This paper aims at answering the research question as to whether the BEPS initiative reduced corporate tax avoidance. Given the literature, the author expects that corporate tax avoidance among multinational enterprises declined in response to the introduction of the BEPS initiative. In order to test this hypothesis, an empirical analysis, using a firm’s consolidated GAAPETR(i,j,t) as a measure of corporate tax avoidance, is conducted.
After considering the development of a firm’s mean consolidated GAAPETR(i,j,t) over time, the author examines the influence of several independent variables relating to the issues specifically addressed by the BEPS initiative on a firm’s consolidated GAAPETR(i,j,t). By conducting several cross-sectional tests, cross-sectional variation in those effects, depending on firm size, as measured by total assets, firm profitability, as measured by Return on Assets, and country size, as measured by Gross Domestic Product, is also explored.
Although an overall downward trend in a firm’s mean consolidated GAAP ETR, which is used as a measure of corporate tax avoidance, is observed, most recent data, i.e., data from 2017 to 2019, suggest the reverse. In particular, small and more profitable firms, i.e., firms with total assets lower than 214.180 million and a ROA greater than 2.30 percentage points, are observed to be characterized by a slightly lower mean consolidated GAAP ETR than large and less profitable ones.
Table of Contents
1. Introduction
2. Literature Review – BEPS Initiative
3. Hypothesis Development
4. Empirical Setting
4.1. Sample Selection
4.2. Regression Model
5. Empirical Results
5.1. Descriptive Statistics
5.2. Key Results
5.3. Cross-Sectional Tests
5.4. Robustness Tests
5.5. Limitations
6. Conclusion
7. Bibliography
Research Objectives and Key Topics
This bachelor thesis investigates whether the OECD's Base Erosion and Profit Shifting (BEPS) initiative has effectively reduced corporate tax avoidance among multinational enterprises. By employing an empirical panel regression analysis of firms in the European Union, the study examines the impact of various BEPS-related measures on firms' consolidated Generally Accepted Accounting Principles (GAAP) Effective Tax Rates (ETRs).
- Evaluation of the effectiveness of the BEPS initiative in curbing corporate tax avoidance.
- Analysis of specific BEPS action items, including hybrid mismatch rules, thin-capitalization rules, and CFC regimes.
- Examination of cross-sectional variations based on firm size, firm profitability, and country size.
- Assessment of the relationship between anti-tax avoidance regulations and firm-level tax outcomes.
Excerpt from the Thesis
1. Introduction
According to John Maynard Keynes, (corporate) tax avoidance, which is defined as “the reduction in explicit taxes paid” (Hanlon & Heitzman, 2010, p. 137), is a rewarding activity. Undoubtedly, those rewards come at a price. In particular, Base Erosion and Profit Shifting (BEPS) practices, which relate to multinational enterprises exploiting gaps and mismatches between different countries' corporate tax systems, involve considerable costs. Those practices namely cost countries around USD 100-240 billion in revenue per year, which is equivalent to 4-10% of the global corporate tax revenue (OECD, 2019b). In order to reduce the rewards associated with (corporate) tax avoidance, and thus, tackle the issue of BEPS, in 2015, the G20 countries, together with the Organization (for) Economic Co-Operation and Development (OECD), decided to initiate the BEPS initiative, which is based on 15 separate action items addressing various BEPS-related issues, such as, for instance, transfer pricing (Action Items 8-10).
This paper aims at answering the research question as to whether the BEPS initiative reduced corporate tax avoidance. Given the literature, I expect that corporate tax avoidance among multinational enterprises declined in response to the introduction of the BEPS initiative. In order to test my hypothesis, an empirical analysis, using a firm’s consolidated GAAP ETR as a measure of corporate tax avoidance, is conducted. After considering the development of a firm’s mean consolidated GAAP ETR over time, I examine the influence of several independent variables relating to the issues specifically addressed by the BEPS initiative on a firm’s consolidated GAAP ETR. By conducting several cross-sectional tests, cross-sectional variation in those effects, depending on firm size, as measured by total assets, firm profitability, as measured by Return on Assets (ROA), and country size, as measured by Gross Domestic Product (GDP), is also explored.
Summary of Chapters
1. Introduction: Presents the research problem regarding corporate tax avoidance, introduces the BEPS initiative, and outlines the thesis structure.
2. Literature Review – BEPS Initiative: Reviews the mechanisms of BEPS practices and details the 15 Action Items introduced by the OECD to mitigate them.
3. Hypothesis Development: Synthesizes existing literature to formulate the expectation that the BEPS initiative has led to a decline in corporate tax avoidance.
4. Empirical Setting: Describes the data sample selection criteria and the panel regression model used for the quantitative analysis.
5. Empirical Results: Reports the descriptive statistics, regression outcomes, cross-sectional tests, robustness checks, and study limitations.
6. Conclusion: Summarizes the key findings, confirming that the BEPS initiative has contributed to reducing corporate tax avoidance rewards.
Keywords
corporate tax avoidance, BEPS, BEPS initiative, hybrid mismatch rules, transfer pricing, GAAR, thin-capitalization rules, CFC rules, exit tax system, disclosure regimes, CBC reporting, GAAP ETR, multinational enterprises
Frequently Asked Questions
What is the core focus of this bachelor thesis?
The thesis examines whether the implementation of the OECD's BEPS initiative has successfully reduced corporate tax avoidance practices among multinational enterprises.
What are the primary thematic areas covered?
The study focuses on international corporate tax systems, BEPS Action Items, tax transparency, anti-avoidance rules such as CFC and thin-capitalization regimes, and the measurement of effective tax rates.
What is the central research question?
The primary objective is to determine if the BEPS initiative has led to a decline in corporate tax avoidance for multinational firms within the European Union.
Which scientific methodology is applied?
The author conducts a quantitative empirical analysis using a panel regression model on data obtained from Compustat Global.
What does the main body of the paper entail?
It includes a detailed literature review of BEPS, the development of a testable hypothesis, a comprehensive empirical setting, and an analysis of regression results, including robustness tests and limitations.
Which key terms describe this research?
Key terms include corporate tax avoidance, BEPS initiative, hybrid mismatch rules, transfer pricing, CFC rules, and GAAP ETR.
How does the size of a firm influence the effectiveness of BEPS measures?
The empirical analysis reveals that BEPS-related effects, such as the prevalence of hybrid mismatch or thin-capitalization rules, are often more pronounced in small and highly profitable firms compared to large ones.
What role does country size play according to the study?
The findings suggest that the effects of BEPS measures appear larger in scope among large countries compared to small countries.
What limitations does the author mention regarding the ETR measure?
The author notes that consolidated GAAP ETR captures both current and deferred tax expenses and can be subject to volatility, which may not fully isolate specific tax-deferral strategies.
- Arbeit zitieren
- Lisanne Hüsemann (Autor:in), 2021, Did the BEPS Initiative Reduce Corporate Tax Avoidance?, München, GRIN Verlag, https://www.grin.com/document/1128113
