How To Find Out If A Multinational Corporation Can Avoid Income Taxes

Size: px
Start display at page:

Download "How To Find Out If A Multinational Corporation Can Avoid Income Taxes"

Transcription

1 Tax Avoidance Activities of U.S. Multinational Corporations * SONJA OLHOFT REGO, University of Iowa Abstract This paper investigates whether economies of scale and scope exist for tax planning. In particular, do multinational corporations avoid more taxes than U.S. domestic-only companies, resulting in lower effective tax rates? While the empirical results indicate that ceteris paribus, larger corporations have higher effective tax rates, firms with greater pre-tax income have lower effective tax rates. The negative relation between ETRs and pre-tax income is consistent with firms with greater pre-tax income having more incentives and resources to engage in tax planning. Consistent with multinational corporations being able to avoid income taxes that domestic-only companies cannot, I find that multinational corporations with more extensive foreign operations have lower worldwide ETRs than other firms do. Finally, in a sample of multinational corporations only, I find that higher levels of U.S. pre-tax income are associated with lower U.S. and foreign ETRs, while higher levels of foreign pre-tax income are associated with higher U.S. and foreign ETRs. Thus, large amounts of foreign income are associated with higher corporate tax burdens. Overall, I find substantial evidence of economies of scale and scope to tax planning. Keywords: Effective tax rates; Tax planning; Tax avoidance; Multinational * Send correspondence to: Sonja Olhoft Rego University of Iowa Tippie College of Business 108 PBB, Room W278 Iowa City, Iowa Sonja-Olhoft@uiowa.edu Phone: (319) Fax: (319) This paper is based upon my dissertation at the University of Michigan. I owe particular thanks to my committee members, Joel Slemrod (co-chair), Richard Sloan (co-chair), Doug Shackelford, and Roger Gordon. This paper has also benefited from the helpful comments of Alan Macnaughton and two anonymous reviewers, Mark Bradshaw, Ilia Dichev, Raffi Indjejikian, Mort Pincus, Rick Tubbs, Peter Wysocki, Bob Yetman, and workshop participants at Boston College, INSEAD, the University of Iowa, the University of Michigan, and the University of Texas at Austin.

2 1. Introduction Previous research examining average effective tax rates (ETRs) has found a wide variety of relations between ETRs and firm characteristics such as size, income, leverage, capital intensity, and return on assets. This paper attempts to reconcile the contradictory evidence in the literature by addressing economies of scale and scope. 1 Specifically, I ask whether economies of scale and scope exist for tax planning such that firms having greater economic scale and scope avoid more income taxes, resulting in lower ETRs? Effective tax planning (a.k.a. tax avoidance) reduces the present value of tax payments and generally increases the after-tax rate of return to investors in a firm. 2 While measuring effective tax planning is a difficult task, prior research considers ETRs a measure of the effectiveness of tax planning (e.g., Mills, Erickson, and Maydew, 1998; Phillips, 2001). Consistent with such research, I define ETRs as the ratio of income taxes currently payable to tax authorities, to pre-tax accounting income. Thus, if two firms have the same pre-tax accounting income but pay different amounts of income taxes, the firm that pays less tax will have a lower ETR and will be viewed as being more effective in tax planning. This paper extends the accounting literature by reconciling prior research on the relation between ETRs and two measures of economic scale and scope: firm size and pretax income. 3 More importantly, I focus on the relation between ETRs and another measure of economic scope: the extent of multinational activity. The ETRs of multinational corporations are of particular concern, as some observers believe that multinational corporations "may have significantly greater opportunities to escape tax 1

3 with respect to cross-border investments than with respect to strictly domestic investments" (Leblang 1998, p. 181). Multinational corporations have opportunities to avoid income taxation by locating operations in low-tax rate countries, by shifting income from high-tax locations to low-tax locations, by exploiting differences between the tax rules of different countries, and by taking advantage of tax subsidy agreements with host countries. However, Collins and Shackelford (1999) conclude that "empirical findings in this area are insufficient and inconclusive and fail to either support or undermine Leblang's assertions" (p. 131). ETRs have been an important measure of corporate tax burden for policymakers and academic researchers for several decades. 4 For example, a series of reports by the Citizens for Tax Justice (CTJ, 1984, 1985, 1986) focus on the ETRs of corporate taxpayers and were influential in the development of the Tax Reform Act of The practitioner literature frequently discusses specific tax planning techniques to reduce corporate ETRs. For instance, Levenson (1999, p. 16) states, "(Certain) strategies can help companies reduce their effective tax rates from the typical 35 to 40 percent to as low as 10 percent. This reduction translates to higher earnings per share and ultimately places companies in a more favorable light with analysts when compared to competitors." The widespread interest in ETRs suggests that ETRs have valuation implications. Firms that consistently report relatively low worldwide current taxes payable (i.e., low ETRs) have greater after-tax cash flows. These greater after-tax cash flows should be reflected in analysts' earnings forecasts and investment recommendations and be impounded in security prices. In fact, based on data indicating that firms with ETRs below the industry average have higher price-earnings ratios than firms with ETRs above 2

4 the industry average, Swenson (1999) speculates that the stock market views low-tax firms as better at controlling costs than their high-tax counterparts. In addition, Abarbanell and Bushee (1998) find that changes in ETRs are positive predictors of oneyear-ahead earnings changes. Thus, ETRs are an important measure of performance to a diverse set of stakeholders. In testing whether economies of scale and scope exist for tax planning, I first perform empirical tests on a broad sample of U.S. domestic and multinational corporations. I then focus the analysis on a sub-sample of U.S. multinational corporations only. In the broad sample of U.S. domestic and multinational corporations, I find that larger firms have higher worldwide ETRs. This finding is consistent with some of the prior literature, which concludes that larger firms face political costs that smaller firms do not (e.g., Zimmerman, 1983; Omer, Molloy, and Ziebart, 1993). Holding firm size constant, I also find that firms with greater income have lower worldwide ETRs. This result contradicts Wilkie (1988), who does not control for firm size. The negative relation between worldwide ETRs and income is consistent with firms with large amounts of pre-tax income having more incentives and resources to engage in tax planning. Regarding foreign operations, I document that multinational corporations with more extensive foreign operations have lower worldwide ETRs than firms with less extensive foreign operations. These results are consistent with economies of scope to tax planning. I also examine the worldwide, U.S., and foreign ETRs for a sample of U.S. multinational corporations. Consistent with the broad sample of firms, I find that larger corporations have higher ETRs than smaller firms, and corporations with greater income 3

5 have lower ETRs than firms with less income. In fact, worldwide ETRs are decreasing in both U.S. and foreign pre-tax income. However, joint estimation of U.S. and foreign ETRs indicate that while U.S. and foreign ETRs are decreasing in the amount of U.S. pre-tax income, they are increasing in the amount of foreign pre-tax income. This result suggests that while large amounts of U.S. pre-tax income are associated with tax planning and lower corporate tax burdens, large amounts of foreign pre-tax income are associated with higher corporate tax burdens. Finally, similar to the results for the broad sample of firms, multinational corporations with more extensive foreign operations have lower worldwide and foreign ETRs than multinational corporations with less extensive foreign operations. Overall, these results support the notion that economies of scale and scope can significantly affect a firm's ability to reduce its tax burden through tax planning. In particular, firms with higher levels of pre-tax income and more extensive foreign operations are able to reduce their U.S., foreign, and worldwide tax burdens through tax planning activities. Further, by comparing the tax burdens of multinational and domesticonly firms, this study responds to Collins and Shackelford's (1999) assertion that empirical research does not provide conclusive evidence that multinational corporations pay less income tax than domestic-only companies. The remainder of this paper is organized as follows: section 2 discusses prior research and develops empirical hypotheses. Section 3 presents the research design and sample selection. Section 4 discusses the results of empirical tests, and section 5 concludes. 4

6 2. ETRs and Economic Scale and Scope 2.1 Background Substantial amounts of prior research have examined ETRs as a measure of corporate tax burden. For example, Stickney and McGee (1982) investigate the causes of observable differences in corporate tax burdens. They conclude that capital intensity, leverage, and natural resource activities create variation in ETRs across firms, while foreign operations and size are less important determinants of ETRs. Wilkie (1988) argues that pre-tax income is an important determinant of variation in corporate tax burden. Gupta and Newberry (1997) investigate other determinants of variation in ETRs using panel data and conclude that ETRs are systematically related to a firm's capital structure, asset mix, and return on assets. The relations between ETRs and certain firm characteristics are consistent across ETR studies. For instance, Stickney and McGee (1982), Gupta and Newberry (1997), and Mills, Erickson, and Maydew (1998) each document a negative relation between ETRs and leverage and between ETRs and capital intensity. On the other hand, the evidence about the relation of ETRs to other firm characteristics, such as firm size, income, and foreign operations, is inconsistent across studies. Firm size is the most controversial variable examined in prior ETR research. Siegfried (1972) hypothesizes that larger firms should have lower ETRs than smaller firms because larger firms have greater resources with which to (1) influence the political process, (2) develop expertise in tax planning, and (3) organize their activities in optimal tax saving ways. Underlying Siegfried's arguments (and much of the ETR literature) is the concept that ETRs can be considered a measure of effective tax planning. 5

7 In contrast, proponents of the 'political cost hypothesis' claim that large firms are subjected to greater government scrutiny and wealth transfers than smaller firms are, which should translate into higher corporate tax burdens for large firms. 5 However, the empirical evidence is mixed. Siegfried (1972), Stickney and McGee (1982), and Porcano (1986) each find a significantly negative association between ETRs and firm size. In contrast, Zimmerman (1983) and Omer, Molloy, and Ziebart (1993) document a significantly positive relation between ETRs and firm size, while Jacob (1996), Gupta and Newberry (1997), and Mills, Erickson, and Maydew (1998) do not find any link. Differences in results have been attributed to sample selection (industry composition, inclusion/exclusion of foreign firms), ETR definition (U.S. federal income tax, worldwide income tax, inclusion/exclusion of deferred taxes), and the time period under investigation. 6 A substantial portion of previous research applies univariate analysis to examine variation in ETRs across firms. Gupta and Newberry (1997) note the limitations of such studies and examine variation in ETRs in a multivariate framework. Nonetheless, Gupta and Newberry state that a complete model of ETR variability would include additional factors not included in their model, such as the extent of foreign operations. In this paper, I empirically model ETRs as a function of foreign operations and attempt to reconcile the results in the prior literature. The usual definition of ETRs is income taxes currently payable divided by pre-tax accounting income. Since ETRs compare the current tax liability generated by taxable income to pre-tax income based on generally accepted accounting principles, ETRs measure the proficiency of a corporation to reduce its current tax liability relative to its 6

8 pre-tax accounting income. As a result, ETRs reflect the relative tax burden across firms. 7 Tax avoidance activities affect ETRs in at least two ways. First, tax avoidance activities often create book-tax differences. 8 Book-tax differences are both temporary and permanent differences between a firm s financial accounting and taxable incomes. Book-tax differences create variation in ETRs because the numerator is based on taxable income, whereas the denominator is based on financial accounting income. Tax motivated transactions, such as foreign sales corporations, tax-exempt income, tax credits, and deferral of income recognition for tax purposes typically reduce a firm's ETR. Second, multinational corporations frequently use their foreign operations to avoid income taxation, and ETRs capture this type of tax avoidance. For example, shifting income from a high-tax jurisdiction to a low-tax jurisdiction reduces a multinational corporation s worldwide ETR. The worldwide ETR is reduced because the denominator has remained constant (pre-tax accounting income has not changed), while the numerator is smaller (income taxes currently payable has decreased). In general, firms that avoid income taxes by reducing their taxable income while maintaining their financial accounting income will have lower ETRs, making ETRs a reasonable measure of effective tax planning. 2.2 Hypothesis Development Slemrod (1998) and Grubert and Slemrod (1996) develop economic models of taxpayer behavior. These models assume that taxpayers with greater income and capital 7

9 investment have lower average and marginal costs of tax avoidance. Consistent with these theoretical predictions, Mills, Erickson, and Maydew (1998) conclude from their empirical tests that larger firms have lower average costs of tax planning. Slemrod (1998) also suggests that the pattern of multinational operations influences a taxpayer's costs of tax avoidance. In particular, the costs of avoidance should be lower for firms that have operations in low-tax jurisdictions. Thus, prior research indicates that the costs of tax planning are decreasing in firm size, income, and foreign operations. While firm size reflects economic scale, and foreign operations reflect economic scope, the level of income reflects both economic scale and scope. The level of income reflects economic scale because the amount of pretax income is related to firm size; e.g., consider the income of large, multinational oil companies compared to the income of smaller, regional oil companies. The level of income reflects economic scope because firms with greater income likely have multiple business segments and are able to offset net operating losses from less profitable business segments against the income of more profitable business segments. 9 All else equal, negative relations between the marginal costs of tax planning and, respectively, firm size, income, and foreign operations, should translate into more effective tax planning and lower ETRs for firms of greater economic scale and scope. Consistent with economies of scale to tax planning, large firms generally engage in more business activities and more financial transactions than small firms do, thereby providing more opportunities to avoid income taxes. For example, large firms may be able to avoid income taxation through inter-company transactions, tax-advantaged leasing and financing arrangements, and the complex use of flow-through entities such as 8

10 partnerships and real estate investment trusts. 10 However, proponents of the political cost hypothesis argue that larger firms are likely to pay more income taxes than smaller firms do, as a result of increased visibility and government scrutiny and expropriation of resources. Thus, the relation between worldwide ETRs and firm size is an unresolved empirical question, suggesting the following hypothesis: H1: Worldwide ETRs of large and small firms differ. If economies of scale in tax planning generate more (less) tax benefits than the tax costs of greater public scrutiny, then large firms will have lower (higher) worldwide ETRs than smaller firms do. Wilkie (1988) and Wilkie and Limberg (1993) document a positive relation between ETRs and pre-tax income. However, these studies present univariate results that do not control for firm size, which omits an important correlated variable. Holding firm size constant, firms with greater pre-tax income are likely to avoid more income taxes than firms with less pre-tax income, since firms with greater income have lower costs of tax avoidance. Manzon and Plesko (2001) argue that profitable firms can make more efficient use of tax deductions, credits, and exemptions relative to less profitable firms, resulting in greater book-tax differences. Finally, firms with greater pre-tax income should have greater incentives and resources to engage in tax planning. This suggests the following hypothesis, stated in alternative form: H2: Firms with greater pre-tax income avoid proportionately more income taxes than do firms with less income, resulting in lower worldwide ETRs. 9

11 Multinational corporations are fundamentally different from their domestic counterparts as they operate in multiple political, cultural, and economic environments, as well as different tax jurisdictions. Several studies have considered foreign operations as a determinant of ETRs, but none has designed empirical tests to specifically examine the impact of foreign operations on ETRs. Mills, Erickson, and Maydew (1998) use a dummy variable to indicate the existence of foreign operations and find a significantly positive relationship between ETRs and the foreign operations variable. In contrast, Stickney and McGee (1982) and Jacob (1996) use the ratio of foreign sales to total worldwide sales as a proxy for the extent of foreign operations, but neither study produces compelling results. In addition, all three papers rely on relatively small sample sizes, which means their results may not generalize to the population of firms. Firms with more extensive foreign operations have opportunities to avoid income taxes that are not available to domestic-only firms. For example, they can avoid income taxes by locating operations in low-tax rate countries, by shifting income from high-tax locations to low-tax locations, by exploiting differences in the tax rules of different countries, by taking advantage of tax subsidy agreements with host countries, and by engaging in complex property transactions, including 357(c) basis-shift transactions (U.S. Department of Treasury, 1999). On the other hand, foreign operations are frequently subject to higher foreign statutory tax rates compared to the U.S. statutory tax rate. 11 In a broad sample of multinational and U.S. domestic-only firms, higher foreign statutory tax rates on average would produce a positive relation between the extent of foreign operations and worldwide ETRs. Thus, while foreign operations provide multinational corporations with more 10

12 opportunities to avoid income taxation, they can also expose multinationals to higher foreign tax rates. This suggests the following hypothesis, stated in alternative form: H3: Ceteris paribus, firms with more extensive foreign operations have lower worldwide ETRs than do firms with less extensive foreign operations. 3. Empirical Tests 3.1 Methodology I estimate the following ordinary least squares regression using a broad sample of firms to test H1, H2, and H3: WWETR = α i= 1 + α SIZE + α α 1 i+ 5 2 LOCATION PTI + α MNC + α MNCxSIZE + α MNCxPTI i + 6 j= 1 3 α j INDUS j + 7 k = 1 α k YEAR k + ε (1) where WWETR is the worldwide ETR. To be consistent with prior ETR research and to capture the impact of both temporary and permanent book-tax differences, I define ETRs as income taxes currently payable divided by pre-tax accounting income. 12 SIZE is the natural log of total net sales and PTI is the natural log of pre-tax accounting income. 13 MNC, a dummy variable, equals 1 for firms reporting foreign assets or foreign income, 0 otherwise. These variables represent a firm's worldwide economic scale and scope. MNCxSIZE is the interaction of MNC and SIZE, and MNCxPTI is the interaction of MNC and PTI. Table 1 contains the variable definitions. [Insert Table 1] 11

13 The MNC interaction terms, MNCxSIZE and MNCxPTI, test whether multinational corporations have systematically different relations between worldwide ETRs and firm size and between worldwide ETRs and pre-tax income, than purely domestic companies have. H1, H2, and H3 predict significantly negative coefficients on SIZE, PTI, MNC, and the interaction of those terms. Prior research controls for industry membership in tax burden regressions (Zimmerman, 1983; Wilkie, 1988; Harris, 1993; Collins and Shackelford, 1996; and Jacob, 1996); furthermore, Altshuler, Grubert, and Newlon, (1997) and Grubert (1997) show that ETRs vary through time. Accordingly, I include dummy variables for industry membership and year in equation (1). 14 In addition, statutory tax rates vary substantially around the world, ranging from 0% in some tax havens to more than 50% in Japan and India. Unfortunately, firms are not required to disclose the statutory tax rates of the geographic segments they report. I include a location dummy variable in equation (1) to at least partially control for variation in statutory tax rates around the world. 15 I use two different proxies for foreign operations in the empirical tests. I use the MNC dummy variable in equation (1) to determine whether multinational firms have lower or higher ETRs than other firms. I use the ratio of foreign assets to total worldwide assets, FOROPER, in equation (2) to determine whether firms with more extensive foreign operations have lower or higher ETRs than other firms: WWETR = α + α SIZE + α + α MNC + α MNCxSIZE + α MNCxPTI i= 1 α 1 i LOCATION PTI + α FOROPER + α FOROPER i + 6 j= 1 3 α 7 j+ 19 INDUS j k = 1 α k YEAR k + ε (2) 12

14 In contrast to the MNC dummy variable, FOROPER is a continuous variable that measures the extent of foreign operations. 16 While MNC tests whether systematic differences exist between the ETRs of multinational and domestic-only companies, FOROPER tests whether economies of scope exist for foreign tax planning. Finally, because the extent of foreign operations and ETRs may not be linearly related, the square of the extent of foreign operations, FOROPER 2, controls for any non- linearities that may exist. I perform the following two regression analyses on a sample of multinational corporations only, to determine whether the relations between ETRs and the extent of foreign operations are different from the broader sample of firms: WWETR = α i= 1 + α α 1 i+ 4 SIZE + α 2 LOCATION PTI + α i α FOROPER INDUS + α + j+ 16 j j= 1 k = 1 4 FOROPER 7 α k YEAR k + ε (3?) WWETR = α k = 1 + α SIZE + α USPTI + α FORPTI + α FOROPER 5 α 1 k+ 23 YEAR 2 k ε 12 i= 1 α i+ 5 3 LOCATION i + α FOROPER j= 1 α j+ 17 INDUS j (4) Equation (4) decomposes total pre-tax income into U.S. and foreign pre-tax income (USPTI and FORPTI) to test whether U.S. and foreign pre-tax income affect 13

15 worldwide ETRs differently. The amount of U.S. or foreign pre-tax income could be a better proxy for a multinational corporation's ability to avoid income taxation than the amount of total pre-tax income. Equations (5) and (6) (below) decompose equation (4) further into U.S. and foreign ETRs: USETR = α + α k = 1 + α USSIZE α 1 FOROPER k + 23 YEAR k + α USPTI ε 2 12 i= 1 α i+ 5 + α 3 FORPTI LOCATION i + + α 6 j= 1 α 4 FOROPER j+ 17 INDUS j (5) FORETR = α + α k= 1 + α FORSIZE 5 α 1 FOROPER k + 23 YEAR 2 k + + ε + α 12 i= 1 2 α FORPTI i+ 5 3 LOCATION + α USPTI i + 6 j= 1 + α α 4 j+ 17 FOROPER INDUS j (6) where USETR (FORETR) is the ratio of U.S. (foreign) income taxes currently payable to U.S. (foreign) pre-tax income. USSIZE (FORSIZE) is the natural log of U.S. (foreign) net sales. All other variables are as defined above. I analyze the U.S. and foreign ETRs of multinational corporations to determine whether the relations between ETRs and test variables differ between the U.S. and foreign tax jurisdictions. I estimate equations (1) - (4) using ordinary least squares, and equations (5) and (6) jointly using seemingly unrelated regression analysis. Equations (5) and (6) are jointly estimated because their error terms are likely correlated. For example, foreign operations can simultaneously affect U.S. and foreign ETRs. Thus, the error terms of equations (5) and (6) are likely 14

16 correlated and seemingly unrelated regression accounts for this cross-equation error correlation. 3.2 Sample Selection Table 2 summarizes the sample selection procedures. I obtained all firm-year observations with the requisite data on COMPUSTAT for , resulting in 52,125 total observations. Since tax planning by foreign corporations may be systematically different from the tax planning by U.S. corporations, I deleted foreign incorporated firms from the initial sample (2,249 firm-year observations). I also deleted observations with zero values in the denominator of a ratio (3,885 firm-years), observations with negative assets or stockholder s equity (3,820 firm-years), and observations with missing ETR data (122 firm-years). I deleted banks, insurance carriers, and utilities, because COMPUSTAT does not provide the domestic and foreign pre-tax income of these companies (4,631 firm-years). Previous ETR studies (Stickney and McGee, 1982; Zimmerman, 1983; Wilkie, 1988; Shevlin and Porter, 1992; Wilkie and Limberg, 1993; Manzon and Smith, 1994; and Gupta and Newberry, 1997) have deleted firms with negative tax expense or negative pre-tax income. Loss firms have different financial and tax reporting incentives and ETRs with negative components do not have an economic interpretation. To be consistent with prior research, I have also deleted firm-year observations with income tax expense or pre-tax income less than or equal to zero (17,271 firm-years). 17 Finally, I performed two actions to eliminate the effects of extreme values. First, ETRs greater than 1 were re-coded as Second, I deleted observations (410 firm- 15

17 years) if they were in the top or bottom one percent of the return on assets distribution. The final sample is 19,737 firm-year observations (5,379 firms). 19 [Insert Table 2] 3.3 Descriptive Statistics Since much of the subsequent data analysis focuses on the distinction between multinational and U.S. domestic-only firms, Table 3 presents descriptive statistics separately for the multinational (MNC) sample in Panel A, and the U.S. domestic-only (U.S.) sample in Panel B. Overall, the typical MNC firm is substantially larger, has more income, higher worldwide ETRs, and by definition, more extensive foreign operations than the typical U.S. firm. Within each sample, there is wide variation in total sales, with mean (median) total sales of $2,594.7 ($385.5) in the MNC sub-sample and mean (median) total sales of $593.7 ($97.1) in the U.S. sub-sample (all dollar amounts are in millions). Pre-tax accounting income also varies substantially within each sub-sample, with mean (median) total pre-tax income of $232.1 ($30.1) in the MNC sub-sample and mean (median) total pre-tax income of $41.5 ($6.9) in the U.S. sub-sample. However, the mean and median return on assets is similar between the two sub-samples. [Insert Table 3] In the MNC sub-sample, the mean (median) foreign ETR of.2679 (.2570) is lower than the mean (median) worldwide ETR of.3228 (.3083), and lower than the mean (median) U.S. ETR of.2871 (.2872). The mean and median U.S. ETRs for multinational firms are very similar to the mean (median) worldwide ETRs of.2917 (.2981) in the U.S. sub-sample. These statistics suggest that foreign statutory tax rates have a negative 16

18 impact on worldwide ETRs and, on average, the income tax rates of the foreign countries where U.S. multinational corporations pay taxes are lower than the U.S. tax rate. Finally, the mean (median) extent of foreign operations (FOROPER) of the MNC sub-sample is.1902 (.1431). Thus, the typical multinational firm has material foreign operations, as well as greater overall sales and income than a purely domestic company. However, return on assets and U.S. ETRs are strikingly similar between the two subsamples. Panel C displays the frequencies of the control variables, LOCATION, INDUS, and YEAR. While few firm-year observations report operations in the Middle East (2.58%), Africa (3.53%), and Japan (5.68%), many firm-year observations report operations in Europe (23.68%), Canada (18.42%), and Asia (14.56%). The most frequently reported industries are SIC codes (32.2% of the sample), with many firms also reporting SIC codes (15.87%) and (13.53%). 20 Unfortunately, 15.13% of the sample reported their SIC code as missing. 21 Finally, Panel C shows that firm-year observations are fairly evenly distributed throughout , with somewhat fewer observations originating in 1990 (10.63%) and 1991 (10.36%). 4. Results 4.1 Entire Sample Table 4 presents the results of empirical tests using the entire sample of U.S. multinational and domestic-only companies. In particular, Table 4 presents estimated coefficients for equations (1) and (2). H1, H2, and H3 predict that larger firms with 17

19 greater income and more extensive foreign operations avoid more income taxes, resulting in lower worldwide ETRs. Inconsistent with H1, but consistent with the political cost hypothesis (e.g., Zimmerman, 1983; and Omer, Molloy, and Ziebart, 1993), the estimated coefficients on SIZE in all regression specifications are significantly positive. Results from equation (1) in Table 4 suggest that holding income constant, a 1 percent increase in worldwide sales (SIZE) is associated with a absolute increase in worldwide ETRs. Consistent with H2, the estimated coefficients on PTI in all regression specifications are significantly negative. Results from equation (1) in Table 4 suggest that holding firm size constant, a 1 percent increase in total pre-tax income is associated with a absolute decrease in worldwide ETRs. 22,23 [Insert Table 4] Consistent with predictions, the estimated coefficient on the MNC dummy variable in equation (1) in Table 4 is significantly negative ( ), while that on MNCxSIZE (MNCxPTI) is significantly positive (negative ). However, these coefficients indicate a mean effect of MNC on worldwide ETRS of , which does not support H3. 24 H3 predicts that firms with more extensive foreign operations will have lower worldwide ETRs, not higher worldwide ETRs. Finally, several of the location dummy variables are significant in equation (1), including Asia, Japan, Europe, Oceania, and South America. Except for South America, these significance levels are consistent throughout the entire analysis and will not be discussed further. In additional tests of H3, equation (2) in Table 4 presents results that include the extent of foreign operations variable (FOROPER). Consistent with equation (1), the 18

20 estimated coefficients are significantly positive (negative) on SIZE and MNCxSIZE (PTI and MNCxPTI). The significantly negative estimated coefficient on FOROPER (-.0706) supports H3 and indicates that even after controlling for multinational status (MNC, which maintains a significantly negative estimated coefficient of ), multinational corporations with more extensive foreign operations have lower worldwide ETRs than firms with less extensive foreign operations. This result is consistent with economies of scope to tax planning. That is, firms with more extensive foreign operations are able to perform more effective tax planning than firms with less extensive foreign operations. However, the estimated coefficient on FOROPER 2 is significantly positive (.1057), indicating that the returns to tax planning decrease as multinational corporations continue to expand their foreign operations Multinational Corporations Only Sample Table 5 presents results of regressions of worldwide ETRs on test and control variables, for a sample of multinational corporations only. In particular, Table 5 presents estimated coefficients for equations (3) and (4). I perform these regressions to determine whether the relations between ETRs and the extent of foreign operations in a sample of multinational corporations only are different from the broader sample of firms. Consistent with Table 4, the results in Table 5 indicates that holding income constant, larger firms have higher worldwide ETRs (estimated coefficient on SIZE =.0865 in equation (3) and.0496 in equation (4)). [Insert Table 5] 19

Accounting for Tax Benefits of Employee Stock Options and Implications for Research

Accounting for Tax Benefits of Employee Stock Options and Implications for Research Accounting for Tax Benefits of Employee Stock Options and Implications for Research Michelle Hanlon And Terry Shevlin Deloitte & Touche Professor of Accounting Department of Accounting University of Washington

More information

Tax Avoidance and Geographic Earnings Disclosure

Tax Avoidance and Geographic Earnings Disclosure Tax Avoidance and Geographic Earnings Disclosure Ole-Kristian Hope Rotman School of Management University of Toronto okhope@rotman.utoronto.ca Mark (Shuai) Ma Michael F. Price College of Business University

More information

Chapter URL: http://www.nber.org/chapters/c7726

Chapter URL: http://www.nber.org/chapters/c7726 This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Taxing Multinational Corporations Volume Author/Editor: Martin Feldstein, James R. Hines

More information

What Can We Infer About a Firm s Taxable Income from its Financial Statements?

What Can We Infer About a Firm s Taxable Income from its Financial Statements? What Can We Infer About a Firm s Taxable Income from its Financial Statements? Michelle Hanlon University of Michigan Business School 701 Tappan Street Ann Arbor, MI 48109 Abstract: In this paper I review

More information

Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality*

Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality* Taxable Income as a Performance Measure: The Effects of Tax Planning and Earnings Quality* 1. Introduction BENJAMIN C. AYERS, The University of Georgia JOHN (XUEFENG) JIANG, Michigan State University STACIE

More information

FOREIGN TAXES AND THE GROWING SHARE OF U.S. MULTINATIONAL COMPANY INCOME ABROAD: PROFITS, NOT SALES, ARE BEING GLOBALIZED.

FOREIGN TAXES AND THE GROWING SHARE OF U.S. MULTINATIONAL COMPANY INCOME ABROAD: PROFITS, NOT SALES, ARE BEING GLOBALIZED. National Tax Journal, June 2012, 65 (2), 247 282 FOREIGN TAXES AND THE GROWING SHARE OF U.S. MULTINATIONAL COMPANY INCOME ABROAD: PROFITS, NOT SALES, ARE BEING GLOBALIZED Harry Grubert The foreign share

More information

CORPORATE INCOME TAX. Effective Tax Rates Can Differ Significantly from the Statutory Rate. Report to Congressional Requesters

CORPORATE INCOME TAX. Effective Tax Rates Can Differ Significantly from the Statutory Rate. Report to Congressional Requesters United States Government Accountability Office Report to Congressional Requesters May 2013 CORPORATE INCOME TAX Effective Tax Rates Can Differ Significantly from the Statutory Rate GAO-13-520 May 2013

More information

Changes in Corporate Effective Tax Rates Over the Past 25 Years. Scott D. Dyreng Duke University

Changes in Corporate Effective Tax Rates Over the Past 25 Years. Scott D. Dyreng Duke University Changes in Corporate Effective Tax Rates Over the Past 25 Years Scott D. Dyreng Duke University Michelle Hanlon Massachusetts Institute of Technology Edward L. Maydew University of North Carolina Jacob

More information

Accounting for Tax Benefits of Employee Stock Options and Implications for Research

Accounting for Tax Benefits of Employee Stock Options and Implications for Research 2002 American Accounting Association Accounting Horizons Vol. 16 No. 1 March 2002 pp. 1 16 Accounting for Tax Benefits of Employee Stock Options and Implications for Research Michelle Hanlon and Terry

More information

READING 11: TAXES AND PRIVATE WEALTH MANAGEMENT IN A GLOBAL CONTEXT

READING 11: TAXES AND PRIVATE WEALTH MANAGEMENT IN A GLOBAL CONTEXT READING 11: TAXES AND PRIVATE WEALTH MANAGEMENT IN A GLOBAL CONTEXT Introduction Taxes have a significant impact on net performance and affect an adviser s understanding of risk for the taxable investor.

More information

Dual Class Ownership and Tax Avoidance. Sean McGuire Mays Business School Texas A&M University. Dechun Wang Mays Business School Texas A&M University

Dual Class Ownership and Tax Avoidance. Sean McGuire Mays Business School Texas A&M University. Dechun Wang Mays Business School Texas A&M University Dual Class Ownership and Tax Avoidance Sean McGuire Mays Business School Texas A&M University Dechun Wang Mays Business School Texas A&M University Ryan Wilson Tippie College of Business The University

More information

How To Model Tax Sheltering

How To Model Tax Sheltering An Examination of Corporate Tax Shelter Participants Ryan Wilson Ph.D. Student University of Washington Business School Box 353200 Seattle, WA 98195 Email: rjwilson@u.washington.edu January 1, 2007 Recent

More information

Foreign or Domestic Tax Havens: The Location Decision for Intangible Property by U.S. Firms

Foreign or Domestic Tax Havens: The Location Decision for Intangible Property by U.S. Firms Foreign or Domestic Tax Havens: The Location Decision for Intangible Property by U.S. Firms Bradley P. Lindsey North Carolina State University Wendy M. Wilson* Texas Christian University May 2015 * Corresponding

More information

Reconciling Corporation Book and Tax Net Income, Tax Years 1995-2001

Reconciling Corporation Book and Tax Net Income, Tax Years 1995-2001 Reconciling Corporation Book and Tax Net Income, Tax Years 1995-2001 Data Release D ifferences in accounting rules for financial (book) and tax reporting purposes can lead to differences in the amount

More information

Tax Contingencies: Cushioning the blow to earnings?*

Tax Contingencies: Cushioning the blow to earnings?* Tax Contingencies: Cushioning the blow to earnings?* Jennifer L. Blouin İrem Tuna 1315 Steinberg Hall Dietrich Hall 1312 Steinberg Hall Dietrich Hall The Wharton School The Wharton School University of

More information

Private Equity Ownership and Portfolio Firms

Private Equity Ownership and Portfolio Firms The Impact of Private Equity Ownership on Portfolio Firms Corporate Tax Planning Brad Badertscher Sharon P. Katz Sonja Olhoft Rego Working Paper 10-004 Copyright 2009, 2010 by Brad Badertscher, Sharon

More information

Corporate Tax Avoidance and the Properties of Corporate Earnings. presented at the National Tax Association 2004 Spring Symposium

Corporate Tax Avoidance and the Properties of Corporate Earnings. presented at the National Tax Association 2004 Spring Symposium Corporate Tax Avoidance and the Properties of Corporate Earnings presented at the National Tax Association 2004 Spring Symposium forthcoming, National Tax Journal, September 2004 George A. Plesko MIT Sloan

More information

Is the Forward Exchange Rate a Useful Indicator of the Future Exchange Rate?

Is the Forward Exchange Rate a Useful Indicator of the Future Exchange Rate? Is the Forward Exchange Rate a Useful Indicator of the Future Exchange Rate? Emily Polito, Trinity College In the past two decades, there have been many empirical studies both in support of and opposing

More information

Tax Avoidance and Geographic Earnings Disclosure

Tax Avoidance and Geographic Earnings Disclosure Tax Avoidance and Geographic Earnings Disclosure Ole-Kristian Hope Rotman School of Management University of Toronto okhope@rotman.utoronto.ca Mark (Shuai) Ma Michael F. Price College of Business University

More information

Discretionary Accruals and Earnings Management: An Analysis of Pseudo Earnings Targets

Discretionary Accruals and Earnings Management: An Analysis of Pseudo Earnings Targets THE ACCOUNTING REVIEW Vol. 81, No. 3 2006 pp. 617 652 Discretionary Accruals and Earnings Management: An Analysis of Pseudo Earnings Targets Benjamin C. Ayers University of Georgia John (Xuefeng) Jiang

More information

Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004

Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004 JATA Vol. 29, No. 2 Fall 2007 pp. 25 55 Examining Investor Expectations Concerning Tax Savings on the Repatriations of Foreign Earnings under the American Jobs Creation Act of 2004 Mitchell Oler, Terry

More information

Corporate Taxation. James R. Hines Jr. University of Michigan and NBER

Corporate Taxation. James R. Hines Jr. University of Michigan and NBER Corporate Taxation by James R. Hines Jr. University of Michigan and NBER February, 2001 This paper is prepared as an entry in the International Encyclopedia of the Social and Behavioral Sciences. Corporate

More information

FORECASTING DEPOSIT GROWTH: Forecasting BIF and SAIF Assessable and Insured Deposits

FORECASTING DEPOSIT GROWTH: Forecasting BIF and SAIF Assessable and Insured Deposits Technical Paper Series Congressional Budget Office Washington, DC FORECASTING DEPOSIT GROWTH: Forecasting BIF and SAIF Assessable and Insured Deposits Albert D. Metz Microeconomic and Financial Studies

More information

Capital Structure and Taxes: What Happens When You (Also) Subsidize Equity?

Capital Structure and Taxes: What Happens When You (Also) Subsidize Equity? June 2013 Capital Structure and Taxes: What Happens When You (Also) Subsidize Equity? Frédéric Panier, Francisco Pérez González y Pablo Villanueva Stanford University Paper Received the Jaime Fernández

More information

THE TAX BURDEN ON CROSS-BORDER INVESTMENT: COMPANY STRATEGIES AND COUNTRY RESPONSES

THE TAX BURDEN ON CROSS-BORDER INVESTMENT: COMPANY STRATEGIES AND COUNTRY RESPONSES THE TAX BURDEN ON CROSS-BORDER INVESTMENT: COMPANY STRATEGIES AND COUNTRY RESPONSES HARRY GRUBERT CESIFO WORKING PAPER NO. 964 CATEGORY 1: PUBLIC FINANCE JUNE 2003 PRESENTED AT CESIFO CONFERENCE ON MEASURING

More information

Near Zero Taxable Income Reporting by Nonprofit Organizations

Near Zero Taxable Income Reporting by Nonprofit Organizations Near Zero Taxable Income Reporting by Nonprofit Organizations Thomas C. Omer and Robert J. Yetman * Abstract: In this paper we provide evidence consistent with nonprofit organizations managing their taxable

More information

Internal Control Quality as an Explanatory Factor of Tax Avoidance

Internal Control Quality as an Explanatory Factor of Tax Avoidance Internal Control Quality as an Explanatory Factor of Tax Avoidance Andrew Bauer School of Accounting & Finance University of Waterloo 200 University Avenue West Waterloo, Ontario Canada N2L 3G1 Phone:

More information

The Tax Benefits and Revenue Costs of Tax Deferral

The Tax Benefits and Revenue Costs of Tax Deferral The Tax Benefits and Revenue Costs of Tax Deferral Copyright 2012 by the Investment Company Institute. All rights reserved. Suggested citation: Brady, Peter. 2012. The Tax Benefits and Revenue Costs of

More information

U.S. Taxation of Foreign Investors

U.S. Taxation of Foreign Investors PART OF THE LEHMAN TAX LAW KNOWLEDGE BASE SERIES United States Taxation Of Investors U.S. Taxation of Foreign Investors Non Resident Alien Individuals & Foreign Corporations By Richard S. Lehman Esq. TAX

More information

Economic Consequences of Increasing the Conformity in Accounting for Uncertain Tax Benefits

Economic Consequences of Increasing the Conformity in Accounting for Uncertain Tax Benefits Economic Consequences of Increasing the Conformity in Accounting for Uncertain Tax Benefits Peter J. Frischmann Professor of Accounting Idaho State University College of Business Pocatello, Idaho 83209-8020

More information

ACHIEVABLE CORPORATE TAX REFORM 2013 PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS DECEMBER 12, 2012

ACHIEVABLE CORPORATE TAX REFORM 2013 PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS DECEMBER 12, 2012 ACHIEVABLE CORPORATE TAX REFORM 2013 PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS DECEMBER 12, 2012 Gary Clyde Hufbauer, Reginald Jones Senior Fellow Martín Vieiro, Research Analyst Realistic Goals for

More information

An Empirical Analysis of the Tax Benefit from Employee Stock Options. Tippie College of Business, University of Iowa, Iowa City, IA 52242

An Empirical Analysis of the Tax Benefit from Employee Stock Options. Tippie College of Business, University of Iowa, Iowa City, IA 52242 An Empirical Analysis of the Tax Benefit from Employee Stock Options Michael Cipriano a, Daniel W. Collins a, Paul Hribar* b a Tippie College of Business, University of Iowa, Iowa City, IA 52242 b Johnson

More information

Do Non-debt Tax Shields Matter for Debt Policy?

Do Non-debt Tax Shields Matter for Debt Policy? Do Non-debt Tax Shields Matter for Debt Policy? Madhuparna Kolay* James Schallheim* Kyle Wells** Draft August 2011 Comments are welcome. ABSTRACT We provide new evidence on the relationship between non-debt

More information

Accounting for Tax Benefits of Employee Stock Options and. Implications for Research. Michelle Hanlon. Doctoral Candidate. and.

Accounting for Tax Benefits of Employee Stock Options and. Implications for Research. Michelle Hanlon. Doctoral Candidate. and. Accounting for Tax Benefits of Employee Stock Options and Implications for Research Michelle Hanlon Doctoral Candidate and Terry Shevlin Deloitte & Touche Professor of Accounting Department of Accounting

More information

Is there a Race to the Bottom in Corporate Taxes? An Overview of Recent Research. By Mike Devereux, Ben Lockwood and Michela Redoano

Is there a Race to the Bottom in Corporate Taxes? An Overview of Recent Research. By Mike Devereux, Ben Lockwood and Michela Redoano Is there a Race to the Bottom in Corporate Taxes? An Overview of Recent Research By Mike Devereux, Ben Lockwood and Michela Redoano Statutory rates of corporation tax in developed countries have fallen

More information

Corporate Tax Planning and Debt Endogeneity: Case of American Firms

Corporate Tax Planning and Debt Endogeneity: Case of American Firms Corporate Tax Planning and Debt Endogeneity: Case of American Firms Dr. Mohamed Ali ZARAI Associate Professor of Accounting, Al- Baha University, KSA Faculty of Administrative and Financial Sciences Zaraimedali@yahoo.fr

More information

CHAPTER 7 TAXATION OF BUSINESS ORGANIZATIONS

CHAPTER 7 TAXATION OF BUSINESS ORGANIZATIONS CHAPTER 7 TAXATION OF BUSINESS ORGANIZATIONS Equity investment in the corporate sector is discouraged by the relatively high effective rate of taxation imposed on the return from such investment. The only

More information

Earnings Management: New Evidence. Based on Deferred Tax Expense

Earnings Management: New Evidence. Based on Deferred Tax Expense Earnings Management: New Evidence Based on Deferred Tax Expense John Phillips Universy of Connecticut Morton Pincus * Universy of Iowa Sonja Olhoft Rego Universy of Iowa October 2, 2002 (Previous Versions:

More information

The relationships between stock market capitalization rate and interest rate: Evidence from Jordan

The relationships between stock market capitalization rate and interest rate: Evidence from Jordan Peer-reviewed & Open access journal ISSN: 1804-1205 www.pieb.cz BEH - Business and Economic Horizons Volume 2 Issue 2 July 2010 pp. 60-66 The relationships between stock market capitalization rate and

More information

The Determinants and the Value of Cash Holdings: Evidence. from French firms

The Determinants and the Value of Cash Holdings: Evidence. from French firms The Determinants and the Value of Cash Holdings: Evidence from French firms Khaoula SADDOUR Cahier de recherche n 2006-6 Abstract: This paper investigates the determinants of the cash holdings of French

More information

A Panel Data Analysis of Corporate Attributes and Stock Prices for Indian Manufacturing Sector

A Panel Data Analysis of Corporate Attributes and Stock Prices for Indian Manufacturing Sector Journal of Modern Accounting and Auditing, ISSN 1548-6583 November 2013, Vol. 9, No. 11, 1519-1525 D DAVID PUBLISHING A Panel Data Analysis of Corporate Attributes and Stock Prices for Indian Manufacturing

More information

A History of Controlled Foreign Corporations and the Foreign Tax Credit

A History of Controlled Foreign Corporations and the Foreign Tax Credit A History of Controlled Foreign Corporations and the Foreign Tax Credit by Melissa Redmiles and Jason Wenrich A s U.S. corporations have expanded their businesses overseas in the last several decades,

More information

DIVIDEND POLICY, TRADING CHARACTERISTICS AND SHARE PRICES: EMPIRICAL EVIDENCE FROM EGYPTIAN FIRMS

DIVIDEND POLICY, TRADING CHARACTERISTICS AND SHARE PRICES: EMPIRICAL EVIDENCE FROM EGYPTIAN FIRMS International Journal of Theoretical and Applied Finance Vol. 7, No. 2 (2004) 121 133 c World Scientific Publishing Company DIVIDEND POLICY, TRADING CHARACTERISTICS AND SHARE PRICES: EMPIRICAL EVIDENCE

More information

Financial Results for the First Quarter Ended June 30, 2014

Financial Results for the First Quarter Ended June 30, 2014 July 28, 2014 Company name : Nissan Motor Co., Ltd. Code no : 7201 (URL http://www.nissan-global.com/en/ir/) Representative : Carlos Ghosn, President Contact person : Joji

More information

Chapter 9. Expense Recognition:

Chapter 9. Expense Recognition: Chapter 9: xpense Recognition: Taxes and Options 1 Chapter 9 xpense Recognition: Income Taxes and Stock Options TABL OF CONTNTS Overview 3 Income Taxes 3 Assumptions Common to All Three xamples 5 xample

More information

This PDF is a selection from a published volume from the National Bureau of Economic Research. Volume Title: Tax Policy and the Economy, Volume 19

This PDF is a selection from a published volume from the National Bureau of Economic Research. Volume Title: Tax Policy and the Economy, Volume 19 This PDF is a selection from a published volume from the National Bureau of Economic Research Volume Title: Tax Policy and the Economy, Volume 19 Volume Author/Editor: James M. Poterba, editor Volume Publisher:

More information

In a typical corporate inversion, a U.S. domiciled parent

In a typical corporate inversion, a U.S. domiciled parent Effective Tax Rate Changes and Earnings Stripping Following Corporate Inversion Effective Tax Rate Changes and Earnings Stripping Following Corporate Inversion Abstract - We examine the financial and valuation

More information

Life Insurance Companies and Products

Life Insurance Companies and Products Part B. Life Insurance Companies and Products The current Federal income tax treatment of life insurance companies and their products al.lows investors in such products to obtain a substantially higher

More information

CHAPTER 19. Accounting for Income Taxes 6, 7, 13 2, 3, 4, 5, 6, 7, 9 14, 16, 17, 18,

CHAPTER 19. Accounting for Income Taxes 6, 7, 13 2, 3, 4, 5, 6, 7, 9 14, 16, 17, 18, CHAPTER 19 Accounting for Income Taxes ASSIGNMENT CLASSIFICATION TABLE Topics 1. Reconcile pretax financial income with taxable income. 2. Identify temporary and permanent differences. 3. Determine deferred

More information

September 2011. Tax accounting services: The impact of transfer pricing in financial reporting

September 2011. Tax accounting services: The impact of transfer pricing in financial reporting September 2011 Tax accounting services: The impact of transfer pricing in financial reporting This publication serves to highlight several important areas of financial reporting that can be affected by

More information

Evidence on the Contracting Explanation of Conservatism

Evidence on the Contracting Explanation of Conservatism Evidence on the Contracting Explanation of Conservatism Ryan Blunck PhD Student University of Iowa Sonja Rego Lloyd J. and Thelma W. Palmer Research Fellow University of Iowa November 5, 2007 Abstract

More information

Income Tax and Social Insurance

Income Tax and Social Insurance The Global Employer: Focus on Global Immigration & Mobility Income Tax and Social Insurance An employee who works abroad is always concerned about the possibility of increased income taxation and social

More information

U.S. DEPARTMENT OF THE TREASURY

U.S. DEPARTMENT OF THE TREASURY U.S. DEPARTMENT OF THE TREASURY Press Center Link: http://www.treasury.gov/press-center/press-releases/pages/hp1060.aspx Statement For the Record of the Senate Committee on Finance Hearing on International

More information

Is there Information Content in Insider Trades in the Singapore Exchange?

Is there Information Content in Insider Trades in the Singapore Exchange? Is there Information Content in Insider Trades in the Singapore Exchange? Wong Kie Ann a, John M. Sequeira a and Michael McAleer b a Department of Finance and Accounting, National University of Singapore

More information

Journal Of Financial And Strategic Decisions Volume 11 Number 1 Spring 1998

Journal Of Financial And Strategic Decisions Volume 11 Number 1 Spring 1998 Journal Of Financial And Strategic Decisions Volume 11 Number 1 Spring 1998 AN EMPIRICAL STUDY OF THE IMPACT OF FOREIGN OWNERSHIP ON THE VALUES OF U.S. COMMERCIAL PROPERTIES Arnold L. Redman * and N. S.

More information

Tax Avoidance, Tax Aggressiveness, Tax Risk and Firm Risk. David A. Guenther, Steven R. Matsunaga*, Brian M. Williams

Tax Avoidance, Tax Aggressiveness, Tax Risk and Firm Risk. David A. Guenther, Steven R. Matsunaga*, Brian M. Williams Tax Avoidance, Tax Aggressiveness, Tax Risk and Firm Risk David A. Guenther, Steven R. Matsunaga*, Brian M. Williams Lundquist College of Business, University of Oregon, Eugene, OR 97403 USA August 2013

More information

Research in Accounting for Income Taxes

Research in Accounting for Income Taxes Research in Accounting for Income Taxes John R. Graham Duke University Jana Smith Raedy University of North Carolina Douglas A. Shackelford University of North Carolina December 2008 ABSTRACT This paper

More information

INCOME TAX PRACTICES MAINTAINED BY BELGIUM. Report of the Panel presented to the Council of Representatives on 12 November 1976 (L/4424-23S/127)

INCOME TAX PRACTICES MAINTAINED BY BELGIUM. Report of the Panel presented to the Council of Representatives on 12 November 1976 (L/4424-23S/127) 2 November 1976 INCOME TAX PRACTICES MAINTAINED BY BELGIUM Report of the Panel presented to the Council of Representatives on 12 November 1976 (L/4424-23S/127) 1. The Panel's terms of reference were established

More information

The Effect Of Working Capital Management On Profitability

The Effect Of Working Capital Management On Profitability The Effect Of Working Capital Management On Profitability To maintain efficient levels of components of working capital, current liabilities and current assets is a strategy of managerial level accounting

More information

8.1 Summary and conclusions 8.2 Implications

8.1 Summary and conclusions 8.2 Implications Conclusion and Implication V{tÑàxÜ CONCLUSION AND IMPLICATION 8 Contents 8.1 Summary and conclusions 8.2 Implications Having done the selection of macroeconomic variables, forecasting the series and construction

More information

Looking at Accounting for Income Taxes: Do Managers Play Truth or Dare with Tax Accruals?

Looking at Accounting for Income Taxes: Do Managers Play Truth or Dare with Tax Accruals? Looking at Accounting for Income Taxes: Do Managers Play Truth or Dare with Tax Accruals? The income tax has made liars out of more Americans than golf. {Will Rogers} Do managers use tax accruals to manage

More information

FEDERAL TAXATION OF INTERNATIONAL TRANSACTIONS

FEDERAL TAXATION OF INTERNATIONAL TRANSACTIONS Chapter 10 FEDERAL TAXATION OF INTERNATIONAL TRANSACTIONS Daniel Cassidy 1 10.1 INTRODUCTION Foreign companies with U.S. business transactions face various layers of taxation. These include income, sales,

More information

Verifone Reports Results for the Second Quarter of Fiscal 2016

Verifone Reports Results for the Second Quarter of Fiscal 2016 Verifone Reports Results for the Second Quarter of Fiscal 2016 SAN JOSE, Calif. (BUSINESS WIRE) Verifone (NYSE: PAY), a world leader in payments and commerce solutions, today announced financial results

More information

ENTITY CHOICE AND EFFECTIVE TAX RATES

ENTITY CHOICE AND EFFECTIVE TAX RATES ENTITY CHOICE AND EFFECTIVE TAX RATES Prepared by Quantria Strategies, LLC for the National Federation of Independent Business and the S Corporation Association ENTITY CHOICE AND EFFECTIVE TAX RATES CONTENTS

More information

Journal Of Financial And Strategic Decisions Volume 9 Number 2 Summer 1996

Journal Of Financial And Strategic Decisions Volume 9 Number 2 Summer 1996 Journal Of Financial And Strategic Decisions Volume 9 Number 2 Summer 1996 THE USE OF FINANCIAL RATIOS AS MEASURES OF RISK IN THE DETERMINATION OF THE BID-ASK SPREAD Huldah A. Ryan * Abstract The effect

More information

Institutional Trading, Brokerage Commissions, and Information Production around Stock Splits

Institutional Trading, Brokerage Commissions, and Information Production around Stock Splits Institutional Trading, Brokerage Commissions, and Information Production around Stock Splits Thomas J. Chemmanur Boston College Gang Hu Babson College Jiekun Huang Boston College First Version: September

More information

THREE ESSAYS ON TAXATION. A Dissertation KIRSTEN ABRAM COOK

THREE ESSAYS ON TAXATION. A Dissertation KIRSTEN ABRAM COOK THREE ESSAYS ON TAXATION A Dissertation by KIRSTEN ABRAM COOK Submitted to the Office of Graduate Studies of Texas A&M University in partial fulfillment of the requirements for the degree of DOCTOR OF

More information

www.pwc.com Current issues in income tax accounting (US GAAP & IFRS)

www.pwc.com Current issues in income tax accounting (US GAAP & IFRS) www.pwc.com Current issues in income tax accounting (US GAAP & IFRS) May 16, 2012 Agenda Introductions Basic overview of the model Uncertain tax positions Unremitted foreign earnings Special topics (Intraperiod

More information

Is there Information Content in the Tax Footnote?

Is there Information Content in the Tax Footnote? Is there Information Content in the Tax Footnote? Jana S. Raedy University of North Carolina Jeri Seidman University of Texas at Austin Douglas A. Shackelford University of North Carolina and NBER February

More information

Sample Disclosures Accounting for Income Taxes. February 2015

Sample Disclosures Accounting for Income Taxes. February 2015 Sample Disclosures Accounting for Income Taxes February 2015 Contents Use of These Sample Disclosures 1 Management s Discussion and Analysis General 2 MD&A Results of Operations 2 MD&A Critical Accounting

More information

INTERNAL DEBT AND MULTINATIONALS' PROFIT SHIFTING EMPIRICAL EVIDENCE FROM FIRM-LEVEL PANEL DATA. Thiess Buettner and Georg Wamser

INTERNAL DEBT AND MULTINATIONALS' PROFIT SHIFTING EMPIRICAL EVIDENCE FROM FIRM-LEVEL PANEL DATA. Thiess Buettner and Georg Wamser INTERNAL DEBT AND MULTINATIONALS' PROFIT SHIFTING EMPIRICAL EVIDENCE FROM FIRM-LEVEL PANEL DATA Thiess Buettner and Georg Wamser National Tax Journal, forthcoming The paper explores the role of internal

More information

The Stock Market s Reaction to Accounting Information: The Case of the Latin American Integrated Market. Abstract

The Stock Market s Reaction to Accounting Information: The Case of the Latin American Integrated Market. Abstract The Stock Market s Reaction to Accounting Information: The Case of the Latin American Integrated Market Abstract The purpose of this paper is to explore the stock market s reaction to quarterly financial

More information

The Accounting and Economic Effects of Currency Translation Standards: AASB 1012 vs. AASB 121

The Accounting and Economic Effects of Currency Translation Standards: AASB 1012 vs. AASB 121 Journal of Modern Accounting and Auditing, ISSN 1548-6583 November 2012, Vol. 8, No. 11, 1601-1610 D DAVID PUBLISHING The Accounting and Economic Effects of Currency Translation Standards: AASB 1012 vs.

More information

Appendix 3. The metric

Appendix 3. The metric Appendix 3 A consistent and useful effective tax rate methodology to assess the global tax performance of multinationals in relation to Australian-linked business operations 1 The purpose of this paper

More information

- 1 - The Honorable Ron Wyden Chairman Committee on Finance United States Senate 219 Dirksen Senate Office Building Washington, D.C.

- 1 - The Honorable Ron Wyden Chairman Committee on Finance United States Senate 219 Dirksen Senate Office Building Washington, D.C. The Honorable Ron Wyden Chairman Committee on Finance United States Senate 219 Dirksen Senate Office Building Washington, D.C. 20510 The Honorable Orrin Hatch Ranking Member Committee on Finance United

More information

Dr. Pushpa Bhatt, Sumangala JK Department of Commerce, Bangalore University, India pushpa_bhatt12@rediffmail.com; sumangalajkashok@gmail.

Dr. Pushpa Bhatt, Sumangala JK Department of Commerce, Bangalore University, India pushpa_bhatt12@rediffmail.com; sumangalajkashok@gmail. Journal of Finance, Accounting and Management, 3(2), 1-14, July 2012 1 Impact of Earnings per share on Market Value of an equity share: An Empirical study in Indian Capital Market Dr. Pushpa Bhatt, Sumangala

More information

tax bulletin State of Play: International Tax Policy in the 111 th Congress www.venable.com AUGUST 2010 By E. Ray Beeman and Samuel Olchyk

tax bulletin State of Play: International Tax Policy in the 111 th Congress www.venable.com AUGUST 2010 By E. Ray Beeman and Samuel Olchyk tax bulletin www.venable.com AUGUST 2010 State of Play: International Tax Policy in the 111 th Congress By E. Ray Beeman and Samuel Olchyk The 111th Congress will soon return from its summer recess to

More information

Financial Statement Analysis of Leverage and How It Informs About Profitability and Price-to-Book Ratios

Financial Statement Analysis of Leverage and How It Informs About Profitability and Price-to-Book Ratios Financial Statement Analysis of Leverage and How It Informs About Profitability and Price-to-Book Ratios Doron Nissim Graduate School of Business Columbia University 3022 Broadway, Uris Hall 604 New York,

More information

5N PLUS INC. Condensed Interim Consolidated Financial Statements (Unaudited) For the three month periods ended March 31, 2016 and 2015 (in thousands

5N PLUS INC. Condensed Interim Consolidated Financial Statements (Unaudited) For the three month periods ended March 31, 2016 and 2015 (in thousands Condensed Interim Consolidated Financial Statements (Unaudited) (in thousands of United States dollars) Condensed Interim Consolidated Statements of Financial Position (in thousands of United States dollars)

More information

How To Lower Tax Burden For More Companies

How To Lower Tax Burden For More Companies April 2011 Tax Insights Ernst & Young LLP s analysis of four hypothetical companies shows Wyden-Coats tax reform plan would lower tax burden for more companies than Deficit Commission plan Tom Neubig,

More information

The Implications of Cash Flow Forecasts for Investors Pricing and Managers Reporting of Earnings. Andrew C. Call* University of Washington

The Implications of Cash Flow Forecasts for Investors Pricing and Managers Reporting of Earnings. Andrew C. Call* University of Washington The Implications of Cash Flow Forecasts for Investors Pricing and Managers Reporting of Earnings Andrew C. Call* University of Washington January 24, 2007 Abstract: I examine the role of analysts cash

More information

MORGAN STANLEY Financial Supplement - 4Q 2015 Table of Contents

MORGAN STANLEY Financial Supplement - 4Q 2015 Table of Contents Page # MORGAN STANLEY Financial Supplement - 4Q 2015 Table of Contents 1. Quarterly Consolidated Financial Summary 2. Quarterly Consolidated Income Statement Information 3. Quarterly Consolidated Financial

More information

MS #5457 TAXES, ORGANIZATIONAL FORM, AND THE DEAD WEIGHT LOSS OF THE CORPORATE INCOME TAX. Austan Goolsbee University of Chicago

MS #5457 TAXES, ORGANIZATIONAL FORM, AND THE DEAD WEIGHT LOSS OF THE CORPORATE INCOME TAX. Austan Goolsbee University of Chicago MS #5457 TAXES, ORGANIZATIONAL FORM, AND THE DEAD WEIGHT LOSS OF THE CORPORATE INCOME TAX Austan Goolsbee University of Chicago ABSTRACT Corporate taxation can play an important role in a firm's choice

More information

The persistence and pricing of earnings, accruals and free cash flows in Australia.

The persistence and pricing of earnings, accruals and free cash flows in Australia. The persistence and pricing of earnings, accruals and free cash flows in Australia. Kristen Anderson*, Kerrie Woodhouse**, Alan Ramsay**, Robert Faff** * Australian Accounting Standards Board ** Department

More information

CHAPTER 1 Introduction to Taxation

CHAPTER 1 Introduction to Taxation CHAPTER 1 Introduction to Taxation CHAPTER HIGHLIGHTS A proper analysis of the United States tax system begins with an examination of the tax structure and types of taxes employed in the United States.

More information

How Elastic is the Corporate Income Tax Base?

How Elastic is the Corporate Income Tax Base? How Elastic is the Corporate Income Tax Base? Jonathan Gruber, MIT and NBER Joshua Rauh, University of Chicago and NBER June 2005 Presented at Taxing Corporate Income in the 21 st Century, May 5-6, 2005.

More information

A Test Of The M&M Capital Structure Theories Richard H. Fosberg, William Paterson University, USA

A Test Of The M&M Capital Structure Theories Richard H. Fosberg, William Paterson University, USA A Test Of The M&M Capital Structure Theories Richard H. Fosberg, William Paterson University, USA ABSTRACT Modigliani and Miller (1958, 1963) predict two very specific relationships between firm value

More information

How Canada Taxes Foreign Income

How Canada Taxes Foreign Income - 1 - How Canada Taxes Foreign Income (Summary) Purpose of the book The purpose of writing this book, entitled How Canada Taxes Foreign Income is particularly for the benefit of foreign tax lawyers, accountants,

More information

Accounting for Income Taxes

Accounting for Income Taxes Accounting for Income Taxes Objectives: Understand the differences between tax accounting and financial accounting Timing: temporary differences Scope: permanent differences Understand the effects of events

More information

COLLEGE ACCESS FOUNDATION OF CALIFORNIA

COLLEGE ACCESS FOUNDATION OF CALIFORNIA CONSOLIDATED FINANCIAL STATEMENTS C O N T E N T S Page Independent Auditors Report 1 Consolidated Statements of Financial Position 2 Consolidated Statements of Activities and Changes in Net Assets 3 Consolidated

More information

National Small Business Network

National Small Business Network National Small Business Network WRITTEN STATEMENT FOR THE RECORD US SENATE COMMITTEE ON FINANCE U.S. HOUSE OF REPRESENTATIVES COMMITTEE ON WAYS AND MEANS JOINT HEARING ON TAX REFORM AND THE TAX TREATMENT

More information

Economics and Finance Review Vol. 1(3) pp. 30 40, May, 2011 ISSN: 2047-0401 Available online at http://wwww.businessjournalz.

Economics and Finance Review Vol. 1(3) pp. 30 40, May, 2011 ISSN: 2047-0401 Available online at http://wwww.businessjournalz. ABSTRACT FACTORS THAT INFLUENCE WORKING CAPITAL REQUIREMENTS IN CANADA Amarjit Gill Professor of Business Administration College of Business Administration, Trident University International, 5665 Plaza

More information

Journal of Accounting and Economics

Journal of Accounting and Economics Journal of Accounting and Economics ] (]]]]) ]]] ]]] Contents lists available at SciVerse ScienceDirect Journal of Accounting and Economics journal homepage: www.elsevier.com/locate/jae Research in accounting

More information

The Revenue Implications of Temporary Tax Relief For Repatriated Foreign Earnings: An Analysis of the Joint Tax Committee s Revenue Estimates

The Revenue Implications of Temporary Tax Relief For Repatriated Foreign Earnings: An Analysis of the Joint Tax Committee s Revenue Estimates The Revenue Implications of Temporary Tax Relief For Repatriated Foreign Earnings: An Analysis of the Joint Tax Committee s Revenue Estimates Robert J. Shapiro and Aparna Mathur August 2011 The Revenue

More information

MEXICAN TAX BILL FOR 2016

MEXICAN TAX BILL FOR 2016 MEXICAN TAX BILL FOR 2016 On September 8, 2015, the President sent to Congress the Tax Bill where some proposals are made to change current Mexican tax legislation. The main proposals are the following:

More information

Exclusion of Stock-based Compensation Expense from Analyst Earnings Forecasts: Incentive- and Information-based Explanations. Mary E.

Exclusion of Stock-based Compensation Expense from Analyst Earnings Forecasts: Incentive- and Information-based Explanations. Mary E. Exclusion of Stock-based Compensation Expense from Analyst Earnings Forecasts: Incentive- and Information-based Explanations Mary E. Barth* Ian D. Gow Daniel J. Taylor Graduate School of Business Stanford

More information

U.S. Tax Refundation and the Impact on Foreign earnings

U.S. Tax Refundation and the Impact on Foreign earnings Barriers to Mobility: The Lockout Effect of US Taxation of Worldwide Corporate Profits John R. Graham Duke University Michelle Hanlon University of Michigan Terry Shevlin University of Washington Draft:

More information

Stock Returns and Equity Premium Evidence Using Dividend Price Ratios and Dividend Yields in Malaysia

Stock Returns and Equity Premium Evidence Using Dividend Price Ratios and Dividend Yields in Malaysia Stock Returns and Equity Premium Evidence Using Dividend Price Ratios and Dividend Yields in Malaysia By David E. Allen 1 and Imbarine Bujang 1 1 School of Accounting, Finance and Economics, Edith Cowan

More information

CORPORATE TAX INVERSIONS

CORPORATE TAX INVERSIONS Insights on... WEALTH PLANNING CORPORATE TAX INVERSIONS Trends and Consequences Suzanne Shier Wealth Planning Practice Executive and Chief Tax Strategist July 31, 2014 Corporate tax inversions continue

More information

Financial Statements 101 - An Accounting Primer for Tax Attorneys

Financial Statements 101 - An Accounting Primer for Tax Attorneys Financial Statements 101 - An Accounting Primer for Tax Attorneys Devin Simon Clifton Gunderson LLP devin.simon@cliftoncpa.com Jessica Johnson KPMG LLP jessicaljohnson@kpmg.com Dustin Covello Chamberlain,

More information