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The general anti-avoidance rule, or GAAR, is an enforcement mechanism that gives the taxing authority of a country broad power to deny a taxpayer tax benefits associated with any transaction.Although a GAAR being enacted within a country is becoming increasingly more common, the presence of a GAAR is generally overlooked and thus its effect left unstudied. In this paper we provide an initial investigation by studying the effect that a GAAR within a country has on corporate tax avoidance behaviors. Using an indicator for the enactment of a GAAR within a specific country, we find a statistically and economically significant increase in aggregate tax collections and a statistically and economically significant decrease in firm-level tax avoidance. Additional analyses show that the firm-level results are strongest for firms with higher levels of tax avoidance, for countries with lower levels of tax enforcement prior to the implementation of a GAAR, and for countries where the burden of proof lies, at least partially, with the taxpayer. In final analyses, we find that the GAAR is associated with a decrease in the volatility of reported ETRs. Variable Description and Data Source Book ETR The ratio of total tax expense (TXT) to pre-tax income (PI). Book ETR Vol One-year lagged five-year rolling standard deviation of tax avoidance, where tax avoidance is computed by Book ETR. Book Ratio Book ETR / CSTR Book Ratio Vol One-year lagged five-year rolling standard deviation of tax avoidance, where tax avoidance is computed by Book Ratio. Book Spread Book ETR-CSTR Book Spread Vol One-year lagged five-year rolling standard deviation of tax avoidance, where tax avoidance is computed by Book Spread. CorpTaxRev Country-year level measure of total corporate income, profits, and capital gains taxes, scaled by country GDP.

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