When Does Tax Avoidance Result in Tax Uncertainty?

57 Pages Posted: 6 Jan 2014 Last revised: 21 Jul 2018

See all articles by Scott Dyreng

Scott Dyreng

Duke University - Accounting

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Edward L. Maydew

University of North Carolina at Chapel Hill

Date Written: May 29, 2018

Abstract

We investigate the relation between tax avoidance and tax uncertainty, where tax uncertainty is the amount of unrecognized tax benefits recorded over the same time period as the tax avoidance. On average, we find that tax avoiders, i.e., firms with relatively low cash effective tax rates, 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

Dyreng, Scott and Hanlon, Michelle and Maydew, Edward L., When Does Tax Avoidance Result in Tax Uncertainty? (May 29, 2018). The Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2374945 or http://dx.doi.org/10.2139/ssrn.2374945

Scott Dyreng

Duke University - Accounting ( email )

Box 90120, Fuqua School of Business
Durham, NC 27708-0120
United States

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-668
Cambridge, MA 02142
United States
617-253-9849 (Phone)

Edward L. Maydew (Contact Author)

University of North Carolina at Chapel Hill ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-843-9356 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/accounting/edward-maydew

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