The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance

69 Pages Posted: 19 Nov 2019

See all articles by Paul Demere

Paul Demere

Bocconi University - Department of Accounting

Michael P. Donohoe

University of Illinois at Urbana-Champaign - Department of Accountancy

Petro Lisowsky

Boston University - Questrom School of Business; Norwegian Center for Taxation

Multiple version iconThere are 3 versions of this paper

Date Written: October 30, 2019

Abstract

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 in conjunction with SPE use. We estimate that SPEs help generate over $330 billion of incremental cash tax savings, or roughly 6% of total U.S. federal corporate income tax collections during the sample period. Interaction analyses reveal that SPEs enhance the tax efficiency of intangibles and R&D by 61.5% to 87.5%. Overall, these findings provide economic insight into complex organizational structures supporting corporate tax avoidance.

Keywords: organizational structure, special purpose entity, tax avoidance

JEL Classification: H25, L22, M40

Suggested Citation

Demere, Paul and Donohoe, Michael P. and Lisowsky, Petro, The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance (October 30, 2019). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3483644

Paul Demere

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Michael P. Donohoe (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

HOME PAGE: http://https://giesbusiness.illinois.edu

Petro Lisowsky

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045
Norway

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