results have practical implications for companies in regulating the composition of their boards. To benefit from diversity, firms have to increase women‘s percentage in their boards of directors. Also, investors are encouraged to pay attention to the percentage of female directors when investing and purchasing shares.

Social implications

This study proved empirically that the higher proportion of female directors significantly reduces the possibility of tax avoidance either directly or indirectly through enhancing CSR performance. The findings show that firms with gender diversified boards are more likely to get involved in CSR for hedging against the potential consequences of aggressive tax avoidance practices. In light of the above results, firms are well-advised to strongly apply the policy encouraging or mandating women as board members to take advantage of their expected benefits.

Originality/value

The originality of this paper consists in proposing the establishment of both direct and indirect relationships between BGD and corporate tax avoidance through CSR. Unlike prior studies that have been examining the direct relationship between corporate governance mechanisms and corporate tax avoidance, this study went further to investigate the indirect relationship between these two constructs. This study also differs from prior studies as it examines the effect of BGD on each of constituting pillars of CSR, namely, environmental, social and governance. To date, an extensive part of CSR research has used the combined score of CSR, but the effects on different CSR pillars remain little investigated.

Details

Corporate Governance: The International Journal of Business in Society, vol. 22 no. 4
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 1 June 2005

Joseph K. Winsen

To analyse the net present value (NPV) rule for corporate investments incorporating shareholder personal taxes, under the classical system of taxing corporate profits.

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Abstract

Purpose

To analyse the net present value (NPV) rule for corporate investments incorporating shareholder personal taxes, under the classical system of taxing corporate profits.

Design/methodology/approach

The after‐tax payoffs to shareholders are calculated, comparing immediate distribution as dividends of corporate funds available for investment with future after‐tax dividend distributions if corporate funds are invested.

Findings

Shareholders will disagree on the optimal corporate NPV rule. If, as in widely held public companies, corporate management are unaware of the marginal personal tax rate of shareholders, then the only rule which will accept investment projects that no shareholder would want the company to reject, is the rule which discounts after‐corporatetax cash flows at a before‐tax discount rate.

Research limitations/implications

The analysis is based on the classical system of taxing corporate profits. A number of countries have adopted an integrated system of corporate taxation. The analysis may or may not extend to such alternative systems.

Practical implications

Simplifies the choice of NPV rules for corporate management, under a classical tax system.

Originality/value

The widely held view that after‐corporatetax discount rates should be used in discounting after‐corporatetax cash flows is shown to be inadequate.

Details

International Journal of Managerial Finance, vol. 1 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 2 September 2014

Nor Azrina Mohd Yusof, Lai Ming Ling and Yap Bee Wah

The pervasiveness of tax non-compliance remains a serious concern to most tax authorities around the world. The negative impact of tax non-compliance on the economy and the…

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Abstract

Purpose

The pervasiveness of tax non-compliance remains a serious concern to most tax authorities around the world. The negative impact of tax non-compliance on the economy and the evolving nature of the Malaysian corporate tax system have motivated this study. The purpose of this paper is to examine the determinants of corporate tax non-compliance among small-and-medium-sized corporations (SMCs) in Malaysia.

Design/methodology/approach

This study used economic deterrence theory to analyze and test 375 tax-audited cases finalized by the Inland Revenue Board of Malaysia in 2011.

Findings

Multiple regression results revealed that marginal tax rate, company size and types of industry exerted significant effects on corporate tax non-compliance. The services and construction industries were noted to be the predominant industries engaged in tax non-compliance. The amount of concealed income unearthed during tax audit indicates clearly that there is widespread tax non-compliance in Malaysia and the quantum of tax lost through tax non-compliance is quite high.

Research limitations/implications

This study only sampled SMCs audited in 2011, hence, care has been exercised in generalizing the findings.

Practical implications

This study affirms that marginal tax rate, company size and types of industry are the main factors influencing compliance behavior of SMCs. The findings provide important insights not only to the Malaysian tax authority, but also to tax authorities and tax researchers in other parts of the world given that tax non-compliance of SMCs is a prevalent and universal problem. For example, with regard to the finding that marginal tax rate and company size are linked to non-compliance, it can be surmised that tax authorities ought to divert resources to firms with such characteristics when conducting audits.

Originality/value

Most tax research tax examining corporate tax non-compliance used financial data from annual reports to predict tax non-compliance, which are not very accurate. This study used actual tax audit cases obtained from the tax authority which are reflective of the actual situation. This study complements the scant existing literature by empirically evaluating the factors that influenced corporate tax non-compliance in a developing country like Malaysia.

Details

Journal of Applied Accounting Research, vol. 15 no. 2
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 27 March 2024

Arfah Habib Saragih

This paper examines the moderating effect of good corporate governance on the association between internal information quality and tax savings.

Abstract

Purpose

This paper examines the moderating effect of good corporate governance on the association between internal information quality and tax savings.

Design/methodology/approach

This study uses a quantitative approach. It employs an Australian sample of analysis composed of 1,295 firm-year observations from the period 2017 to 2021. Data relating to corporate governance are hand-collected from the annual reports.

Findings

Based on the result of the analysis, this study demonstrates that the interaction between corporate governance and quality of internal information is positively associated with tax savings. Superior corporate governance is critical in activating the effect of internal information quality on tax savings. This finding is robust to a battery of robustness checks and additional tests.

Research limitations/implications

This examination utilizes only publicly traded companies from one developed country.

Practical implications

For the company management, an effective governance structure must be at the top because it will determine the development of all other areas. This study emphasizes the need to continuously improve the effectiveness of corporate governance practices. For long-term investors, an important indicator that can be considered in assessing the “safety” of a company’s tax strategy is its corporate governance aspects. For regulators, this study is expected to assist regulators in creating a more adequate corporate governance implementation and disclosure package to be implemented by corporations in the future.

Originality/value

This study provides new evidence on a crucial construct that can strengthen the relationship between internal information quality and tax savings.

Details

Journal of Accounting Literature, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0737-4607

Keywords

Book part
Publication date: 15 November 2018

Zakir Akhand

This chapter investigates the effects of the corporate sector on the effectiveness of selected tax compliance instruments in the context of large corporate taxpayers belonging to…

Abstract

This chapter investigates the effects of the corporate sector on the effectiveness of selected tax compliance instruments in the context of large corporate taxpayers belonging to the finance, manufacturing, and service sectors. Applying multilevel logit models based on real tax office and survey data from Bangladesh, it is found that the filing compliance of large corporate taxpayers is influenced by penalty, tax audit, and taxpayer services, while reporting compliance is influenced by tax audit, criminal prosecution, and tax simplification. In the case of payment compliance, two coercive instruments – penalty and tax audit – have been found to be statistically significant. However, when sector characteristics are considered, the extent of the influence of these instruments, and, in some cases, their statistical significance changes. This suggests that the effectiveness of tax compliance instruments, among other things, largely depends on the sector affiliation of corporate taxpayers. Overall, this study establishes that corporate sector plays an important role in the effectiveness of tax compliance instruments, with the caveat that findings might be different if working definitions of the study variables were measured differently.

Book part
Publication date: 18 November 2014

Alexis Downs and Beth Stetson

This chapter applies an “integrative” model to examine the impact and interaction of economic and moral/social factors in the corporate tax compliance context. More specifically…

Abstract

Purpose

This chapter applies an “integrative” model to examine the impact and interaction of economic and moral/social factors in the corporate tax compliance context. More specifically, it examines whether social norms moderate the effect of economic factors in this context.

Design/methodology

Fifty-five MBA students assumed corporate CFO roles and analyzed a proposed aggressive corporate tax shelter transaction (“tax shelter”). Participants indicated whether they would recommend the tax shelter and answered questions regarding the transaction and their corporate tax compliance views.

Findings

Hierarchical Regression results indicate that, in the corporate tax compliance context, decision makers’ norms (moral/social factors) moderate the effect of perceived expected value of aggressive tax transactions (economic factors). More specifically, results indicate that (1) perceived legality of aggressive corporate tax transactions significantly impacts willingness of corporate decision makers to recommend them, even when controlling for perceived economic effect of the transaction, and (2) due to moral/social factors, corporate decision makers often may not support aggressive tax treatments with material positive expected values.

Practical implications

Accordingly, (1) custom and social factors should be integrated into the corporate tax compliance decision-making framework, and (2) campaigns to strengthen corporate tax compliance should focus on the law’s text and intent as well as upon sanctions for noncompliance.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78441-120-6

Keywords

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