International tax planning techniques: a review of the literature

Abstract

PurposeThis paper aims to understand the international practices of tax planning. International companies choose their capital structure according to differences in international taxation, in order to minimize the tax burden of the whole company group. This paper reviews the literature that deals with international tax avoidance techniques by highlighting tax planning measurements in the empirical literature. The methodology used is the narrative approach of literature review, which consists on assembling and synthesizing previously published research. The paper concludes that there are several approaches of international tax planning including transfers of revenues by geographical area, redevelopment of the company, haven and loopholes in tax legislation. Moreover, finding more precise measures of tax planning techniques would be of great value to studies in this respect.Design/methodology/approachThe authors follow the guideline provided by Templier and Pare (2015) in order to select the type of the literature review to use in this paper. Accordingly, this paper employs the narrative approach of literature review, which consists on assembling and synthesizing previously published research on international tax planning. This narrative review will serve as a starting point for future investigations and research developments. The authors rely on a logic of configuration in order to analyze data. This logic consists on addressing then organizing various aspects of international practices of tax planning.FindingsThe paper concludes that there are many aspects of international tax planning that need to be covered by future researchers, especially finding more precise measures of tax planning techniques would be of great value to studies in this respect.Research limitations/implicationsThe literature survey reveals the following issues. First, few studies have been conducted to date. Second, several approaches remain unexplored, and studies rely only on surveys' results collected from the annual report of companies (microeconomics variables), while macroeconomic variables can better explain the phenomenon of international tax planning. In this context, studies containing proposals to estimate more accurate international companies' tax planning techniques would also be welcome. Previous literature supposes premises on this issue th:at limit the accurateness of the analysis. Particularly, empirical literature is short of the proper measurement to evaluate corporate tax avoidance. This would explain the various interpretations of research findings. Hence, finding more precise measures of tax planning techniques would be of great value to studies in this respect.Practical implicationsThis literature survey highlights recent studies dealing with tax planning theories within the framework of corporate governance. This theoretical framework particularly specifies which key variables are the most suitable for measuring tax planning methods and highlights the need to examine how those key variables might differ and under what circumstances. In addition, it underlines limits on tax planning measurements by addressing the comparison of the empirical measurements.Originality/valueThe paper contributes to the literature on internal tax planning in several ways. First, this study is unique in that it constitutes the only literature review that provides a comprehensive overview of research on international tax planning. Especially, it extends previous studies by considering the specific new trend of empirical literature dealing with the techniques of international tax planning. This literature review identifies two categories of tax planning approaches including techniques related to company internal management practices and international tax planning techniques. In addition, the literature survey helps to determine various strategies used by multinationals for tax planning, through an in-depth review of the existing studies. Finally, it provides researchers with a starting point to further explore issues related to tax avoidance techniques.

Corporate tax risk: a literature review and future research directions

“…As mentioned before, what has been researched in previous studies on corporate tax behavior can be applied to tax risk research, by underlying it on the theories and practices. Since Hanlon and Heitzman (2010), Wilde and Wilson (2018), Beer et al (2019), Cooper and Nguyen (2020), Ftouhi andGhardallou (2020), andWang et al (2020) have all reviewed that literature in detail, we can keep our discussion concise and draw the following directions for future research, covering both the determinants and consequences of the tax risk.…”

“…Further, the tax risk can stem from economic risk, tax legislation uncertainty, and inaccurate information processing (Neuman et al 2020). When the corporate tax position is uncertain, which can occur because there is a mismatch between the tax burden and the tax paid to the tax authority, it is associated with the tax risk (Ftouhi and Ghardallou 2020). In this regard, it can be considered that the tax risk is an important construct.…”

“…Despite the importance of the tax risk construct, there is no published literature review regarding the tax risk to the best of our knowledge. A large number of studies discussing corporate tax behavior have focused more heavily on tax planning, tax aggressiveness, tax avoidance, and tax evasion relative to the tax risk (see, e.g., Hanlon and Heitzman 2010;Wilde and Wilson 2018;Beer et al 2019;Cooper and Nguyen 2020;Ftouhi and Ghardallou 2020;Wang et al 2020). However, there is no specific literature review, as yet, that highlights and concerns tax risk issues.…”

Does Tax Planning Affect R&D Expenditures? A Study of Borsa Istanbul (BIST) Manufacturing Sector

“…It represents an opportunity for tax planning. However, the tax planning effectiveness based on the loopholes is ensured only as long as it is not detected by the tax office (Ftouhi & Ghardallou, 2020).…”

Tax Planning and Capital Budgeting Decision of Listed Manufacturing Companies in Nigeria

“…On the other hand, Ftouhi (2020), Shie, Ou and Wang ( 2014) concluded that higher tax rate will erode tax savings. The erosion is over-emphasized due to varying investment motives of MNEs in the country of operation, tax savings in form of transfer pricing and tax haven will discourage investment decision making (Ftouhi, 2020).…”