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Home Country Tax System Characteristics and Corporate Tax Avoidance: International Evidence

Posted: 23 Apr 2010 Last revised: 20 Nov 2012

T. J. Atwood

University of Arkansas

Michael S. Drake

Brigham Young University - Marriott School

James N. Myers

University of Tennessee, Knoxville - College of Business Administration

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Date Written: November 20, 2012

Abstract

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

Atwood, T. J. and Drake, Michael S. and Myers, James N. and Myers, Linda A., Home Country Tax System Characteristics and Corporate Tax Avoidance: International Evidence (November 20, 2012). Accounting Review, Vol. 87, No. 6, 2012 doi: 10.2308/accr-50222. Available at SSRN: https://ssrn.com/abstract=1594936 or http://dx.doi.org/10.2139/ssrn.1594936

T. J. Atwood (Contact Author)

University of Arkansas ( email )

Business Bldg. 454
Fayetteville, AR 72701
United States

Michael S. Drake

Brigham Young University - Marriott School ( email )

United States

James N. Myers

University of Tennessee, Knoxville - College of Business Administration ( email )

Haslam Business Building
Knoxville, TN
United States

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

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