Offshore activities and corporate tax avoidance11We appreciate comments and suggestions from Morten Bennedsen (the editor), an anonymous reviewer, and the seminar participants at the Hong Kong University of Science and Technology, Shanghai Lixin University of Accounting and Finance, Shenzhen University, Sun Yat Sen University, Wuhan University, and Zhongnan University of Economics and Law. All errors are our own. Qingyuan Li acknowledges financial support from National Natural Science Foundation of China (Grant number: 72332003)

Zhihong Chen, Ole-Kristian Hope, Qingyuan Li and Yongbo Li

Journal of Corporate Finance, 2024, vol. 85, issue C

Abstract: We investigate the relation between tax avoidance and offshore activities using a new text-based measure for offshore activities based on Hoberg and Moon (2017, 2019). Our evidence shows that, although providing cross-border tax-avoidance opportunities, offshore activities reduce the marginal benefits of tax avoidance by introducing incremental foreign-market risk exposure. We find that the intensity of offshore sales of outputs is positively associated with the cash effective tax rate. The effect is stronger when the offshore sales rely on overseas production rather than domestic production, when the offshore sales are located in countries with higher economic uncertainty, when the firm has a lower ability to pass on shocks, and when the firm has less flexibility in adjusting tax strategies.

Keywords: Offshore activities; Tax avoidance; Uncertainty; Flexibility; Passing on shocks; Tax uncertainty; Multinational firms (search for similar items in EconPapers)
JEL-codes: G18 H26 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:85:y:2024:i:c:s0929119923001852

DOI: 10.1016/j.jcorpfin.2023.102536

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