I will test the hypothesis in this study based on the results of the t-test on the digit with an unusually high frequency in the financial statements of avoiders. As mentioned above, the test sample will be used in a regression model to see if the finding of the first test is correct and persists when controls are included for firm characteristics which are associated with cash effective tax rates. More specifically, firm characteristics which have been proven to be a determinant of corporate tax avoidance in prior research.
The following regression model is estimated to test the hypothesis stated in this study:
CASH ETRi,t = β0 + β1HIGH FREQi,t + β2ROAi,t + β3LEVi,t + β4NOLi,t + β5∆NOLi,t +β6FIi,t + β7PPEi,t + β8INTANGi,t + β9EQINCi,t + β10SIZEi,t-1 +β11MBi,t-1 +YearDummies + IndustryDummies + ɛ
In this study I will use the cash effective tax rate (CASH ETR) as a proxy for corporate tax avoidance. Chen et al. (2010) use the cash effective tax rate as one of the measures of tax aggressiveness in their study. Another effective tax rate measure which has been widely used in tax avoidance research is the GAAP effective tax rate. However, the GAAP effective tax rate only reflects the permanent book-tax differences, while the CASH ETR reflects both the temporary and permanent book-tax differences (Chen et al. 2010). Moreover, the CASH ETR captures the tax benefits of employee stock options, while the GAAP effective tax rate does not (Dyreng et al. 2008). The CASH ETR also captures the strategies that are used to defer taxes while the GAAP effective tax rate does not (Hanlon and Heitzman 2010). The GAAP effective tax rate is also affected by changes in estimate while the CASH ETR is not. Therefore, Dyreng et al. (2008) conclude that t...
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Considering the service industry of preparing taxes, this essay will review how individual income taxes began, along with the industry growth and its value today. Specifically, we will review the corporation of H and R Block, its history, the products they offer, their marketing mix, their ranking in the industry, their stock value and annual revenues, and the contributions which they make back to society.
Tax avoidance or tax evasion: Tax inversion is a legal form of tax avoidance. There is a thin line between tax avoidance and tax evasion. In tax evasion, the facts of the company or the income are hidden from the law authorities and thereby the tax implication is lowered. The income is subdued from the authorities by illegal means or the operations of the company lay hidden in some other form. However, in case of tax avoidance, the legal loopholes in the law are taken advantage of. The facts are disclosed as it is under tax avoidance. However, with expert tax understanding, the legal loopholes are exploited to the advantage of the company and income is saved from the impact of
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
Corporate inversion is a tax avoiding strategy in which a multinational company in the United States renounces its citizenship and re-incorporate itself in a tax haven country to avoid paying taxes on its foreign income.A multinational company has operations in more than one countries; however, it declares one of them as its home where the parent company resides. An inversion deal changes the parent company with no changes in operational behavior. Corporate inversion has never been the talking point of mainstream common people because of the complex nature of corporate financial accounting and taxation rules. But the recent wave of inversions made
Deferred tax is an accounting measure, use to match the tax effects of transactions with their accounting impact. The differences of treatments for several items in accounting profit and loss and taxation have created temporary differences. These temporary differences are differences between carrying amounts of an assets or liabilities in the financial statement of financial position and its tax base (Choo & Lazar, 2014). There are two types of temporary differences which are taxable temporary differences and deductible temporary differences. A taxable temporary difference indicates that a taxation liability has been deferred in the past or current period and company will pay more in the future whereas deductible temporary differences indicate that a taxation liability has been accelerated in the past or current period and company will pay less tax in the future.
A tax haven is a country that offers foreign corporations and individuals relatively low corporate and income tax rates, with a politically and economically stable environment. Some tax havens are Switzerland, Hong Kong, Bermuda, Ireland, and the Cayman Islands. The United States government has been fighting against the movement of corporations because it is not collecting taxes from these corporations that it could have used to reduce government debt. However, corporations have found loopholes that exempt them from United States tax laws. Companies are moving their headquarters across seas for tax benefits to keep their shareholders content. The United States government needs to reduce its corporate tax system so the country does not lose more companies, jobs, and money to foreign entities.
In today’s American businesses, it is common for companies to grant stock options to employees. Employees have the right to purchase the company’s stock at a given price over an extended period of time. Employee stock option is a kind of innovative compensation which benefits companies, stockholders, and employees. It helps match the interest of key employees with that of shareholders. In addition, it has been criticized that companies use this to compensate internal staff at the expense of ordinary stockholders, and treat it as tax avoidance devices. This paper is written to introduce the tax treatment of different types of stock options recorded in the Internal Revenue Code.
Accounting Theory: Conceptual Issues in a Political and Economic Environment (6th edition ed.). South Western College Pub.
Following the research of Eaves, D. (2017). “Fraud costs UK economy £193 billion a year - equating to more than £6,000 lost per second every day” - Latest Thinking Blog. [online] The rapid growth of fraud within businesses since the devastating worldwide economic crisis of 2008 can be altered if corporate executives worked more effectively on trying to reduce and limit the amount of fraud carried out within their own companies by 40%. “Increasing fraud levels could be blamed on technological change, as fraudsters are more insulated from the consequences of their crimes, as well as the increased complexity of systems, which allows frauds to be more effectively hidden.” The effects of tax fraud can be very harmful for not only businesses but
Every year, over 140 million income tax returns are filed with the Internal Revenue Service (IRS). Of those 140 million returns, nearly 1.5 million are audited by the IRS. Taxpayers with an adjusted gross income of over $200,000 generally have a higher chance of being audited, as well as taxpayers will little or no adjusted gross income. Although the probability of actually being chosen for an audit is relatively low, it is still important for taxpayers to understand what tax auditing entails, the procedures the IRS takes in determining which tax returns to audit, and the IRS’s process in selecting the outcome of the audit. This way, taxpayers are able to indicate the common red flags of the IRS and can greatly minimize the possibility of being chosen for a tax audit.
Using tax avoidance is a simple way for big companies to increase their profits. More importantly, more investors of the company can be attracted by the good looking financial performance as a result of using tax avoidance scheme. There are schemes where shareholders invest in certain funds used for improving British film productions and alternative energy projects and they can be beneficial to receive more tax relief. In this way, tax avoidance actually increases the investment opportunities for the corporations, which also helps the development of the business.
Taxation is one of the most important courses that the students have to study at Accounting Specialization. It covers various topics that required by the governments to the nation. Besides, it produces an approach to the taxation of individuals, including a more in-depth study of the imposition of several business entities builds solid professional knowledge. As a student, I think this course will support me to gain a thorough understanding of taxation and a talent that many employers are exploring in accountants. This reflection covered the points I learned about individual and business tax in this class, the challenge that I faced, and the experience I got it from working in a group and being a leader of them.