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This paper investigates the association between the Big 4 accountancy firms and the extent to which multinational enterprises build, manage and maintain their networks of tax haven subsidiaries. We extend internalisation theory and derive a number of hypotheses that are tested using count models on firm-level data. Our key findings demonstrate that...
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... total, we have 5912 MNEs over the time period [2005][2006][2007][2008][2009][2010][2011][2012][2013], which results in an unbalanced panel dataset of 24,781 observations. Table 1 shows a breakdown of the MNE's country of origin. In total there are 3259 MNEs from LMEs and 2653 MNEs from CMEs. ...Context 2
... 2 shows that each MNE has on average 6 tax haven subsidiaries with a high standard deviation of nearly 17. Furthermore, as can be seen referring back to Table 1, there is clear variability across countries in terms of the average number of tax haven subsidiaries. It would appear that MNEs from LMEs have a higher number of tax haven subsidiaries compared with those countries from the CMEs. ...Context 3
... our dependent variable is a count of the number of tax haven subsidiaries, we test our first hypotheses using a series of count data models (see Cameron & Trivedi, 2013) applied to panel data. In the main text we report the results utilising the random effects poisson estimator and as a robustness check we report results using a negative Table A1. The two sets of results are qualitatively similar but the point estimates vary slightly. ...Context 4
... present our results in three parts. In the first part, we report the results of the baseline model (equation 1) using a number of poisson specifications (negative binomial results are reported Table A1 in the appendix). In the second part we report the results for the growth model (Eq. ...Context 5
... a robustness check we repeat specifications 1-5 using negative binomial models. As can be seen in Table A1 in the Appendix the qualitative conclusions drawn from the poisson models continue to hold − FSAs and CSAs are important and there is again a strong association between using a Big 4 firm and the tax haven incidence rate. ...Citations
... Tax optimisation through the use of countries with competitive tax jurisdictions has become a common business strategy for multinationals from both developed and emerging markets (Beugelsdijk et al., 2010;Chari and Acikgoz, 2016;Jones and Temouri, 2016;Jones et al., 2018;Pereira et al., 2019;Kemme et al., 2020). In addition, Tørsløv, Wier, & Zucman, 2023;Tørsløv, Weir, & Zucman, 2020 indicate that countries with high corporate income tax rates are exposed to base erosion and profit shifting. ...
... As a result, according to Alzoubi (2018), the cost of client misreporting and its impact on an auditor's reputation are factors that Big 4 auditors are more aware of and are inclined to enforce, along with higher earnings quality. Given the serious reputational harm that litigation could cause, BAF scrutinizes financial reports more closely than non-BAF (Jones et al., 2018). Based on the above-mentioned discussions, Viana Jr et al. (2022) provide empirical evidence indicating that companies in emerging markets that undergo audits by Big 4 auditors are more likely to show reduced levels of EM. ...
The core aim of the financial reports is to provide a firm’s annual results of financial performance and position to stakeholders on time. Several accounting scandals led to the default of many large-scale corporations, leading to investors’ lack of confidence in the reliability of financial information and also putting a question mark on the effectiveness of internal control mechanisms and external audits. Business managers of financially distressed firms use the choice of accrual accounting methods which gives them leverage to misuse their powers and expropriate stakeholders by showing good financial results. So, this study fills this gap by investigating the presence of Financial Distress (FD) and its effect on Earnings Management (EM) with the moderating role of Audit Quality (AQ). The sample of this study contains the data of 96 non-financial listed companies for the period 2017-2022 on the Pakistan Stock Exchange (PSX). This study uses the discretionary accruals as a proxy for the EM and Z-score for FD. The results and analysis find that FD and EM have a significant positive relationship, which reveals that corporate managers of distressed companies do EM while AQ weakens this relationship. This study recommends that professional bodies, regulatory authorities, and corporate governance institutions must design policies that restrict corporate managers from getting involved in earning management practices, especially in the time of FD.
... The literature indicates that corporate income shifting through the manipulation of intragroup loans, corporate inversions, transfer prices, and other complex structures may have reached epidemic levels (Gravelle, 2015;Ostas, 2020). As such, income shifting has become a key focus within the professional and academic literature Dover, 2016;Elemes et al., 2021;Jones et al., 2018). ...
... Professional advisors working in large accountancy firms are often identified as the architects of tax-motivated income shifting structures Frecknall-Hughes et al., 2017;Jones et al., 2018;Sikka & Willmott, 2013). The Public Accounts Committee of the U.K. Parliament, in their 2015 report on Tax Avoidance and the Role of Large Accountancy Firms, highlights the ongoing disquiet surrounding the tax avoidance of multinational companies and the role that professional advisors play in this phenomenon (Public Accounts Committee, 2015, cited by C. Jones et al., 2018). ...
... Professional advisors working in large accountancy firms are often identified as the architects of tax-motivated income shifting structures Frecknall-Hughes et al., 2017;Jones et al., 2018;Sikka & Willmott, 2013). The Public Accounts Committee of the U.K. Parliament, in their 2015 report on Tax Avoidance and the Role of Large Accountancy Firms, highlights the ongoing disquiet surrounding the tax avoidance of multinational companies and the role that professional advisors play in this phenomenon (Public Accounts Committee, 2015, cited by C. Jones et al., 2018). This is particularly notable in the context of the public interest aspect of an accountant's role. ...
Recent research provides evidence consistent with tax-motivated income shifting taking place in Big 4 networks. Non-Big 4 networks have global footprints and audit a significant proportion of private-firm clients. Thus, we cannot make sense of audit-firm networks’ tax avoidance proclivities and the impacts their tax advice may have on aggregate client-firm income-shifting figures without examining non-Big 4 affiliates’ tax planning strategies. This study uses a private-firm dataset of Big 4 and non-Big 4 associated firms from 26 European countries finding evidence consistent with non-Big 4 affiliates being more aggressive income shifters than their Big 4 counterparts. Using a battery of supplemental analyses we demonstrate that the negative association between Big 4 membership and tax-motivated income shifting is weaker when network exposure to the political costs of aggressive tax planning is lower. We also show that political cost considerations are more likely to moderate debt allocation policies in Big 4 than non-Big 4 networks. Our findings suggest that political cost considerations are an important driver of the relation between Big 4 affiliation and tax-motivated income shifting even in our setting where firm size is strongly positively associated with tax expertise, political power, and global footprint and have important implications for anti-avoidance legislation.
... See Cox, 2006, for an analysis of the oligopolistic structure of the U.S. accounting profession. Moreover,Jones, Temouri and Cobham (2018) found empirical evidence for a positive correlation between the use of the Big Four and multinational enterprises' tax haven network.Content courtesy of Springer Nature, terms of use apply. Rights reserved. ...
The aim of auditing is to protect active and potential investors from accounting fraud. Nevertheless, as many auditing scandals have demonstrated, auditing has a dark side. Correct auditing is a public good provided by private auditing firms, but these firms are paid by the enterprise being audited. Therefore, audit firms may be dubbed as agents of two principals, the audited firm and the public. Reputation theory conjectures that auditors are disincentivized from performing shallow and fraudulent auditing because of reputational concerns and associated reputational costs. However, empirical evidence does not support this claim. While it may be irrational for a large audit firm (such as Arthur Andersen LLP) to sacrifice its reputational capital for a single client by doing superficial audits (such as WorldCom), it may be quite rational for the auditing firm’s engagement partners to do so. The result might be a conspiracy against the public and investors. Because of an inelastic supply of experienced auditors and a highly concentrated market of big auditing firms, reputational losses due to auditing scandals for the audit firms’ local partners and staff seem to be rather small. With a game theoretic model, we argue here that neither higher transparency nor higher fines for auditing failures may prevent such conspiracies. Therefore, legal regulations and court rulings can only change the expected fines for audit fraud, but they cannot solve the general problems arising from the symbiotic relationship between auditors and their client firms. As auditing firms may use the so-called expectation gap to protect themselves against legal claims of wrongdoing, avenues more suitable to deterring conspiracies by auditors and their client firms might include whistleblowing, short-selling investors and investigative journalism.
... Most of the studies which have used crosssectional and time-series data have been affected by individual heterogeneity, [45], [46], [47]. To resolve this problem, several studies propose using panel data estimation [48], [49], [50], [51]. Panel data estimation was noted to provide convincing results because it not only exploits the advantage of crosssectional and time series analysis but also corrects their weakness, [25]. ...
This study aims to explore the impact of tax planning on the firm’s value with the moderated effect of dividend policy. The study has drawn a unique and limited explored sample of non-financial listed firms in East African Countries’ stock exchanges. It covers a period of eleven years (2009 – 2019). The tax planning proxy was determined using the book tax difference, while firm performance was measured using return on assets (ROA) and Tobin Q. The Dynamic panel system (GMM) was employed to establish the causal relationship between variables. The robustness check on GMM results was also conducted using OLS and FEM. The results of the study showcase that tax planning positively affects a firm’s values. The findings indicate that tax planning activities in EAC partner state aim to achieve corporate goals, not opportunistic managerial ones. However, the study’s findings reveal a significant moderated role of the dividend policy on the linkage between tax planning and firm performance of the EAC-listed firms. This study contributes to the existing literature by providing additional insights into taxation and corporate governance perspectives. The findings also have practical implications for tax administrators, policymakers, and shareholders
... They aid enterprises in identifying lawful approaches to decrease obligations, execute tax-advantageous tactics, and guarantee prompt and precise submissions. The considerable impact of renowned accounting firms and the complex networks of multinational corporations situated in offshore financial hubs point toward how auditors complying with governmental regulations can substantially impact their capacity to evade tax obligations (Jones et al., 2018). Professional 7 accounting firms provide tax consultancy services and strategic planning solutions to foster the ongoing expansion of businesses and ensure adherence to tax legislation in Bangladesh. ...
This assignment explores the crucial role of Certified Public Accountant (CPA) associations in Bangladesh, highlighting their responsibilities, functions, and contributions toward attaining financial excellence. Chartered Accountancy firms provide financial examinations, trust-boosting services, tax advice, corporate consulting, forensic accounting, and strategic financial counsel, ensuring transparency, compliance, and advanced financial planning for businesses and individuals. They also play a crucial role in corporate finance, meticulous examination, and enhancement of skills and expertise through educational initiatives. The assignment presents a comprehensive collection of superior chartered accountant firms in Bangladesh, offering valuable insights into their expertise, industry priorities, and reputation. Accounting firms possess an unwavering commitment to ethical values and nurturing solid relationships with clients, driving economic growth and playing a significant role in the advancement of Bangladesh.
... This practice has for too long created an uneven playing field where companies can benefit from the goods and services provided by governments in the countries where they operate but avoid paying what would be a fair contribution through taxation. While these activities are often legal, that does not make them ethical, and they impact government revenues [73,74]. ...
... The well-documented use of global networks and companies to shift profits to low-tax jurisdictions is a growing problem as companies increasingly exploit the differences between tax regimes in different countries [73]. An inadequate and often compromised machinery of advisors institutionalise and facilitate the normalisation of tax avoidance to find loopholes and game the system [36,53,63]. ...
... While any effort to legally reduce a client's taxes is an attempt at optimization, there is also a degree of moral ambiguity associated with such strategies. This practice is one of the key functions associated with accounting firms: they are skilled at managing finances with an eye toward maximum profitability, but moral doubts are attached to their tax practices [73,75,76]. A second key complementary concern hinges against a subset of legal interpretations suggesting that taxation puts the burden on the corporation to pay taxes [35,38]. ...
This paper examines the moral and legal underpinnings of corporate tax avoidance. Cast in terms of a totemic symbol that brand tax avoidance as within the purview of the law, the paper invokes the attributional frames of the new sociology of morality to examine the position of both the moral advocates and the amoral critics of aggressive tax avoidance. The paper uses the United Kingdom as a jurisdiction where complex tax planning by tax advisors serves as a measure of protection for corporations who may have already conceived that they are paying too much tax. Data for the paper came from semi-structured interviews conducted with tax accountants, consultants, parliamentarians, and government officials. To supplement the interviews, data from the Parliamentary Commission on Banking Standards were collected and analyzed to provide useful insights. The findings reveal that through effective tax planning, companies can reduce the present values of future tax payments. Given the singular justification of their actions within the contours of the tax rules, the moral culpability of organized tax avoidance is minimized, with very little liability attached. Tax avoidance is a morally charged area that is slowly drifting away from conventional social norms of what is right or wrong. It is hard not to see those in charge of tax regulation not using the findings of this paper to provide a more nuanced understanding of the intractable problems associated with corporate tax avoidance and use it as a reference point for regulatory reforms.
... For instance, Richardson et al. (2013) and Sari et al. (2020) explored the factors that drove TPAG. In addition, Jones et al. (2018) found a positive relationship between the use of Big-N audit firms and the number of multinational subsidiaries in tax haven countries within developed countries. This result suggested that the involvement of Big-N audit firms might play a role in corporate tax planning strategies. ...
... The research conducted by Jones et al. (2018) shed light on the challenges that auditors encounter when dealing with agency problems. Auditors, as representatives of shareholders, are responsible for monitoring a company's performance. ...
... For instance, there have been notable cases, such as the connection of PwC to the "LuxLeaks" scandal and recent revelations indicating that Big-N audit firms have entities established in tax haven jurisdictions (International Consortium of Investigative Journalists -ICIJ, 2014). Jones et al. (2018) also discovered a positive association between Big-N audit firms and the number of multinational subsidiaries in tax haven countries, suggesting a potential involvement of Big-N audit firms in aggressive tax planning. ...
This research examines the relationship between audit quality and transfer pricing aggressiveness (TPAG), the impact of TPAG on firm risk, and the indirect effect of audit quality on firm risk through TPAG. The research is important in reaffirming the auditor-client relationship, increasing companies’ understanding of the advantages and disadvantages of transfer pricing in their strategies, and advancing research on audit quality and firm risk considering the tax aspects of multinational companies. Data were collected from non-financial publicly listed companies in three Southeast Asian countries, Indonesia, Malaysia, and Singapore, from 2014 to 2018, totaling 1,470 firm-year, using the panel data regression. The result indicates that multinational companies audited by high-quality (Big-N) audit firms exhibit higher levels of TPAG. Moreover, companies that employ more TPAG practices are likely to have lower firm risk because their transfer pricing transactions are efficient. This research also highlights that better audit quality indirectly reduces firm risk by influencing TPAG.
... Despite that each tax haven has a particular history and political-economic rationale of its own (Ogle, 2017;Raposo and Mourão, 2013), and that a country's capacity to function as a tax haven may rise but also decline (Robertson, 2021), it would be a mistake to think of them as isolated entities, or that there is a binary separation between countries that should be considered tax havens and countries that should not (Cobham et al, 2015), so that any such classification has to be constantly checked and updated (Dharmapala and Hines, 2009). Tax havens only make sense as nodes of a global network, which serves a plurality of categories of economic agents: large multinational enterprises (Jones et al, 2018), corporate offshore investment networks (Garcia-Bernardo et al, 2017), criminal cartels (Cobham, 2012), ultrarich private individuals (Saez and Zucman, 2019), and so on. Flows along such network are highly organized: for instance, Hong (2018) studies a real-world network of tax treaties among 70 countries and finds that such network admits tax-minimizing foreign direct investment routes which function as actual channels of investment flows. ...
After the leak of 11.5 million documents from the Panamanian corporation Mossack Fonseca, an intricate network of offshore business entities has been revealed. The emerging picture is that of legal entities, either individuals or companies, involved in offshore activities and transactions with several tax havens simultaneously which establish, indirectly, an effective network of countries acting on tax evasion. The analysis of this network quantitatively uncovers a strongly connected core (a rich-club) of countries whose indirect interactions, mediated by legal entities, form the skeleton for tax evasion worldwide. Intriguingly, the rich-club mainly consists of well-known tax havens such as British Virgin Islands and Hong Kong, and major global powers such as China, Russia, United Kingdom and United States of America. Our findings build a ground for better understanding phenomena where the erosion of public trust may spark emergent social dynamics, such as social conflicts and political polarization, that are driven by the complex interconnected structure of tax evaders in a globalized economy.
... Skatterådgivere udøver magt som følge af deres position som maeglere, der med en unik ekspertise vejleder virksomheder og individer om skattereglerne (Hasseldine et al., 2011). Dette bidrager til at både de selv og deres kunder kan udnytte internationale skatteregler til at undslippe beskatning (Elemes et al., 2021;Jones et al., 2017). Saerligt på komplekse områder som international beskatning spiller de store professionelle tjenesteudbydere -virksomheder som "Big Four": Deloitte, EY, KPMG og PwC -en central rolle som gatekeepers, der kontrollerer de eksperter og den viden, der er nødvendig for at agere i den globale økonomi (Christensen, 2022a). ...
... Med udgangspunkt i deres unikke regelindsigt styrker skatterådgiverne trovaerdigheden i truslen om desinvestering. Med et økonomisk begreb øger skatterådgivernes virke (semi-)elasticiteten, eller "følsomheden", af skattebasen over for skatteundgåelse, hvilket eksisterende forskning indikerer har en vaesentlig effekt på forvraengning af skattebasen (Mooij og Ederveen, 2008) og dermed en stor indflydelse på politikernes kalkule, når de vurderer effekten af selskabsskattelettelser. Eksisterende forskning har således fundet en tydelig sammenhaeng mellem skatterådgivernes virke og deres kunder og brugen af skattely (Elemes et al., 2021;Jones et al., 2017). I Danmark er der flere højprofilerede eksempler bl.a. ...
Når magten i Danmark skal udredes, bør der rettes fokus mod en særlig gruppe af eksperter, som rådgiver både stater, virksomheder og privatpersoner i skattespørgsmål. Som rådgivere har disse eksperter opnået en form for diskret magt: deres arbejde er afgørende for både udformningen og udmøntningen af vores skattesystem, men undersøges og diskuteres sjældent. Betydningen af rådgivernes magt er særligt relevant i lyset af deres bidrag til skattespekulation og stigende ulighed. I denne artikel giver vi et overblik over eksisterende forskning om disse eksperter og beskriver deres virke i Danmark samt udlægger, hvordan skatteeksperter udøver både instrumentel, strukturel og infrastrukturel magt. Vi foreslår en række forskningsspørgsmål, som fokuserer bredt på rådgivernes indflydelse på demokratiet, og som bør tages op i afdækningen af denne ”rådgivermagt”.
