Offshore activities and corporate tax avoidance

Zhihong Chen, Ole-Kristian Hope, Qingyuan Li and Yongbo Li ()
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Zhihong Chen: University of International Business and Economics [Beijing, China]
Yongbo Li: Audencia Business School

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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 ac�vi�es Tax avoidance Uncertainty Flexibility Passing on shocks Tax uncertainty Mul�na�onal firms Offshore Activities Offshore activities tax avoidance uncertainty flexibility passing on shocks tax uncertainty multinational firms JEL Classification: G18 H26 M41; Offshore ac�vi�es; Tax avoidance; Uncertainty; Flexibility; Passing on shocks; Tax uncertainty; Mul�na�onal firms Offshore Activities Offshore activities; tax avoidance; uncertainty; flexibility; passing on shocks; tax uncertainty; multinational firms JEL Classification: G18; H26; M41; Offshore activities; Multinational firms (search for similar items in EconPapers)
Date: 2024-04
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Published in Journal of Corporate Finance, 2024, 85, ⟨10.1016/j.jcorpfin.2023.102536⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04535146

DOI: 10.1016/j.jcorpfin.2023.102536

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