Trading Offshore: Evidence on Banks' Tax Avoidance

Langenmayr, Dominika; Reiter, Franz

doi:10.2139/ssrn.3057458

Cited by 4 publications

(6 citation statements)

References 27 publications

(32 reference statements)

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“…They also find that banks can manipulate transfer prices for intra-bank transactions like interest margins or service fees and manipulate the allocation of default risks and internal loans to reduce earnings subject to high tax rates. Langenmayr and Reiter (2020) also document that banks relocate proprietary trading to shift profits.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

“…Prior research finds that banks engage in extensive tax-avoidance schemes, including offshore tax shelters, to avoid paying taxes. For example, Langenmayr and Reiter (2020) argue that banks primarily use internal loans to shift substantial profits to countries with lower taxes. They also report that banks relocate profitable proprietary trading to jurisdictions with lower tax rates.…”

Section: Introductionmentioning

confidence: 99%

“…For example, Gawehn and Müller (2019) document that banks have a significantly lower level of cash tax savings than non-banks, and that this difference in cash tax savings is more pronounced for undercapitalized banks than for fully capitalized banks. Some researchers (Merz and Overesch, 2016; Langenmayr and Reiter, 2020) find that banks relocate proprietary trading to shift profits to jurisdictions with lower taxes. The Public Accountability Initiative (2011) reports that 50% of the 1,871 foreign subsidiaries of the six largest banks in the USA are incorporated in jurisdictions that have been identified as offshore tax havens, such as the Cayman Islands.…”

Section: Introductionmentioning

confidence: 99%

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The impact of financial constraints on banks’ cash tax avoidance

Jin¹,

Liu²,

Zhang³

et al. 2022

RAF

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Purpose The purpose of this paper is to investigate whether and how banks’ financial constraints affect their cash tax avoidance. The authors hypothesize that banks engage in more tax planning to generate additional cash to mitigate their financial constraints. Design/methodology/approach The authors use a sample of US banks to conduct the panel regression analysis. The authors measure the bank tax avoidance using the cash effective tax rate and measure the bank financial constraints using the Z-score and annual payout ratio. The authors further use the implementation of the Dodd–Frank Act as a quasi-natural experiment to conduct the difference-in-difference analysis. Findings The authors document that financially constrained banks exhibit lower cash effective tax rates. The authors further show that banks facing greater financial constraints are less likely to pursue tax-saving activities following the Dodd–Frank Act. Moreover, the authors find that non-performing loans increase the influence of financial constraints on tax avoidance, while a financial crisis amplifies the impact of financial constraints on bank cash tax savings. Originality/value By extending previous research on financial constraints and tax planning, this paper is the first study to recognize financial constraints, along with the Dodd–Frank Act, as determinants of banks’ tax avoidance. This study informs policymakers about the regulation of tax avoidance in the banking industry and sheds light on possible future research on banks’ tax-planning strategies.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The impact of financial constraints on banks’ cash tax avoidance

Jin¹,

Liu²,

Zhang³

et al. 2022

RAF

View full text Add to dashboard Cite

show abstract

“…Financial firms, mainly banks, are exposed to a wide range of opportunities to avoid tax. For example, such firms have relatively easier opportunities to shift profits to low-tax jurisdictions (Demirgüç-Kunt and Huizinga, 2001;Langenmayr and Reiter, 2020;Schandlbauer, 2017). Additionally, modern banks are massively involved in off-balance sheet activities like financial derivatives, which could facilitate tax avoidance (Merz and Overesch, 2016).…”

Section: Literature Review and Hypotheses Development A Financial Fir...mentioning

confidence: 99%

“…The existing, limited studies in the tax avoidance literature have provided persistent empirical evidence that financial firms, especially banks, are likely to be tax aggressive (Demirgüç-Kunt and Huizinga, 2001;Langenmayr and Reiter, 2020;Schandlbauer, 2017). Additionally, an interesting finding is offered by Gallemore et al (2019), who reveal that banks tend to promote tax avoidance among their customers.…”

Section: Literature Review and Hypotheses Development A Financial Fir...mentioning

confidence: 99%

Are Financial Institutions Tax Aggressive? Evidence From Corporate Tax Return Data

Efendi

Darmadi

Czernkowski

2022

BEMP

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This study examines how financial firms’ tax aggressiveness differs from their peers in other sectors. Using confidential tax return data of the 5,968 largest Indonesian firms from 2009 to 2017, our study finds financial firms to have lower tax burdens relative to their non-financial counterparts, suggesting more opportunities for tax avoidance. Further, we document simultaneous use of tax shelters and temporary and permanentdifferences between accounting standards and tax laws, indicating a tendency to use the most sophisticated and less costly techniques in minimising tax burdens. These findings suggest tax aggressiveness may be one important unintended consequence of the government’s conventional prudential policy.

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Industry specialization and tax avoidance in the Australian banking industry

Mnif,

Tahri

2023

MEDAR

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Purpose The purpose of this study is to examine the impact of industry specialization of audit partners and audit committee members on the level of tax avoidance in Australian banks. Design/methodology/approach This study uses a multivariate regression analysis based on hand-collected data consisting of 180 observations from Australian domestic banks between 2010 and 2018. Findings The primary results of the empirical analysis indicate that audit partner industry specialization is negatively associated with the level of tax avoidance in Australian banks. Regarding the audit committee, the proportion of industry specialists among audit committee members reduces the magnitude of tax avoidance. These results are robust, as they hold the same for alternative measures of tax avoidance and industry specialization of audit partner and audit committee members. Results from supplementary analysis reveal that the interactive effect of both audit firm and audit partner industry specialization strengthens the auditors’ effectiveness in reducing the level of tax avoidance. Practical implications As this study highlights the importance of the industry specialization in decreasing tax avoidance, it can be beneficial for policymakers to assess the impact of good governance on the level of tax avoidance in the banking industry. Originality/value Even though the existing studies examine the link between the governance actors’ industry specialization and tax avoidance in nonfinancial firms, this paper explores the banking industry that differs from nonfinancial firms in among others; accounting and fiscal regulations. This study further provides unique evidence indicating that industry specialization of the audit partner constitutes a significant determinant of minimizing the bank’s level of tax avoidance.

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Trading Offshore: Evidence on Banks' Tax Avoidance

Cited by 4 publications

References 27 publications

The impact of financial constraints on banks’ cash tax avoidance

The impact of financial constraints on banks’ cash tax avoidance

Are Financial Institutions Tax Aggressive? Evidence From Corporate Tax Return Data

Industry specialization and tax avoidance in the Australian banking industry

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