Corporate tax avoidance : does the level of tax aggressiveness depend on economic factors?
1University of Oulu, Oulu Business School, Department of Accounting, Accounting
|Online Access:||PDF Full Text (PDF, )|
|Persistent link:|| http://urn.fi/URN:NBN:fi:oulu-201403131179
|Publish Date:|| 2014-03-13
|Thesis type:||Master's thesis
The purpose of this thesis is to find evidence about national-scale economic instability (especially reflected in the impacts of the financial crisis) being present also on a business level, namely in the form of corporate tax avoidance. A broad strand of literature copes with the topic of corporate tax avoidance. The research stems mostly from companies located in the United States. This thesis combines the approaches taken from US prior research with several cross-country comparisons in Europe in order to examine the influence of economic factors that are specific for each country on the level of corporate tax aggressiveness. The distinction between northern and southern European countries is of special importance in the empirical research of this thesis. This kind of cross-country comparison relating corporate tax avoidance with country-specific economic factors has not yet taken place. The two strands of literature are examined thoroughly and separately from each other, before they are logically combined in the model development: With a linear regression adopted partially from tax avoidance literature and partially from cross-country comparisons studies, the impact of economic factors like rule of law, the financial system, GDP growth rate, control for corruption and the location of the company regarding the cardinal direction on a tax avoidance proxy measuring tax avoidance aggressiveness is tested and explained. The data are distinguished according to prior and post financial crisis. The data are financial statement data taken from the World Bank Database, governance indicators taken from the World Bank Worldwide Governance Indicators research project, and further economic influence indicators taken from Eurostat statistics and KPMG. Company observations from eight countries, namely Finland, Sweden, Germany and the Netherlands representing the northern European countries, and Spain, Greece, Italy and Portugal representing the southern European countries, are taken from the years 2005 through 2012. 2005 as the starting point is due to the mandatory IFRS adoption for listed firms in that year. The sample size used in the analyses totals 20,017 company observations from public firms. The main contribution to literature is that this is the first cross-country comparison across European countries relating to corporate tax avoidance. The evidence is weak but shows that companies in northern European countries tend to be more tax aggressive than in southern European countries, that companies in a market-based country tend to be more tax aggressive than in a bank-based country and that companies changed their behavior after the financial crisis, namely to less tax aggressiveness. The assumption that with an increasing rule of law in a country the companies are more tax aggressive is rejected, which might however be due to interdependencies between variables that the model does not account for. All in all it seems like a stable economy is positively correlated with tax avoidance aggressiveness, at least in post-financial crisis observations.
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