The General Anti-Avoidance Rule

55 Pages Posted: 22 Nov 2019 Last revised: 10 Jul 2023

See all articles by Mary Cowx

Mary Cowx

Arizona State University (ASU) - W.P. Carey School of Business

Jon N. Kerr

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: July 7, 2023

Abstract

Abstract The general anti-avoidance rule, or GAAR, is an enforcement mechanism that gives a country's taxing authority broad power to deny a taxpayer tax benefits associated with any transaction. Although GAARs are becoming increasingly common, the presence of the GAAR is generally overlooked, and thus its effect left unstudied. In this paper, we provide an initial investigation by studying the effect of the GAAR on firm-level corporate tax avoidance behaviors. Using an indicator for the enactment or strengthening of a GAAR within a country in a stacked difference-in-differences design, we find GAAR enactment is associated with a statistically and economically significant decrease in firm-level tax avoidance. Additional cross-sectional analyses show that the decline in tax avoidance occurs for conventional GAARs and economic substance-type rules, original and strengthened GAARs, and plausibly domestic and multinational firms. Results also show that the effect is strongest for firms with higher levels of pre-GAAR tax avoidance and for firms incorporated in countries where the burden of proof lies with the taxpayer.

Keywords: general anti-avoidance rule, GAAR, tax avoidance, tax policy, international, tax enforcement

Suggested Citation

Cowx, Mary and Kerr, Jon N., The General Anti-Avoidance Rule (July 7, 2023). Available at SSRN: https://ssrn.com/abstract=3485084 or http://dx.doi.org/10.2139/ssrn.3485084

Mary Cowx

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

Jon N. Kerr (Contact Author)

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States
614-292-2698 (Phone)

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