Home Country Tax System Characteristics and Corporate Tax Avoidance: International Evidence
Posted: 23 Apr 2010 Last revised: 20 Nov 2012
Date Written: November 20, 2012
We examine whether three tax system characteristics – required book-tax conformity, worldwide versus territorial approach, and perceived strength of enforcement – impact corporate tax avoidance across countries after controlling for firm-specific factors previously shown to be associated with tax avoidance (i.e., performance, size, operating costs, leverage, growth, the presence of multinational operations, and industry) and for other cross-country factors (i.e., statutory corporate tax rates, earnings volatility, and institutional factors). We find that, on average, firms avoid taxes less when required book-tax conformity is higher, a worldwide approach is used, and tax enforcement is perceived to be stronger. However, the relations between tax avoidance and all three tax systems characteristics are contextual and depend on the extent to which management compensation comes from variable pay, including bonuses, stock awards, and stock options.
Keywords: Tax avoidance, tax systems, book-tax conformity, managerial incentives
JEL Classification: M41, H20, H21, H25, G15, G18
Suggested Citation: Suggested Citation