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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.

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

This study examines the effects of personal and corporate tax rate changes on the spread between pre-tax corporate bond yields and municipal bond yields, and provides evidence of tax clientele differences across bonds of different maturities and across bonds of different risk levels. Implicit tax theory suggests that the personal and corporate tax rate reductions of ERTA and TRA86 should reduce the yield spread between corporate and municipal bonds. The sample consists of 2,770 newly-issued taxable corporate bonds over the period 1979–1989. Each corporate bond issue is matched with a similar municipal bond issue. The implicit tax rate (ITR) is used to measure the spread between corporate and municipal bond yields, and is equal to the yield spread divided by the corporate bond yield.For the, full sample, reductions in the personal and corporate tax rates both decrease ITR. However, the results differ across tax regimes. prior to TRA86, changes in the personal and corporate tax rates have similar effects on ITR. Subsequent to TRA86, changes in the personal tax rate become more important and have a greater effect on ITR than changes in the corporate tax rate. The sample is also divided across time-to-maturity (short/long) and risk level (low/medium). Evidence suggests that: (1) prior to TRA86, the marginal investors in medium-risk, short-term bonds were corporations, while the marginal investors in low-risk, short-term bonds were both individuals and corporations; (2) prior to TRA86, the marginal investors in long-term bonds were both individuals and corporations, regardless of risk level; and (3) subsequent to TRA86, the marginal investors in both short-term and long-term bonds are individuals, regardless of risk level.

This paper examines the corporate income tax compliance costs and their determinants by analyzing survey and financial statements data from firms operating in Greece. We find that corporate tax compliance costs are of considerable size and vary with several firm-specific characteristics, including the firm’s size, its age, the sector in which it operates, its location, and its legal form. The paper intends to raise awareness regarding the impact of tax compliance costs, especially for countries, such as Greece, that were significantly affected by the economic and financial crisis.

This chapter intends to explore the emerging concept of fiscal responsibility (FR), a particularly relevant issue in Europe. There is an ongoing debate about what are companies responsible for, the reasons and the limits for this responsibility. And while the social awareness for this issue increases it is not clear whether corporate tax dealings can be articulated into the wider realm of corporate social responsibility (CSR).

The chapter begins with a brief review of today’s situation in terms of corporate taxation. The changing environment of corporate taxes (from local to global) is described. Production processes are fragmented all over the world, and in the European Union, across national borders of their member States. This complexity is compounded by the increasing dematerialisation of business processes, the higher importance of intangibles and the use of subsidiaries in low-taxed jurisdictions.

The elusive concept of FR is analysed, along with a discussion on the nature of the firm and the limits of tax regulation, particularly the boundaries between legitimate and illegitimate tax avoidance.

Having seen how FR is now emerging, the last part of the chapter analyses the common understandings of CSR today, along with two specific challenges for FR in the realm of CSR. Finally, there is a tentative proposal on how FR may articulate with different theories of CSR.

This study aims to investigate the association between Corporate Social Responsibility (CSR) and tax avoidance, as well as the effect of earnings performance on this link. We suggest a negative association between CSR and tax avoidance based on the Stakeholder Theory. We also suggest that earnings performance moderates this relationship. Based on a sample of 25 Tunisian firms during the years 2012–2017, data were gathered via annual reports of the companies, and a survey-questionnaire was used to gather CSR information. The research design uses ordinary least squares (OLS) regression to investigate the association between CSR and tax. In addition, the analysis is performed using panel data to account for heterogeneity at the individual level and over time. Using this research design, the study provides a comprehensive examination of the effect of CSR on tax avoidance among Tunisian companies over a 6-year period. According to our findings, companies that participate in CSR initiatives show less tax avoidance than those that do not. Moreover, in line with the Slack Resource Theory, for businesses with higher earnings, the negative link between CSR and tax avoidance is stronger. Our research demonstrates that businesses may utilize CSR to improve their standing in the community and lower the likelihood of tax avoidance. These results suggest that profitable firms may have more funds available to spend on CSR initiatives and, as a result, are more motivated to maintain a positive reputation by refraining from tax avoidance strategies.