The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance
70 Pages Posted: 1 Feb 2015 Last revised: 21 Oct 2018
Date Written: October 17, 2018
This study provides the first large-sample evidence on the economic tax effects of special purpose entities (SPEs). These increasingly common organizational structures facilitate corporate tax savings by enabling sponsor-firms to increase tax-advantaged activities and/or enhance their tax efficiency (i.e., relative tax savings of a given activity). Using path analysis, we find that SPEs facilitate greater tax avoidance, such that an economically large amount of cash tax savings from research and development (R&D), depreciable assets, net operating loss carryforwards, intangible assets, foreign operations, and tax havens occur within SPEs. We estimate that SPEs facilitate over $330 billion of incremental cash tax savings, or roughly 6% of total U.S. federal corporate income tax collections during 1997-2016. Interaction analyses reveal that SPEs enhance the tax efficiency of R&D and intangibles by 87.5% and 61.5%, respectively. Overall, these findings provide economic insight into complex organizational structures facilitating corporate tax avoidance.
Keywords: organizational structure, special purpose entity, tax avoidance
JEL Classification: H25, L22, M40
Suggested Citation: Suggested Citation