Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

Lisowsky, Petro; Robinson, Leslie A.; Schmidt, Andrew

doi:10.1111/joar.12003

Cited by 316 publications

(195 citation statements)

References 49 publications

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“…In addition, previous studies (Dunbar, Omer, & Schultz, 2010;Robinson & Schmidt, 2013) observe low compliance with FIN 48 disclosures. These aforementioned studies (i.e., Abernathy et al, 2017;De Simone et al, 2014;Dunbar et al, 2010;Robinson & Schmidt, 2013) illustrate that FIN 48 probably could not completely eliminate earnings management through tax reserves. Based on his own experience, Harvey (2011), a former IRS employee, states that an IRS audit was not effective in identifying tax issues in the pre-FIN 48 period.…”

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

“…Studies in the post-FIN 48 period (e.g., Lisowsky, 2010;Lisowsky, Robinson, & Schmidt, 2013) (2014) illustrate that managers still have substantial discretion over tax reserves even under auditors' monitoring in the post-FIN 48 period and imply that managers could continue managing earnings through tax reserves. In addition, Abernathy, Beyer, Gross, and Rapley (2017) provide evidence that managers have discretion regarding interest and penalty expenses classification for UTBs.…”

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

“…While Gupta et al (2016) study large firms only, Cazier et al (2015) cover firms of all sizes. Based on the aforementioned literature on consequences of FIN 48 (i.e., Cazier et al, 2015;De Simone et al, 2014;Dunbar et al, 2010;Gupta et al, 2016;Robinson & Schmidt, 2013) and the argument that the effect of FIN 48 varies with firm size, I specify the following hypotheses: H1: Large firms (firms with total assets of $5 billion or more) no longer manage earnings through tax reserves to meet earnings targets in the post-FIN 48 period.…”

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

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Earnings Management through Tax Reserves and Auditor-Provided Tax Services

2017

AFR

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This study investigates whether firms continue to use tax reserves to achieve financial reporting objectives in the post-FIN 48 period and the effect of auditor-provided tax services on earnings management through tax reserves. Three types of earnings management incentives are considered in this study: meeting or beating the consensus forecasts, income smoothing, and taking an "earnings bath." The analyses yield evidence that only non-large firms manipulate tax reserves to meet/beat earnings forecast in the post-FIN 48 period; however, tax reserves are still utilized by both large and non-large firms to smooth earnings. Moreover, evidence is provided that the auditor who provides more tax services facilitates large firms' earnings smoothing in the post-FIN 48 period, implying independence impairment. But this behavior does not exist within non-large firms, arguably because the auditor does not compromise independence for less important clients.

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Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

Section: Earning Management Through Tax Reserves In the Post-fin 48 Pmentioning

confidence: 99%

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Earnings Management through Tax Reserves and Auditor-Provided Tax Services

2017

AFR

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“…The ETR can be considered as the 'mainstream' measure for tax aggressiveness. It has also been taken as a reference to motivate an unprecedented tax reform [19]. The Base Erosion and Profit Shifting (BEPS) project, launched by the G-20 through the OECD, affirmed 'that some multinationals use strategies that allow them to pay as little as 5% in corporate taxes when smaller businesses are paying up to 30%' (OECD, 2013a).…”

Section: Introductionmentioning

confidence: 99%

Is Business Ethics the ‘Last Rampart’ Against Tax Aggressiveness?

Wegener¹,

Labelle²

2017

Int J Account Res

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Table principles for business ethics, 1 involves the reconciliation of private interests with the public good [1][2][3]. Moral capitalism, at a time when firms can no longer avoid dealing with the issue of corporate social responsibility (CSR), is becoming a reference in the business world. It is especially true in difficult economic times when it can be argued that social needs are greatest. We have witnessed business leaders, such as Miller [4], coming together to publicly recognize the necessity of participating in the collective effort. Corporate income tax is one mechanism allowing, or requiring, firms to take on a share of this collective effort, since it reallocates part of the wealth they create. In the perspective of moral capitalism, no firm, except maybe what Reidenbach and Robin [5] identify as the amoral organization, should attempt to evade the tax system. The reality is quite different as more or less aggressive tax planning activities to minimize the tax burden undeniably exist. The scandal which revealed KPMG's involvement in tax evasion is unquestionably a notable illustration [6]. The case of Starbucks, abovementioned for their allegiance to moral capitalism, is even more noteworthy as the Seattle-based group was, in the same year, blamed for its practices of tax avoidance in the UK [7]. The relationship between moral capitalism or business ethics 2 and corporate tax conduct is after all not so obvious. Consistent with existing research [8,9], we view tax aggressiveness, a facet of tax avoidance, 3 as downward management of taxable income through more or less aggressive tax planning activities. Given that taxes 1 The Caux Round Table is an international organization of senior business executives founded in 1986 to promote ethical business practices. It met for the first time in 1986 in Caux, Switzerland. The Caux Round Table principles are considered to be the first international code of ethics for business (Asgary and Mitschow, 2002).2 Following Carroll (1991), we consider that ethics and morality are essentially synonymous in the organizational context.3 Except in the section dealing precisely and technically with tax aggressiveness measurement, we do not truly distinguish between 'tax avoidance' and 'tax aggressiveness'. Consequently we use both concepts interchangeably.are an important cost of doing business and an instrument of wealth distribution, tax aggressiveness presents an interesting governance and ethical dilemma as it may be desired by some shareholders but decried by other stakeholders. Tax avoidance seems to be a widespread practice despite increasingly compelling external ethical guidance from such sources as the Caux Round Table and the UN Global Compact. This raises the question as to whether business ethics can be successful when regulations fail and thus be viewed as the taxpayer's last rampart against the urge to escape tax [10]. Do corporations consider their tax obligations fulfilled when they do not break the letter of the law? A 'legalistic' behavior corresponds to a...

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“…Tax uncertainty arises from the difficulty in applying ambiguous tax laws and anticipating the consequences of a future tax audit (Mills, Robinson, and Sansing, 2010;Lisowsky, Robinson, and Schmidt, 2013). Prior to making an investment decision, investors must forecast the prospective tax burden, as it can be a significant cost factor.…”

Section: Introductionmentioning

confidence: 99%

Boon or Bane? Advance Tax Rulings as a Measure to Mitigate Tax Uncertainty and Foster Investment

Diller

Kortebusch

Schneider

et al. 2016

European Accounting Review

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ABSTRACT:Politicians and tax practitioners often claim that tax uncertainty negatively affects investment. In many countries, firms can request fee-based Advance Tax Rulings (ATRs) to mitigate tax uncertainty. We analyze theoretically the circumstances under which investors request ATRs, how tax authorities should price them and how they can affect investment. We assume that tax authorities integrate investors' reasoning into their decisions. We determine the optimal fee tax authorities should charge. We find that in special cases this fee is prohibitively high, thus firms will refrain from requesting ATRs. However, we find that revenue-maximizing tax authorities offer ATRs if the ruling enables them either to significantly reduce their tax audit costs or to increase the probability of detecting ambiguous tax issues. Under certain circumstances, ATRs may effectively foster investment and potentially benefit both the tax authorities and taxpayers. Our results provide new explanations for why taxpayers that face high levels of tax uncertainty often do not request ATRs, even when the fee is rather low. Our results also hold when the tax authority maximizes social wealth instead of its revenues. Regulatory changes in ATR requirements might serve as a natural quasi-experiment for an empirical study of our predictions regarding investment decisions.

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Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

Cited by 316 publications

References 49 publications

Earnings Management through Tax Reserves and Auditor-Provided Tax Services

Earnings Management through Tax Reserves and Auditor-Provided Tax Services

Is Business Ethics the ‘Last Rampart’ Against Tax Aggressiveness?

Boon or Bane? Advance Tax Rulings as a Measure to Mitigate Tax Uncertainty and Foster Investment

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