08 Taxation (Tax)

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Chairs: Jeffery Gramlich
Professor, Carson College of Business, Washington State University, United States

Devan Mescall
Associate Professor, Edwards School of Business, University of Saskatchewan, Canada

Christian Plesner Rossing
Associate Professor, Department of Accounting and Auditing, Copenhagen Business School, Denmark


Recent Submissions

Now showing 1 - 9 of 9
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    Low Commodity Prices and the Potential Revenue Impact of Taxing LIFO Reserves
    ( 2017) Tinkelman, Daniel
    Low commodity prices have reduced LIFO reserves, making prior estimates of reserves and the impact of eliminating LIFO obsolete. Using a combination of IRS and public company data, we estimate overall U.S. LIFO reserves and the potential tax revenue impact. At a 35% (15%) rate, taxing the 2016 LIFO reserves would yield between $19 ($8) and $25 ($11) billion. Although fewer than 1% of 2013 corporate and partnership tax returns with inventory used LIFO, LIFO inventories comprised about 14% of the dollar value of U.S. inventories. The findings are relevant to tax policy and accounting standards, and also provide context for instructors teaching about inventory methods.
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    Directors’ International Work Experience and Tax Avoidance
    ( 2017-09-01) Gonzales, Amanda ; Harris,M. Kathleen ; Omer, Thomas C.
    We examine the effect of directors’ international work experience on the tax avoidance of U.S. firms. We posit that directors with specialized knowledge about international tax regimes can assist firms in reducing worldwide tax obligations. For a sample of U.S. firms from 2004-2013, we find a positive association between tax avoidance and directors with work experience in tax havens and foreign jurisdictions where the firm has operations. The positive associations are consistent across the tax distribution and robust to controls for endogeneity. Finally, we find that the positive association between international work experience and tax avoidance is concentrated in the group of directors who are domiciled overseas or Americans domiciled in the U.S. The results contribute to both the literature on tax avoidance and the literature on the effects of boards of directors on firms’ tax outcomes.
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    Trust and Reciprocity Drive Social Common Goods Contribution Norms
    ( 2017-09-01) Puaschunder, Julia M.
    In the emergent field of tax psychology, the focus on regulating tax evasion recently shifted towards searching for situational cues that elicit common goals compliance. Trust and reciprocity are argued to steer a socially-favorable environment that supports social tax ethics norms. Experiments, in which 256 participants played an economic trust game followed by a common goods game, found evidence for trust and reciprocity leading to individuals contributing to common goals. The more trust and reciprocity was practiced and experienced, the more common goals were supported – leveraging trust and reciprocity as interesting tax compliance antecedents. The results have widespread implications for governmental-citizen relations. Policy makers and public servants are advised to establish a service-oriented customer atmosphere with citizens breeding trust and reciprocity in order to reach common societal goals.
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    The Effect of Repatriation Taxes on Investment Efficiency
    ( 2017-09-01) Amberger, Harald ; Samuel, David M. P. ; Markle, Kevin
    This paper examines the effect of repatriation taxes on investment efficiency, which we define as a subsidiary's investment sensitivity to local growth opportunities. Based on a global sample of firms we provide evidence that subsidiaries invest less efficiently when their ultimate owner is resident in a worldwide tax system. We confirm our results using natural experiments in the UK and Japan, which both switched from a worldwide to a territorial tax system in 2009. Our results suggest that repatriation tax costs reinforce agency conflicts, which distort firms' internal capital markets and lead to sub-optimal investment decisions.
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    The Impact of Stakeholder Orientation on Tax Avoidance: Evidence from a Natural Experiment
    ( 2017-08-31) Mathers, Ani ; Wang, Bin ; Wang, Xiaohong
    We use a quasi-natural experiment to study the causal impact of stakeholder orientation on corporate tax avoidance. Using a difference-in-differences methodology, we find that greater stakeholder orientation due to the enactment of state constituency statutes, which allow corporations to consider all stakeholders’ interests in decision making, results in increased corporate tax avoidance. Firms with limited financial resources, greater needs for internal funds, and fewer risk-averse stakeholders engage in greater tax avoidance after the adoption of constituency statutes. Our results suggest that policies that promote greater stakeholder orientation may not be effective in prompting more tax payment.
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    The Effect of Intellectual Property Boxes on Innovative Activity and Tax Avoidance
    ( 2017-08-31) Bornemann, Tobias ; Laplante, Stacie ; Osswald, Benjamin
    Using the unique setting of a large tax rate cut on patent income in Belgium as a quasi-experiment, we examine the effect of intellectual property box regimes (IP boxes) on firms’ patenting activities and effective tax rates. We find that firms, on average, do not significantly increase their patenting activities after the introduction of an IP box regime. However, patent-owning firms experience a 1.6 percentage point lower cash effective tax rate after the introduction of the IP box regime compared to non-patenting firms. This translates into tax revenue reduction of approximately $ 182 million (a 1.5 % reduction in corporate tax revenue) without corresponding increases in firms’ innovative output. Moreover, we find that firms separate into three groups. Subsidiaries of multinational firms without opportunities to shift income out of the country and, to a lesser extent, domestic firms enjoy significant tax savings. In contrast, subsidiaries of multinational firms with opportunities to shift income out of the country do not experience significant reductions in effective tax rates. Overall, we provide initial evidence that IP boxes provide benefits for domestic firms and multinationals without income shifting opportunities.
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    Shareholder Litigation and Corporate Tax Avoidance
    ( 2017-08-31) Wang, Bin ; Yang, Rong ; Arena, Matteo
    We examine whether the threat of shareholder litigation is systematically related to corporate tax avoidance activities. Using the Ninth Circuit Court of Appeals as a natural experiment, we find a strong negative effect of the threat of shareholder litigation on corporate tax avoidance, as captured by effective tax rates and book-tax differences. We find that the negative effect is mitigated by strong union power and geographic diversifications, whereas is intensified by high industry litigation risk. Collectively, this study sheds light on the “undersheltering puzzle” of corporate aggressive tax behavior.
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    Corporate Dividend Policy, Tax Avoidance and IRS Scrutiny
    ( 2017-10-13) Anderson, Mark ; Rashid, Harun ; Warsame, Hussein
    Dividend policy is a highly researched area, yet there is little research on the consequences of dividend policy for the largest “minority shareholder”, the government. In addition, while there is a substantial body of research on the determinants of tax avoidance, only a few accounting studies have addressed the taxing authority’s scrutiny or reaction to corporate tax avoidance. In this study, we investigate how dividend payout is related to proxies for tax avoidance, including effective tax rates (ETRs), book-tax differences (BTD) and unrecognized tax benefits (UTBs), and to actual and anticipated consequences of tax avoidance including tax settlement (TS) with the Internal Revenue Service (IRS) upon tax audit and estimated interest and penalties (IPs) accrued for uncertain tax planning. We find that dividend payout has significantly negative relations with BOOK-ETR and CASH-ETR, and positive relations with BTD and UTBs, indicating that dividend payout is associated with aggressive tax strategy. We also find that dividend payout is positively related to both TS and IPs, indicating that dividend pay-out is related to risky tax positions. Our results hold up well under a battery of robustness checks.
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    Is tax return information useful to equity investors?
    ( 2017-08-28) Demere, Paul
    In this study, I examine whether tax return information is incrementally useful to equity investors relative to publicly-available information, such as financial statements. To test this relation, I exploit unique features of the syndicated loan market, as prior literature shows that lenders obtain tax returns from borrowers and that lenders’ private information is transmitted to equity markets when institutional investors are part of a loan syndicate. I find economically significant increases in tax expense valuation and decreases in tax-related market anomalies following the issuance of institutional syndicated loans, consistent with equity investors finding information about firm performance in tax returns that is useful for their trading decisions. I also document that tax returns are a valuable information source that can motivate institutional investor participation in loan syndicates. This study informs the important, ongoing policy debate over public disclosure of corporate tax return information and extends prior research by showing that investors use information from tax returns incremental to information in financial statements.