Customer-Supplier Relationships and Corporate Tax Avoidance
University of Toronto - Rotman School of Management
Edward L. Maydew
University of North Carolina at Chapel Hill
City University of Hong Kong
Cornell University - Samuel Curtis Johnson Graduate School of Management
May 26, 2014
Rotman School of Management Working Paper No. 2442063
We find that close customer-supplier relationships facilitate tax avoidance by both principal customers and their dependent suppliers. We investigate two mechanisms by which firms in these relationships avoid taxes. First, we find evidence that principal customers engage in a tax strategy involving centralized procurement by tax haven subsidiaries. Second, we find that close customer-supplier relationships promote the diffusion of tax avoidance knowledge from principal customers, who tend to be relatively large and sophisticated, to their dependent suppliers, who tend to be smaller and less sophisticated. Our study provides evidence of the importance of tax avoidance as a source of gains from these relationships.
Number of Pages in PDF File: 61
Keywords: Tax avoidance, customers, suppliers, stakeholder theory, supply chain
JEL Classification: H25, H26, L14
Date posted: May 27, 2014
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