The determinants of tax-haven use: evidence from Canada

Abstract

Purpose The purpose of this paper is to investigate the determinants of tax-haven use of publicly listed Canadian firms. Design/methodology/approach Based on alternative measures of tax havens (TH) and referring to a sample of 235 Canadian firms over the period of 2014–2015, probit-regression analyses are used to examine the determinants of tax-haven use. Findings The authors provide evidence that multinationality, intangible assets, thin capitalization, withholding taxes, equity-based management remuneration and tax fees paid to auditing firms are positively associated with TH use. Furthermore, the authors show that the variable relating to R&D intensity is positively associated with TH use. The authors also document that strong corporate-governance structures are negatively associated with TH use. Research limitations/implications This study is only limited to Canadian firms, so the results may not be generalizable to other countries. Practical implications The results may assist tax watchdogs in their efforts to understand the tax behavior held by Canadian firms. They may also be interesting for tax authorities in planning enforcement activities. Originality/value This study uses a sample from publicly listed financial and non-financial firms. It also uses various lists of TH published by various competent sources (IMF, 2000, 2007; TJN, 2005; OECD, 2012). The findings corroborate the recent media attention about the extensive use of TH by Canadian firms.

Transfer Pricing Aggressiveness in Indonesia: Multinationality, Tax Haven, and Intangible Assets

“…In line with the political cost hypothesis, the company's profits will decrease if the company pays taxes to the state which are high political costs. This issue underlies multinational companies to regulate their transactions so that they can allocate their profits to tax haven countries (Desai et al, 2006;Dharmapala, 2008;Van Fossen, 2015;Taylor, Richardson, & Taplin, 2015;Taylor, Richardson, & Taplin, 2015;Gumpert et al, 2016;Galaz et al, 2018;Atwood & Lewellen, 2019;Makni et al, 2020;Deng et al, 2020;Lewellen et al, 2021;Guex, 2021).…”

“…Transfer pricing is a significant form of tax avoidance that is carried out by diverting profits from countries with higher tax rates to countries with lower tax rates (Richardson et al, 2013;Sari, 2020;Muhammadi et al, 2016;Makni et al, 2020;Amidu et al, 2019;Arham et al, 2020;Wahyudi et al, 2021;Falbo & Firmansyah, 2018;Irawan et al, 2021). Supported by OECD country-by-country reporting statistics in Baerentzen (2020), one of the main findings of the report is the discrepancy between the jurisdiction of profit reporting and the jurisdiction of economic activities, such as employment, assets, and sales (Rahman & Utami, 2021;Devi & Suryarini, 2020;Taylor et al, 2018;Sari & Irawan, 2021;Utami & Irawan, 2022).…”

“…Transfer pricing transactions are also related to the existence of tax havens. Multinational corporations transfer profits to low-tax jurisdictions or tax havens through manipulation of transfer prices (Van Fossen, 2015;Taylor, Richardson, & Taplin, 2015;Taylor, Richardson, & Taplin, 2015;Gumpert et al, 2016;Galaz et al, 2018;Atwood & Lewellen, 2019;Makni et al, 2020;Deng et al, 2020;Lewellen et al, 2021;Guex, 2021).…”

Tax Haven Use and Related‐Party Transactions: Evidence from Australia

“…Strategies for sophisticated tax avoidance, including the use of tax haven jurisdictions, have attracted substantial attention in the media and among international and national policy-makers. 3,4 Tax havens represent jurisdictions that are characterised by zero or low corporate tax rates and a lack of effective information exchange with tax authorities in foreign countries (Makni et al 2019). The G20, the OECD and various other tax authorities have in recent years increased their global examination of tax havens due to growing concerns regarding secrecy, tax avoidance and dishonest business practices (Dharmapala 2008;Dharmapala and Hines 2009;Hines 2010).…”

Determinants and consequences of auditor‐provided tax services: A systematic review of the international literature

“…Similarly,Garcia-Blandon et al (2021) find that neither the provision nor the levels of APTS fees are associated significantly with tax avoidance in Spain. Specific to the German setting,Watrin et al (2019) state that German auditors may be more conservative when providing tax services to their audit clients in response to the higher litigation, reputation or restatement risks in Germany compared with those faced by the US auditors.13 Consistent with this argument, the authors document a negative association between the APTS fees to audit fees ratio and both short-and long-term tax avoidance Makni et al (2020). find a weak positive relationship between the magnitude of APTS fees relative to total auditor fees and listed firms' use of tax havens to avoid tax in Canada.…”