Tax Avoidance: A Case Study

Introduction

In general, tax avoidance is legal way of tax planning while tax evasion is illegal. Tax avoidance is done by taking advantage of loopholes or lacunae in the tax code to reduce tax liability. It is consider legal if the transactions involved are bona fide without violation of the provision of tax law. The complication of the tax rules and regulations for the taxpayers to comply is what make tax avoidance a challenging and interesting topic to be explored in research.

It is hard for the taxpayers to up-to-date with the constant changing of the taxation rules or amendments of taxation laws. Yet, the taxpayers could enjoy an optimal tax benefits if they have solid foundation knowledge on tax laws and compliance requirements. This

Their expected results are aggressive tax avoidance practices are negatively associated with irresponsible CSR activities.

In this case, various measures are used to reduce the self-selection bias such as discretionary book-tax difference (DD_BTit), permanent book-tax (DTAXit) and ratio of cash tax paid over pretax income less special items (CETRit). Dummy variable, HIGH_NEG_CSRit is included into the model instead of solely dependent variable of negative CSR to avoid difficulty to determine the relation between some irresponsible CSR activities with company that had limited involvement to irresponsible CSR

The data was collected from ExecuComp database with regard all the executives who had been listed from year 1992 until 2006. They claimed that executives play an important when determine firm tax avoidance where top executives directly affect the firm tax activities to ensure a line with firm operation and financial strategy.

The resulting effect had been clearly classify into firm and year fixed effect, CEO effect, CFO effect and other executive effect in order to indicate the significant of each causal factor to the effective tax rate. Each executive is significant to effective tax rate but varies in term of coefficient. Beside, Robustness test had been conducted with several stages to address the result to more specific aspect. Throughout the study, they found out that the executives effect will influence by executive style, executive background and executive overconfidence. To sum up, executives play significant roles to determine level of tax avoidance and their effect are economically