H26 - Tax Evasion and AvoidanceReturn

An increasing number of articles published on the nexus between corporate sustainability disclosure (CSD) and tax behaviour (TB) have enriched the academic research landscape. However, they have provided inconclusive results as to the nature of the connection and have not yet adequately examined the sources of variation that might moderate the effect sizes under investigation. This study performs a standard meta-analysis and synthesises the empirical-quantitative results regarding the CSD-TB connection, following Hunter & Schmidt's (1990) research design. Several criteria are employed to collect documents with methodological and content relevance. The selection process results in a final dataset that includes 50 articles covering the period from 2012 to 2022. The findings reveal that the CSD-TB link is not significant enough for practical purposes, while an investigation of moderating variables that can explain the different findings of earlier studies shows either no or little connection. The benefit of such a no-results analysis for the research community is to redirect future researchers, especially PhD candidates, to examine other factors affecting corporations’ TB. In terms of limitations, the meta-analysis is based on the availability of the existing corpus of knowledge and consists only of empirical studies with Pearson correlation coefficients and standardised beta coefficients.
Implications for Central European audience: The present study provides evidence that may influence policy-making processes at the European and international level, particularly with regard to corporate tax transparency. The findings suggest that the implementation of CSD has not proven to be effective in terms of tax behaviour. A meta-analysis of the available data shows no statistically significant correlation between CSD and the tax behaviour of businesses, thus challenging the assumption that CSD obligations can act as an effective tool to enhance tax compliance, which implies that other means of enhancing tax compliance need to be explored.

Tax avoidance became a frequently observed practice in a global business environment. Multinational enterprises (MNEs) employ differences between statutory tax rates of their home countries and countries of their subsidiaries, aiming to achieve the effective tax rate being lower than the statutory one. MNEs enable tax avoidance practices via multiple channels, transfer pricing and debt shifting being among the most popular among them. The goal of this article is to evaluate if MNEs operating in Lithuania, a small open economy of Central and Eastern Europe (CEE), are engaging in tax avoidance practices, and if yes, what channel debt shifting profit shifting or both are employed. Our research is built on the data for the years 2010–2018 and analyses 3,563 MNEs and local companies operating in Lithuania. Results of the conducted regression analysis rejected the impact of differences in tax rates between MNEs and their subsidiaries in Lithuania on their leverage. Therefore debt shifting across the sample companies was not evident. On the contrary, analysis of profit shifting evidence among sample companies proved the significant influence of transfer mispricing practices on earnings of Lithuanian subsidiaries of MNEs’. Such results may imply that in Lithuania, corporate tax avoidance of MNEs occurs via the channel of profit shifting rather than debt shifting. We suggest that this is related to the specifics of small economies commonly characterised by lower tax rates, underdeveloped financial markets and lower tax avoidance costs.
Implications for Central European audience: Previous tax avoidance and profit shifting research mainly analysed the United Kingdom, Germany and other large countries in Europe, leaving a gap in research on small economies, especially those in CEE. Lithuania, similar to the other CEE open economies, is competing for attracting foreign investment, which makes it relevant to understand if and how the country’s tax system is exploited in the corporate governance practices of MNEs.