Foreign Investor’s Interest and Tax Avoidance: Contingency Perspectives Depended on Country’s Protection Level and Law Systems

Abstract

This study investigates differences in firms’ tax avoidances between multinational and national. Furthermore, it investigates the differences between firms’ contingent behavior because of the country’s investor protection level and law systems. This research takes into account the firms’ tax avoidance phenomenon. Besides that, it proposes novelties as follows. First, this study highlights that multinational firms tend to avoid taxes higher than national ones. Second, it induces the dividend catering theory related to the country’s investor protection. The latest, it persuades that country’s investor protection, and law systems make firms contingent on their tax avoidance behaviors. This study finds that firms where they live in high investors’ protection countries and common law did higher tax avoidance than others. The findings imply that these firms could grow higher than others. It means that this study suggests economic consequences. The consequence is that a country should increase its investors’ protection level and somehow redefine its law systems. Therefore, it could enhance its capital market and subsequently improve the national welfares.

Can Other Comprehensive Income be Used for Tax Avoidance?

“…-post other resources for private interests [27]. 3) Multinational companies are more likely to do tax avoidance than national companies [36]. Managers of multinational companies can do tax avoidance, for example by utilizing transfer pricing with subsidiaries to the parent [7].…”

“…Companies operating in countries with a high level of investor protection and a Common-Law legal system tend to evade tax more frequently than companies operating in countries with weak investor protection levels and with a Code-Law legal system. This is because companies operating in countries with a high level of investor protection and the Common-Law legal system have stronger ties to investors, thus making more efforts to increase dividend payments, one of which is by avoiding tax payments [36].…”

“…A study conducted by [33] shows that the level of tax avoidance of multinational companies in the United States and 12 countries in Europe is still high, and specifically for companies in Europe, there is a downward trend in tax avoidance from time to time. Empirical evidence that the level of tax avoidance in Indonesia is still high [27], as well as multinational companies in Indonesia [36]. The realization of state revenues from the tax sector also missed the target.…”

“…Research on factors that influence tax avoidance, so far the majority are in the form of implementing corporate governance factors and company characteristics such as company size and leverage levels, and there are specific ones regarding the company's relationship with practical politics [30], foreign interest intervention, and the country's legal system [36]. However, research on the effect of OCI on tax avoidance has not been studied, even though there is no certainty about the amount and timing of OCI realization, which can be a medium for presenting the value of net income according to certain interests, including efforts to avoid avoidance.…”

Pemilihan Metode Akuntansi R&D dan Penghematan Pajak: Studi Empiris di Indonesia pada Era Covid-19 Era Vuca

“…Menurut Positive Accounting Theory manajer cenderung ingin meminimalisasi jumlah pajak terutang. Pembayaran pajak yang semakin minim berdampak pada meningkatnya likuiditas perusahaan (Yuanita, et al, 2020). Fenomena tersebut juga berkaitan dengan kondisi pandemi Covid-19 yang bagi sebagian perusahaan merupakan kondisi yang tidak menguntungkan.…”