Tax Havens and Effective Tax Rates: An Analysis of Private versus Public European Firms

Abstract

We examine the impact of tax-haven operations on the effective corporate tax burdens of publicly listed and privately held firms domiciled in Europe. In particular, we consider how European firms' tax haven operations interact with factors such listing status and home-country tax reporting systems to determine the relative tax burdens of publicly listed and private firms. Our main empirical results show that tax haven operations are associated with lower effective tax rates for both private and public firms, and that the impact of tax havens in lowering effective tax rates is more pronounced for private firms than for public firms. Home country characteristics are also important determinants of effective tax rates for both private and public firms with tax havens. Given that firms use tax havens as tax avoidance mechanism in lowering tax burdens regardless of their listing status, regulatory and tax enforcement bodies should focus on private as well as public firms.JEL Classification: H20, M41

Income Shifting Dan Pemanfaatan Negara Tax Haven

“…Temuan ini menguatkan teori agensi dalam praktik pemanfaatan negara tax haven dilakukan oleh manajemen dengan motivasi penghematan pajak melalui kebijakan transfer pricing ke pihak relasi di negara tax haven. Perusahaan yang beroperasi pada negara tax haven memiliki Efective Tax Rate lebih rendah pada perusahaan publik maupun privat (Jaafar & Thornthon, 2012) dan memiliki profit margin lebih tinggi dan books efefctive Tax Rate lebih rendah (Brown, Jorgensen, & Pope, 2019). Keuntungan yang diperoleh manajemen adalah perolehan bonus atau mempertahankan portofolionya dengan peningkatan laba setelah pajak karena sebagian pendapatan dikenakan pajak dengan tarif pajak lebih rendah pada negara tax haven.…”

Do SMEs Face a Higher Tax Burden? Evidence from Belgian Tax Return Data

“…Since tax return data are not publicly available, many studies have to rely on accounting data to proxy for the real tax burden (e.g., Jaafar and Thornton, 2015;Nicodème, 2007). However, these proxies are very rough and subject to several measurement problems (Hanlon, 2003).…”

“…Also Jaafar and Thornton (2015) examine ETRs based on the Amadeus database and consider 14 countries in the period 2001-2008. In particular, they assess the impact of tax havens on the effective tax burdens of private and publicly listed firms.…”

Determinants of Tax Haven: Overview of Past Studies

“… No or only nominal taxes,  Lack of effective information exchange  Lack of transparency  No substantial activities A tax haven jurisdiction refers to "a country or independent geographical area where taxes are levied at a low rate" when compared to other jurisdictions (Mugarura, 2017, p4). Literarily, tax haven also means shifting capital to a preferential or a selected tax jurisdiction (Jaafar, & Thornton, 2015). From layman perspective, Tax Haven simply means, a situation where MNCs evade or avoid paying tax by shifting the profit generated from a jurisdiction with high tax to one with lower tax jurisdiction.…”