Private Firms’ Tax Aggressiveness and Lightweight Pre-Tax-Audit Interventions by the Tax Administration

Journal of International Accounting, Auditing and Taxation, Forthcoming

40 Pages Posted: 29 Jun 2022

See all articles by Hannu Ojala

Hannu Ojala

University of Eastern Finland; Aalto University - School of Business

Pekka Malo

Aalto University

Esko Penttinen

Aalto University School of Business

Date Written: June 23, 2022

Abstract

A study examined private companies’ tax aggressiveness and its changes in response to interventions by the tax administration. While scholars have researched authorities’ interventions extensively, this study was the first to consider the “light” technique of tax adjustments made by the tax administration immediately after the firm submits its tax return. For the study, which utilized a large-scale proprietary dataset obtained from Finland’s tax administration (covering 85,155 firm years), the hypotheses addressed the relationship between the firm’s level of tax aggressiveness and the tax-administration intervention (H1) and that between the intervention and companies’ response to it (H2). The empirical findings support both hypotheses, indicating that, its lightweight nature notwithstanding, the pre-tax-audit intervention can serve as a tool for ameliorating firms’ overly tax-aggressive behavior. Finally, the authors present management implications that should be of interest to tax administrations and regulatory authorities, related to potential effectiveness of tax administration’ monitoring processes in mitigating tax aggressiveness of private companies.

Keywords: private firm, tax aggressiveness, tax-administration intervention, generalized structural equation modeling, Finland

JEL Classification: H25, H26, M41, M42

Suggested Citation

Ojala, Hannu and Malo, Pekka and Penttinen, Esko, Private Firms’ Tax Aggressiveness and Lightweight Pre-Tax-Audit Interventions by the Tax Administration (June 23, 2022). Journal of International Accounting, Auditing and Taxation, Forthcoming , Available at SSRN: https://ssrn.com/abstract=4144652

Hannu Ojala (Contact Author)

University of Eastern Finland ( email )

Yliopistonranta 1
Kuopio, 70210
Finland
+358443290604 (Phone)

Aalto University - School of Business ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Pekka Malo

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101
Finland

Esko Penttinen

Aalto University School of Business ( email )

Ekonominaukio 1
Espoo, 02150
Finland

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