Do Intangible Assets Really Foster Corporate Tax Avoidance?

Abstract

Off-balance intangible assets, including knowledge capital and organizational capital, are becoming an increasingly important part of the US and global capital stock. In this study, we find that firms with high off-balance intangible assets exhibit a lower extent of corporate tax avoidance. The negative association is mainly manifested in firms with less incentivized managers, a lack of foreign revenue, and lower diversification. We further demonstrate that the negative relation is driven by knowledge capital rather than organizational capital. In addition, firms with high knowledge capital are more productive and are less likely to invest in tax-haven subsidiaries. The primary results are corroborated by an earnings-based measure of intangible intensity. Overall, our study resurrects the investigation on the role of intangible assets in corporate tax policies.

Keywords: intangible assets; tax avoidance; off-balance

JEL Classification: G34, E22, H26