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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.

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.

The purpose of this study is to examine the impact of internal and external corporate governance mechanisms on the probability of engaging in tax aggressiveness.

This study uses a sample of 52 firms listed on the Tunis stock exchange observed over the 2003–2016 period (The authors had to stop sampling in 2016 because the measurement of tax aggressiveness requires 4 years after the year of study. Therefore, the data on the measurement of tax aggressiveness were collected until 2020). This paper uses the logistic regression technique.

The results of the first logistic regression show that ownership structure and the supervision role of the tax authorities are determining factors that explain tax aggressiveness; while, the attributes of the board of directors does not seem to explain the probability of engaging in aggressive tax strategies. To further probe this question, the authors carried out additional analyses that examine the moderating effect of controlling shareholders on the relationship between the attributes of the board and tax aggressiveness. The results of our additional regressions indicate that the effect of these attributes improves in cases of non-presence of a controlling shareholder. This implies that the role that the board of directors can play in controlling management is possibly conditioned by the presence or no of control block holders.

The major limitation of this study is that it concentrates only on Tunisian listed companies because they are the only companies the financial statements of which are publicly available in Tunisia. Although the sample is relatively small due to the problem of data availability, it appears to be satisfactory given the 15-year sampling period (i.e. from 2003 to 2016).

The results of the study may help Tunisian regulators create requirements for corporate governance (such as the size of the board of directors and audit committee or the concentration of ownership). Moreover, this study not only focuses on the effect of corporate governance mechanisms on tax aggressiveness but also provides shareholders with information on the governance mechanisms to which they should pay more attention in their desire to obtain more efficient tax results.

The findings are also useful for tax policymakers seeking to identify the circumstances that give rise to an increased risk of tax aggressiveness, as tax aggressive behavior and the resulting non-payment of taxes also have societal implications. In fact, taxes also play an important role in financing the provision of public goods, making corporation tax a matter of public concern.

The present study differs from others in the existing literature by designing a more precise measure of tax aggressiveness and examining the interaction between two internal governance mechanisms; the presence of a controlling shareholder and the attributes of the board of directors. This study also examines the impact of the control exercised by the tax authorities on the behavior of firms in terms of tax aggressiveness.

This study examines short selling as one external determinant of corporate tax avoidance. Prior research suggests that short sellers have information advantages over retail investors, and high short-interest levels are a bearish signal of targeted stock prices. As a result, when short-interest levels are high, managers have been shown to take actions to minimize the negative effect of high short interest on firms’ stock prices. Tax-avoidance activities may convey a signal of bad news (i.e., high stock price crash risk). We predict that, when short-interest levels are high, managers possess incentives to reduce firm tax avoidance in order to reduce the associated stock price crash risk. Consistent with this prediction, we find that short interest is negatively associated with subsequent tax-avoidance levels. This effect is incremental to other factors identified by prior research. We conclude that short selling significantly constrains corporate tax avoidance.

Using a meta-regression analysis, we quantitatively review the empirical literature on the relation between effective tax rate (ETR) and firm size. Accounting literature offers two competing theories on this relation: The political cost theory, suggesting a positive size-ETR relation, and the political power theory, suggesting a negative size-ETR relation. Using a unique data set of 56 studies that do not show a clear tendency towards either of the two theories, we contribute to the discussion on the size-ETR relation in three ways: First, applying meta-regression analysis on a US meta-data set, we provide evidence supporting the political cost theory. Second, our analysis reveals factors that are possible sources of variation and bias in previous empirical studies; these findings can improve future empirical and analytical models. Third, we extend our analysis to a cross-country meta-data set; this extension enables us to investigate explanations for the two competing theories in more detail. We find that Hofstede’s cultural dimensions theory, a transparency index and a corruption index explain variation in the size-ETR relation. Independent of the two theories, we also find that tax planning aspects potentially affect the size-ETR relation. To our knowledge, these explanations have not yet been investigated in our research context.

The issue of tax evasion through fraudulent financial reporting committed by companies is a major concern facing the tax authority in Malaysia. As such, the purpose of this study is to propose a cohesive model of predicting tax evasion from the perspective of fraudulent financial reporting amongst small- and medium-sized enterprise (SME) taxpayers.

The proposed model for this study is designed to explore the extent of the relationships between the independent variables: family ownership firms, company size, presence of tax professionals, company’s duration in business and frequency of tax audits and the moderating variable, i.e. tax audit officers’ level of competence; and the dependent variable, i.e. tax evasion from the perspective of fraudulent financial reporting. This study is grounded on four theories: agency theory, political cost theory, economic deterrence theory and competency theory. Data will be gathered from actual audit cases resolved by the Inland Revenue Board of Malaysia. Ordinary least square regression analysis is proposed for the investigation.

This study anticipates that family ownership firms, company size, presence of tax professionals, company’s duration in business and frequency of tax audits could be associated with tax evasion amongst SMEs in Malaysia. This study further proposes that highly competent tax audit officers could mitigate the relationship between frequency of tax audits and tax evasion practices amongst SMEs in Malaysia.

This study should be able to provide a cohesive model of predicting tax evasion from the perspective of fraudulent financial reporting amongst SMEs in Malaysia. Research on fraudulent financial reporting amongst SMEs is very limited, especially involving the level of competence of the tax audit officers; therefore, this study should contribute to the tax evasion literature by providing a comprehensive model of predicting tax evasion through fraudulent financial reporting using a Malaysian tax setting.

The purpose of this paper is to investigate the association between corporate tax aggressiveness and cash holdings and that between corporate tax aggressiveness and the value of cash. Further, this study explores the impact of the tax enforcement level on the above associations.

Under a Chinese special institutional background, this study constructs tax aggressiveness and tax enforcement measures. On this basis, using a sample of Chinese A-share listed companies over the period from 1990 to 2010, this study empirically tests the association between tax enforcement, corporate tax aggressiveness, and cash holdings.

By empirically testing with Chinese listed companies as the sample, this paper finds the following: with the increase in the tax avoidance level, the precautionary incentives of cash, and the level of financial constraint likewise increase, which will make the level of firm cash savings increase. Meanwhile, although tax avoidance will induce lower transparency and higher agency costs, the marginal value of the cash held by the more aggressive firms is higher due to the higher market competition effect of the cash. Additional tests suggest that, the tax enforcement level can weaken the effect of tax avoidance on the transparency and agency problem; however, because the tax enforcement level can also increase the tax risk of the firm, the positive relation between firm’s tax avoidance and cash savings is strengthened correspondingly. On the value of cash holdings, the tax enforcement level can also make the marginal value of tax aggressive firms higher.

First, this paper provides new evidence on the determinants of firm’s cash holdings from the perspective of cash savings. Second, this paper examines the association between Chinese firm’s tax aggressiveness and the value of cash, which not only provides evidence for the local tax literature but also has reference value for the foreign literature. Third, this paper has reference value for research on the association between corporate tax avoidance activities and other operating decisions. Finally, this paper not only provides new evidence on the association between tax enforcement and corporate governance, but also extends the prior literature on the association between corporate tax aggressiveness and cash holdings.

The purpose of this paper is to tackle one of the issues in tax evasion, that is from the perspective of fraudulent financial reporting amongst small and medium-sized enterprises (SMEs) in Malaysia. This study is intended to examine the relationships between certain company attributes, namely, company ownership structure, the size of company and the frequency of tax audits and how they relate to tax evasion practices amongst SMEs in Malaysia.

This paper examined 397 companies which have been audited by the Inland Revenue Board of Malaysia (IRBM) during the years 2016 and 2017. A research model was developed and the authors use ordinary least square regression analysis to examine the effect of three prominent independent variables, which are company ownership structure, the size of company and the frequency of tax audits on SMEs’ tax evasion practices in Malaysia.

The authors find that family ownership firms and company size have statistically significant positive relationship with tax evasion practices detected during tax audits. The results also show that the frequency of tax audits conducted positively affect the increase of tax evasion activities amongst SMEs in Malaysia.

To the best of the authors’ knowledge, this study could be the first in Malaysia that uses the actual audited data examining the fraudulent financial reporting cases amongst SMEs, and this could provide important insights to the IRBM to enable this tax authority to improve its policy-making decisions in relation to selecting the right companies for audits in the future and subsequently may assist its collection department in generating additional income for the nation.

The purpose of this paper is to investigate the association between aggressive tax planning and stock price synchronicity.

Employing the special institutional background of China, this study constructs tax aggressiveness and stock price synchronicity measures for a large sample of Chinese stocks spanning the period 2003–2015. The authors employ OLS regression as the baseline methodology, and a fixed effect model, the Fama–Macbeth method and GMM as sensitivity checks. Matched samples and difference-in-difference analyses are used to control for endogeneity.

The authors find a significant and positive association between aggressive tax planning and stock price synchronicity. Because material information about risky tax transactions tends to be hidden in various tax accruals accounts, aggressive tax strategies make financial statements less transparent, thereby, increasing information asymmetry and decreasing stock price informativeness. The authors also find that the firms engaging in aggressive tax planning exhibit relatively high corporate opacity. In addition, the authors find that improvements in the tax enforcement regime, ownership status and high-quality auditors all constrain the adverse effects of tax aggressiveness.

This study has important practical implications for China’s regulators, who are striving to reduce the tax burden of enterprises. It also helps investors to consider investment decisions more appropriately from a taxation perspective.

First, this paper contributes to the stock price efficiency literature by identifying the effect of a hitherto unexamined factor, namely, firm-level aggressive tax planning, on the efficiency of stock prices. Second, this study provides further empirical evidence to support the agency view of tax aggressiveness, and the informational interpretation of stock price synchronicity. Third, this study helps us better understand the effects of firm-level tax policy on firm-specific information capitalization in an environment where overall country-level investor protection is relatively weak.

From the perspective of local government tax administration, the impact of geographic dispersion on the corporate tax burden is investigated in this paper.

Using unbalanced panel data with a sample of listed companies from 2003 to 2020 in China, this paper focuses on the effect of geographic dispersion on corporate tax burden and the mechanisms.

It is found that corporate tax burden is positively related to geographic dispersion. It is also found that geographic dispersion affects the corporate tax burden by increasing the effort of local government tax administration. In addition, the relation between geographic dispersion and corporate tax burden is more pronounced for local SOEs prior to the implementation of Golden Tax Project III and in cases where local governments face stronger financial pressure to obtain revenue.

This study has important implications for the promotion of the coordinated development of the regional economy, as well as the legalization, modernization and informatization of tax administration.