Volume 13, Issue 4 - Accounting, Corporations and Tax Avoidance

The European Commission is currently seeking to implement the OECD/G20 agreement on minimum corporate taxation, in view to ensuring a minimum effective tax rate on large multinational corporate groups and protecting the level playing field for business and society. In fact, the proposed ruling introduces scope exceptions for groups directly or indirectly controlled by governmental entities, non-profit organisations, and investment and pension funds. These scope exceptions may provide incentives for controlling parties to restructure the corporate group in view to avoid taxation, if the minimum effective tax threshold is constraining and material. Furthermore, it may provide a tax competitive advantage for groups controlled by those parties.

This study examines the interplay between tax haven use, geographic disclosures and corporate tax avoidance. Based on a panel of 497 non-financial EU listed firms during the period 2006–2012, we provide evidence that corporate groups with affiliates in tax havens tend to have lower effective tax rates and lower geographic disclosures fineness scores. We, also, find a positive association between geographic disclosures fineness scores and the firms’ effective tax rates. We, further, find that the negative association between tax haven use and the effective tax rate is more pronounced for firms disclosing geographic information at a more aggregated level, showing a moderating effect of geographic disclosures fineness on such association. Our findings are based upon hand-collected data on corporate geographical dispersion, and corroborated by several additional and robustness tests. The research results should be of concern to policymakers and others interested in multinational companies’ segment reporting practices and tax planning activities.

In part due to recent disclosures of large-scale tax evasion (e.g. Panama Papers), corporate tax avoidance has become a prominent public policy issue around the world. An increasing amount of research on this topic has focused on identifying the determinants of tax avoidance at the company and country level. Many newer studies examine differences in corporate governance as one of these determinants. However, this literature almost entirely neglects the role of board level employee representation (BLER), despite the fact that this form of ‘stakeholder governance’ is widespread in Europe. This paper addresses this gap in the literature by examining the relationship between BLER and tax avoidance at the company level. Two mechanisms are identified through which BLER might influence corporate tax behavior: 1) reduction in agency costs through monitoring and 2) the voting power of workers as board members to enter into coalitions with management and/or shareholders. Based on a sample of 2343 European listed companies between 2012 and 2017, this paper shows that companies with BLER have a higher effective tax rate (ETR) than companies without workers on the board. The analysis suggests that the ability to form coalitions through voting power is a more significant channel for influencing tax behavior than the monitoring mechanism. The policy implications are that governments should consider ‘stakeholder governance’ such as BLER as one measure supporting their efforts to combat tax avoidance.

The progressive harmonization of corporate financial information, based on the International Financial Reporting Standards, has moved fair value accounting (FVA) to the forefront of a debate that straddles accounting and corporate tax. Given the subjectivism that FVA may exhibit, especially when mark to market is not available and mark to model is used as in level 3 FVA, tax legislators have strongly restricted its impact on the corporate tax base. This paper argues that while the Portuguese corporate tax legislators explicitly followed this worldwide trend of restricting the tax impact of fair value to certain circumstances when market prices are observable (level 1 FVA), the corporate tax code has, nonetheless, several important avenues through which FVA influences taxable income determination. The main purpose of this paper is to present and discuss some important ways through which FVA may influence taxable income determination in Portugal, such as goodwill, impairment charges, transfer pricing, capital gains and exit taxation. Thus, the question emerges: is FVA returning through the window to impact the corporate tax base? Considering the global trends in public finance, and the need for present and future tax revenues, we believe this is an important topic to be addressed.

Portuguese corporate income tax has a special feature rarely seen in other countries. Autonomous taxes are levied on an extensive set of corporate expenses, irrespective of corporate profitability. Fiscal revenue from the autonomous taxation of expenses comprises about 12 % of corporate income tax receipts, which illustrates its relevance for the tax authorities and the corporate world. As autonomous tax rules are usually interpreted and applied to certain corporate expenses by chartered accountants (CAs) when computing income tax liabilities and filling in tax returns, the purpose of this paper is to present an empirical study of the perceptions of Portuguese CAs regarding key dimensions of autonomous taxation of expenses (ATE), as these influence corporate tax management. Using a sample of 665 CAs surveyed, and applying factor analysis, the paper concludes that tax complexity, tax compliance and tax planning are the main dimensions of ATE perceived by respondents. Besides the corporate income tax impact on fiscal management, new layers of complexity, planning opportunities and compliance costs are perceived to be added by ATE. Additionally, by applying cluster analysis, the paper finds that sociodemographic characteristics of CAs (e. g. age, gender, professional environment, level of expertise) generate clusters of CAs with different perceptions of the role and consequences of ATE in the management of corporate tax affairs.

To the best of our knowledge, this is the first paper focusing on the interpretations issued by different Portuguese courts concerning the application of the accrual principle established in the Corporate Income Tax Code. This paper uses a database of the Portuguese tax courts’ decisions and employs a case law-based research methodology to address the following question: under which circumstances the principle of justice may affect the strict application of the accrual principle? After collecting twenty-four legal decisions related to the application of the accrual principle outlined in tax law, this paper summarises eleven, grouping them according to the different issues under dispute. This analysis also includes the confrontation of the assumptions used by the tax authority and the claims of the taxpayers, identifying and discussing the legal arguments to override the strict application of the accrual principle. The main conclusion is that Portuguese courts may summon the principle of justice in taxation when taxpayers violate the accrual principle, in order to prevent unfair corrections to taxable income performed in tax audits. This paper found that the tax authority typically demands a rigid use of the accrual principle while the taxpayers often argue for a more flexible application. This last perspective has been adopted by the tax courts in certain circumstances, in particular when taxable income transfer was not motivated by tax avoidance.