Tax Advisors and Corporate Tax Aggressiveness

Transcription

1 Tax Advisors and Corporate Tax Aggressiveness Kenneth J. Klassen KPMG Professor of Taxation University of Waterloo 67 th Annual Tax Conference 67e Conférence fiscale annuelle 2015 Accounting Research in Tax Early work emphasized taxes are optimized relative to other corporate objectives There are many other corporate objectives Positive theory Firms making rational choices Try to understand why firms make them 2

2 Recent Emphasis Focus more directly on why some firms are more aggressive in their tax planning Challenges the past assumption that a dollar of tax savings is not valued the same in all corporations 3 Determinants What characteristics are associated with more aggressive tax planning? Basic financial characteristics (e.g., size) Operating features and strategies Reputational sensitivity Corporate social responsibility Political connections and activity 4

3 Executives & Shareholders Incentive contracts matter Based on after-tax or pre-tax income Intrinsic features of the individuals Various types of shareholders Family firms Shareholder structure Dual class structure 5 Relation between What We Examine Type of tax preparer and Aggressiveness of positions on the tax return 6

4 Tax Preparers Who signs the (U.S.) tax return? No one Internally prepared Paid preparer Not the auditor Paid preparer Auditor Same set of preparers whether auditor or not 7 Tax Preparer Data Auditor A B C D Other Total A B C D Other Internal Total

5 Key Findings Internally prepared or non-auditor paid preparer More aggressive positions UTB Reportable Transactions Tax Havens On average UTB is 30% larger 9 Key Findings Big Four auditors are particularly linked to less aggressive positions Control for choice of tax preparer many other factors that lead to differing UTBs 10

6 Why You Might Care Tax intermediaries are important to the tax system Help policy makers better understand tax compliance activities the role of tax within the audit profession Help tax professionals better understand their clients 11 Full Paper Available in final form in January Kenneth Klassen, Petro Lisowsky, and Devan Mescall, 2016, The role of auditors, non-auditors, and internal tax departments in corporate tax aggressiveness, The Accounting Review, 91(1): forthcoming. Advanced access: Or from the author: 12

7 After BEPS: A New Vision for Tax Treaties? Allison Christians McGill University Faculty of Law 67 th Annual Tax Conference 67e Conférence fiscale annuelle 2015 After BEPS: A New Vision for Tax Treaties? Tax Regime preferential effective rate of taxation interest, royalties, other income related party listed inclusions/exclusions switches off only as to the lucky taxpayer automatic in application (now & future) no current US legislation 2 Allison Christians McGill University

8 After BEPS: A New Vision for Tax Treaties? subsequently tax rate drops below 15% or switch to exemption system Articles 10, 11, 12, 21 may cease to have effect for payments in both Contracting States base or rate change not automatic in application a lucky taxpayer infects the whole class neither gap nor overlap with special tax regimes 3 Allison Christians McGill University After BEPS: A New Vision for Tax Treaties? A new vision? single tax principle/soft harmonization policing function nagging presence ulysses pact/self control mechanism 4 Allison Christians McGill University

9 After BEPS: A New Vision for Tax Treaties? Thanks 5 Allison Christians McGill University

10 Big Data and Tax Haven Secrecy Faculty of Law 67 th Annual Tax Conference 67e Conférence fiscale annuelle 2015 Background TV show asked: How to launder profits from crystal meth sales? Paper discusses how big data derived from tax havens shows how criminals do this. 2

11 Summary of Talk Paper based on review of 2013 International Consortium of Investigative Journalists (ICIJ) financial data leak (and watching Breaking Bad) Research question: What does tax haven big data tell us about offshore tax evasion and related policy challenges? 1. Context: What is tax haven secrecy and how do tax havens facilitate offshore tax evasion 2. Revelations from ICIJ data leak 3. Information and incentive problems revealed by data leak 3 What is Tax Haven Secrecy? 4 Offshore tax evasion involves a criminal effort to move and hide money offshore so that it cannot be detected by tax authorities Tax haven secrecy is promoted by financial secrecy laws that make it difficult or impossible for governments to identify who owns investments Note: OECD countries display tax haven behavior as they also have financial secrecy laws

12 Why Tax Haven Secrecy is a Problem Last ten years, public revelations of Americans, Canadians and others with secret offshore accounts: Liechtenstein bank scandal, HSBC bank in Switzerland, UBS bank in Switzerland USD$10 to 35 trillion dollars stored in tax havens Nobody knows extent of revenue losses (for United States, estimated to $50 to 70 billion per year) In addition to offshore tax evasion, tax haven secrecy facilitates international money laundering and financing of global terrorism 5 The ICIJ tax haven leak 6 Int l Consortium of Investigative Journalists (ICIJ) obtains leak in 2012; partners with journalists around the world Over 2.5 million documents; over 70,000 taxpayers with accounts mainly in Cook Islands, British Virgin Islands and Singapore Leads to some political fall-out in places like UK and France, but limited elsewhere (main effect is to promote automatic cross-border tax information exchanges)

13 ICIJ Leak and Russian Orphans CBC helped unravel the Sergei Magnitsky affair reveals a hero! 7 Capital Flight from China ICIJ data leak reveals that over 22,000 wealthy and politically-connected Chinese moving money out of China via tax havens One estimate suggests $1 to 4 trillion in capital flight from China in last fifteen years Why? Worries about government expropriation, political purges, lack of rule of law Note that money normally ends up invested in stable democracies like U.S., Canada, European countries Greatest tragedy: In poorer countries, amount of capital flight exceeds inward foreign aid 8

14 A Taxonomy of Offshore Behavior Hypothetical: Breaking Bad s Walt needs to: (a) move money offshore undetected; (b) invest tax haven monies in stable economies; and (c) bring back monies for personal usage. Analysis focuses on data from offshore service providers (e.g., offshore trust or finance companies) as revealed by ICIJ data leak. 9 Conclusion: Information and Incentive Problems Tax haven countries have incentive to not (meaningfully) cooperate as depend on secrecy for $ Wealthy elites in developing or non-democratic countries use tax haven secrecy to move $ out of their countries thus like the status quo Wealthy democracies benefit from tax haven secrecy due to inward investment Therefore problem likely not fixable until these incentives change (even in world of perfect information) 10

15 Full Paper Paper Big Data and Tax Haven Secrecy 18 Florida Tax Review (forthcoming 2016) available at ssrn.com 11