49 Pages Posted: 6 Jan 2014 Last revised: 15 Aug 2017
Date Written: August 11, 2017
We investigate the relation between tax avoidance and tax uncertainty, where tax uncertainty is the possibility of losing a claimed tax benefit upon challenge by a tax authority. On average, we find that tax avoiders, i.e., firms with relatively low cash effective tax rates, do bear significantly greater tax uncertainty than firms that have higher cash effective tax rates. We find that the relation between tax avoidance and tax uncertainty is stronger for firms with frequent patent filings and tax haven subsidiaries, proxies for intangible-related transfer pricing strategies. The findings have implications for several puzzling results in the literature.
Keywords: tax avoidance, tax uncertainty
JEL Classification: M41, H25
Suggested Citation: Suggested Citation
Dyreng, Scott and Hanlon, Michelle and Maydew, Edward L., When Does Tax Avoidance Result in Tax Uncertainty? (August 11, 2017). Available at SSRN: https://ssrn.com/abstract=2374945 or http://dx.doi.org/10.2139/ssrn.2374945