Empirical essays on tax avoidance

Abstract

This dissertation comprises three tax avoidance papers. In addition, these papers empirically examine firms’ resource allocation, tax control frameworks, tax transparency and tax compliance.

The first paper investigates firms’ response to a perceived increase in tax audit aggressiveness. By examining a cross-country dataset of approximately 200 multinational firms, we find no evidence that a perceived increase in audit aggressiveness leads to a change in tax planning activities. Nevertheless, we find that audit aggressiveness is positively associated with the quality of firm’s tax control frameworks. Thus, it remains unclear, if stricter enforcement shapes firms’ tax planning behavior or simply causes firms to invest more in the avoidance of errors.

The second paper examines the self-presentation of UK firms in published tax strategies as “responsible taxpayers” or as “tax planners” and whether their presentation is consistent with the measurable tax avoidance behavior. We use 248 published tax strategies from firms listed on the FTSE 100 and FTSE 250 and find that firms tend to portray themselves more as “responsible taxpayers”, but that this portrayal is only consistent with firms’ tax avoidance behavior if they are subject to an above-average external monitoring by financial analysts. Our findings suggest that firms manage the content in their published tax strategy to sway public opinion when the probability of detecting misstatements is low.

The last paper analyzes how tax complexity affects firms’ tax compliance and tax avoidance activities measured as the allocated resources within the tax department (internally and externally). I use a cross-country dataset of 173 multinational firms to show that tax complexity is positively associated with the tax compliance and tax avoidance activities. This finding indicates that higher complexity induces more compliance costs. Simultaneously, firms need to invest more resources in tax avoidance.