Tax Avoidance at Public Corporations Driven by Shareholder Taxes: Evidence from Changes in Dividend Tax Policy

The Accounting Review, Forthcoming

61 Pages Posted: 18 Jul 2012 Last revised: 20 Dec 2018

See all articles by Dan Amiram

Dan Amiram

Tel Aviv University - Coller School of Management

Andrew M. Bauer

University of Waterloo - School of Accounting and Finance

Mary Margaret Frank

University of Virginia - Darden School of Business

Date Written: June 19, 2018

Abstract

We exploit changes in a country’s integration of corporate and shareholder taxes to identify the effect of investor-level taxes on costly corporate tax avoidance. Specifically, we rely on European countries eliminating imputation systems in different years in response to supranational judicial rulings. These eliminations, which are exogenous to the firm, remove managers’ disincentive to engage in tax avoidance if they consider investor-level taxes. Using a difference-in-differences model with fixed effects, we find that the average firm affected by an elimination reduces its cash effective tax rate by 5.5 percent. Placebo tests support that this effect is present only for countries and years for which eliminations occur. Consistent with our cross-sectional predictions, we find that the results are stronger for firms with lower growth opportunities, higher dividend payout, lower foreign income, and higher closely held ownership. Further analysis provides evidence consistent with shifting income to foreign countries as one method of tax avoidance employed.

Keywords: corporate tax avoidance, public corporations, imputation, shareholder dividend taxes

JEL Classification: G38, G32, G15, H26

Suggested Citation

Amiram, Dan and Bauer, Andrew M. and Frank, Mary Margaret, Tax Avoidance at Public Corporations Driven by Shareholder Taxes: Evidence from Changes in Dividend Tax Policy (June 19, 2018). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2111467 or http://dx.doi.org/10.2139/ssrn.2111467

Dan Amiram (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Andrew M. Bauer

University of Waterloo - School of Accounting and Finance ( email )

200 University Ave W
Waterloo, Ontario N2L 3G1
Canada

Mary Margaret Frank

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4432 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/frank.htm

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