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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…

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

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Article
Publication date: 1 January 2013

Roman Lanis and Grant Richardson

The purpose of this paper is to empirically test legitimacy theory by comparing the corporate social responsibility (CSR) disclosures of tax aggressive corporations with…

Abstract

Purpose

The purpose of this paper is to empirically test legitimacy theory by comparing the corporate social responsibility (CSR) disclosures of tax aggressive corporations with those of non‐tax aggressive corporations in Australia.

Design/methodology/approach

A unique sample of 20 Australian corporations accused by the Australian Taxation Office of engaging in tax aggressive activities during the 2001‐2006 period was hand‐collected. These 20 tax aggressive corporations were then matched with 20 non‐tax aggressive corporations (based on industry classification, corporation size and time period). This process generated a choice‐based sample of 40 corporations for empirical analysis. Using content analysis techniques, financial accounting data were gathered from the Aspect‐Huntley database and CSR disclosures were individually measured for each corporation in the sample. Various statistical techniques were then used (e.g. paired sample statistics, Pearson correlation analysis and ordinary least squares regression analysis) to test legitimacy theory.

Findings

Overall, the empirical results consistently show a positive and statistically significant association between corporate tax aggressiveness and CSR disclosure, thereby confirming legitimacy theory in the context of corporate tax aggressiveness.

Originality/value

The paper provides empirical evidence in support of legitimacy theory as an explanation for why specific corporations disclose more CSR‐related information than others. Additionally, to the best of the authors' knowledge, the paper is one of the first to document an empirical association between corporate tax aggressiveness and CSR in the literature.

Details

Accounting, Auditing & Accountability Journal, vol. 26 no. 1
Type: Research Article
ISSN: 0951-3574

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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…

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.

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Article
Publication date: 1 March 2002

Joel M. DiCicco

This paper suggests that the proliferation of highly sophisticated corporate tax shelters has been a major reason for the decline of corporate income tax as a percentage…

Abstract

This paper suggests that the proliferation of highly sophisticated corporate tax shelters has been a major reason for the decline of corporate income tax as a percentage of GDP and of total Federal receipts. Many of these shelters have extended beyond solid tax planning and into the realm of subversion. The controversy surrounding possible remedies for these abuses is just as lively as the debates surrounding the tax shelters themselves. This article explores the nature of a variety of tax shelters in an effort to illustrate the insidious nature of the corporate tax shelter problem and then discusses solutions, both legislative and nonlegislative, designed to curb these abuses.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 14 no. 3
Type: Research Article
ISSN: 1096-3367

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Article
Publication date: 3 February 2020

Akira Matsuoka

The purpose of this paper is to warn policymakers, by examining certain aspects of policy, possibly overlooked, against overestimating the power of corporate social…

Abstract

Purpose

The purpose of this paper is to warn policymakers, by examining certain aspects of policy, possibly overlooked, against overestimating the power of corporate social responsibility (CSR) idea to inhibit tax avoidance by the multinationals.

Design/methodology/approach

By examining, with narrative and qualitative means, existing insights such as ones with regard to the inefficiency of the public sector.

Findings

Implication that the following three factors could not co-exist: promoting CSR activities, which include moral tax payment by the multinational corporations; requiring the multinationals to refrain from immorally reducing effective tax rates and keeping the current level of public utilities.

Originality/value

To sound an alarm to tax policymakers who are particularly addicted to the base erosion and profit shifting by multinational enterprises recently by this new implication mixing up with existing findings with regard to the CSR idea and cost-inefficiency character of the public sector activities.

Details

Journal of Financial Crime, vol. 27 no. 4
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 1 April 1973

From time to time we have had occasion to refer to earnings per share in terms of the new ‘imputation’ system of company taxation. This is a somewhat complex system and we…

Abstract

From time to time we have had occasion to refer to earnings per share in terms of the new ‘imputation’ system of company taxation. This is a somewhat complex system and we have asked our Financial Correspondent to explain in some detail what is involved. In attempting an explanation, he has found it useful to compare the present system not only, as others have done, with the preceding corporation tax system inaugurated by Mr Callaghan in his 1965 Budget, but also with the earlier profits‐cum‐ income tax system. There are of course many other systems of company taxation, but for purposes of explanation a comparison of the three systems — profits‐plus‐income tax, the Callaghan‐type corporation tax, and the imputation system—is sufficient.

Details

Retail and Distribution Management, vol. 1 no. 4
Type: Research Article
ISSN: 0307-2363

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Article
Publication date: 13 February 2017

Akanksha Jalan and R. Vaidyanathan

This paper is an effort to demystify tax havens – what they mean, what they offer and why they are harmful. It offers a detailed analysis of abusive tax planning by…

Abstract

Purpose

This paper is an effort to demystify tax havens – what they mean, what they offer and why they are harmful. It offers a detailed analysis of abusive tax planning by multinational corporations, involving the use of tax havens, shedding light on how corporations use “egregious” tax-sheltering techniques right from their incorporation to avoid payment of income taxes. The paper also discusses global efforts against the phenomenon and policy recommendations.

Design/methodology/approach

The paper brings together definitions from various sources to accurately define and identify tax haven economies. The key contribution of the paper is to diagrammatically explain the use of tax havens by MNCs right from the time they are incorporated. It explains how every big and small corporate decision is motivated by the desire to save taxes and how tax havens come in handy for such corporations.

Findings

This paper finds that base erosion and profit shifting (BEPS) is a pervasive phenomenon, largely due to the suppliers of tax haven operations. Here, corporate decisions are divided into strategic and operational and further subdivided into investing, operating and financing activities, and provide real-life corporate examples of how tax havens fit into almost every corporate decision. This is the key contribution of the paper.

Research limitations/implications

This is a review paper that sums up knowledge about tax havens and their use by MNCs. It does not, however, use empirical data to corroborate its findings. It would be interesting to see empirically whether MNCs with greater tax haven operations actually have lower effective tax rates.

Practical implications

The paper can provide a framework for designing tax policies in a manner that geographical arbitrage can be minimized. It can enable formulation of the necessary incentive structures in the form of penalties, rewards and the like for both the users and providers of tax haven services to curb massive base and profit shifting out of high-tax countries.

Social implications

The paper is one small step in the direction of bringing about equality in tax payments, i.e. to align real tax systems with the canon of equality that Adam Smith once dreamt of. Taxes should be progressive in nature, implying that the amount of taxes paid should increase with one’s income. However, with the advent of offshore financial centres and egregious tax planning techniques, only the smaller corporations and middle-class individuals end up paying taxes, while the rich and bigger corporations get away easily.

Originality/value

The paper explores in detail the manner in which MNCs use, rather exploit, regulatory loopholes in tax systems of different countries to save on tax payments. By shifting their tax base from one country to another, MNCs not only hamper Treasury collections but also breed disrespect for the global tax system. The paper can help in designing tax laws in tune with such corporate motives.

Details

Journal of Financial Regulation and Compliance, vol. 25 no. 1
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 19 January 2010

Peter Westort, Russ Kashian and Richard Cummings

The purpose of this paper is to examine the profitability of different ownership forms of banks. The two ownership forms are corporations that elect to be taxed as a…

Abstract

Purpose

The purpose of this paper is to examine the profitability of different ownership forms of banks. The two ownership forms are corporations that elect to be taxed as a Subchapter S corporation (limited to 100 shareholders) as opposed to those corporations that do not make this election. The impact this election has on the dividends paid to the investors is examined.

Design/methodology/approach

This paper uses Call Report Data on Wisconsin banks as collected by SNL Securities as its database. The research methodology uses two measures of performance: dividend ratio and accounting return on assets (ROA). The dividend ratio is defined as dividends as a percentage of net income (dividends/net income). Accounting return on investment is net income as a percentage of total assets (net income/total assets) and is a measure of profitability. A number of regressions were created with these as the endogenenous variables and a heteroskedasticity‐corrected ordinary least squares (OLS) model was used.

Findings

Subchapter S banks were found to be more profitable (as measured by ROA). However, when taxes are taken into account, there is no practical difference in profitability between the two types of corporate structure.

Research limitations/implications

By limiting the analysis to Wisconsin, a single state, confusion that may be caused by both state laws (personal and corporate) and local corporate cultures is avoided.

Practical implications

The practical implications of this research can guide the federal government in determining whether this form of stock ownership is a device that reduces or increases federal tax revenues. It can also provide insight to the stockholders of these banks into the differences in profitability these corporate forms offer.

Originality/value

While earlier literature has reviewed the concept of Subchapter S corporations and its theoretical impact, little research has been conducted that tests the actual results. Due to the private nature of the corporate form (these types of corporations are often not publicly traded and have no incentive to reveal private financial records), this original research is the result of the public nature of banks that provide a rich dataset for us to examine.

Details

Managerial Finance, vol. 36 no. 2
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 20 March 2001

Abstract

Details

Edwin Seligman's Lectures on Public Finance, 1927/1928
Type: Book
ISBN: 978-1-84950-073-9

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Book part
Publication date: 22 October 2019

M. Catherine Cleaveland, Lynn Comer Jones and Kathryn K. Epps

The Compliance Assurance Process (CAP) is a federally funded IRS corporate audit program. The program’s goal is to determine the best tax treatment for complex…

Abstract

The Compliance Assurance Process (CAP) is a federally funded IRS corporate audit program. The program’s goal is to determine the best tax treatment for complex transactions before a corporation files its tax return. The US Department of the Treasury has voiced concerns regarding resource constraints and whether the program enhances public (nonprofessional investor) and investor confidence. We conduct a behavioral experiment using 176 Master of Business Administration and Master of Accounting students as proxies for nonprofessional investors. In the experiment, we examine the effects of CAP participation and corporate tax risk profile on judgments about financial statement credibility. We use a 2 × 2 experimental design with corporate tax risk profile manipulated as high risk or low risk and participation in CAP manipulated as participatory or non-participatory. This research investigates whether CAP program participation and/or tax risk level influence nonprofessional investors’ perceptions of the certainty and accuracy of the provision for income taxes. The results suggest both CAP program participation and tax risk influence nonprofessional investors’ perceptions of the certainty of the income tax provision; and tax risk also influences nonprofessional investors’ perception of the accuracy of the income tax provision.

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