The Effect of Tax Risk on Tax Avoidance

Yenni Mangoting, Oviliani Yenty Yuliana, Jesslyn Effendy, Lovena Hariono, Viennie Melinda Lians

Abstract


This research intends to investigate whether tax risk is associated with tax avoidance, which is proxied by Cash Effective Tax Rate (CETR). Tax risk is measured by six tax risk components: transactional risk, compliance risk, operational risk, financial accounting risk, managerial risk, and reputational risk. The samples in this research are manufacturing companies listed on the Indonesian Stock Exchange (IDX). With a purposive sampling method, there are 168 firm years which we analyzed with OLS regression. The result in this study showed that tax risk is positively associated with CETR. It implied that choices of tax strategies and activities are involved in high tax risk, but firms still choose to comply with tax regulations, which can be seen in high CETR values. This research found that firms need tax risk management to ensure that tax strategies do not impact the firms’ future losses from additional tax payments and fines. Other than that, this research gives a new option for future researchers to measure tax risk using scoring methods and indicators that are engaged in each of the tax risk components.


DOI: 10.26905/jkdp.v25i3.5629



Keywords


CETR; Taxation; Tax Avoidance; Tax Risk; Uncertainty

Full Text:

PDF

References


Abduh, A., Andreas, & Ratnawati, V. (2014). Pengaruh Kebutuhan Koordinasi, Ketidakpastian, dan Risiko Pajak terhadap Tax Avoidance. Jurnal Akuntansi Media Riset Akuntansi & Keuangan, 3(1), 16-28. https://ejournal.unri.ac.id/index.php/JA/article/view/2532

Álvarez-Martínez, M. T., Barrios, S., d’Andria, D., Gesualdo, M., Nicodeme, G., & Pycroft, J. (2021). How large is the corporate tax base erosion and profit shifting? A general equilibrium approach. Economic Systems Research, 1–32. https://doi.org/10.1080/09535314.2020.1865882

Amidu, M., Coffie, W., & Acquah, P. (2019). Transfer pricing, earnings management and tax avoidance of firms in Ghana. Journal of Financial Crime, 26(1), 235–259. https://doi.org/10.1108/JFC-10-2017-0091

Artemenko, D. A., L.A.Aguzarova, F.S.Aguzarova, & Porollo, E. V. (2017). Causes of Tax Risks and Ways to Reduce Them. EUROPEAN RESEARCH STUDIES JOURNAL, XX(Issue 3B), 453–459. https://doi.org/10.35808/ersj/800

Asmussen, C. G., Larsen, M. M., & Pedersen, T. (2016). Organizational Adaptation in Offshoring: The Relative Performance of Home- and Host-Based Learning Strategies. Organization Science, 27(4), 911–928. https://doi.org/10.1287/orsc.2016.1060

Ayers, B. C., Laplante, S. K., & Schwab, C. (2011). Does Tax Deferral Enhance Firm Value? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1976606

Badertscher, B. A., Katz, S. P., Rego, S. O., & Wilson, R. J. (2018). Conforming Tax Avoidance and Capital Market Pressure (SSRN Scholarly Paper ID 2619317). Social Science Research Network. https://doi.org/10.2139/ssrn.2619317

Birkinshaw, J., Larsen, M. M., Zhou, Y. M., & Benito, G. R. G. (2020). COMPLEXITY AND MULTINATIONALS. Global Strategi Journal.

Cao, J., Chen, F., & Higgs, J. L. (2016). Late for a very important date: Financial reporting and audit implications of late 10-K filings. Review of Accounting Studies, 21(2), 633– 671. https://doi.org/10.1007/s11142-016-9351-5

Carolina, V., & Handayani, R. (2019). Tax Avoidance & Corporate Risk: An Empirical Study in Manufacturing Company. Jurnal Ilmiah Akuntansi, 4(2), 10. https://doi.org/10.23887/jia.v4i2.21886

Chen, W. (2020a). Tax risks control and sustainable development: evidence from China. Meditari Accountancy Research, https://doi.org/https://doi.org/10.1108/MEDAR- 05-2020-0884

Chen, W. (2020b). Too far east is west: tax risk, tax reform and investment timing. International Journal of Managerial Finance, https://doi.org/DOI10.1108/IJMF-03- 2020-0132

Chiu, T., Huang, F., Liu, Y., & Vasarhelyi, M. A. (2018). The impact of non-timely 10-Q filings and audit firm size on audit fees. Managerial Auditing Journal, 33(5), 503–516. https://doi.org/10.1108/MAJ-10-2017-1673

Contractor, F. J. (2016). Tax Avoidance by Multinational Companies: Methods, Policies, and Ethics. AIB Insights. https://doi.org/10.46697/001c.16887

Cozmei, C., & Şerban, E. C. (2014). Risk Management Triggers: From the Tax Risk Pitfalls to Organizational Risk. Procedia Economics and Finance, 15, 1594–1602. https://doi.org/10.1016/S2212-5671(14)00630-3

Drake, K. D., Lusch, S. J., & Stekelberg, J. (2019). Does Tax Risk Affect Investor Valuation of Tax Avoidance? Journal of Accounting, Auditing & Finance, 34(1),151–176. https://doi.org/10.1177/0148558X17692674

Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2019). When Does Tax Avoidance Result in Tax Uncertainty? The Accounting Review, 94(2), 179–203. https://doi.org/10.2308/accr-52198

Emblemsvåg, J. (2020). Risk and complexity on complex risk management. The Journal of Risk Finance, 21(1), 37–54. https://doi.org/10.1108/JRF-09-2019-0165

Firmansyah, A., & Muliana, R. (2018). The Effect of Tax Avoidance and Tax Risk on Corporate Risk. Jurnal Keuangan Dan Perbankan, 22(4), 643–656. https://doi.org/10.26905/jkdp.v22i4.2237

Gleason, C. A., Pincus, M., & Rego, S. O. (2017). Material Weaknesses in Tax-Related Internal Controls and Last Chance Earnings Management. Journal of the American Taxation Association, 39(1), 25–44. https://doi.org/10.2308/atax-51511

Goh, B. W., Lee, J., Lim, C. Y., & Shevlin, T. (2016). The Effect of Corporate Tax Avoidance on the Cost of Equity. Accounting View, 91(6). https://doi.org/10.2308/accr-51432

Goh, B. W., Lee, J., & Ng, J. (2015). The Inclusion of General Counsel in Top Management and Tax Avoidance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2538292

Gravelle, J. G. (2009). Tax Havens: International Tax Avoidance and Evasion. National Tax Journal, 62(4), 727–753. https://doi.org/10.17310/ntj.2009.4.07

Guenther, D. A., Matsunaga, S. R., & Williams, B. M. (2017). Is Tax Avoidance Related to Firm Risk? The Accounting Review, 92(1), 115–136. https://doi.org/10.2308/accr- 51408

Hamilton, R., & Stekelberg, J. (2016). The Effect of High-Quality Information Technology on Corporate Tax Avoidance and Tax Risk. Journal of Information Systems, 31(2), 83– 106. https://doi.org/10.2308/isys-51482

Hutchens, M., & Rego, S. (2013). Tax Risk and the Cost of Equity Capital. Working Paper.

Hutchens, M., Rego, S. O., & Williams, B. (2020). Tax Avoidance, Uncertainty, and Firm Risk (SSRN Scholarly Paper ID 3348559). Social Science Research Network. https://doi.org/10.2139/ssrn.3348559

Kanagaretnam, K., Lee, J., Lim, C. Y., & Lobo, G. J. (2018). Cross-Country Evidence on the Role of Independent Media in Constraining Corporate Tax Aggressiveness. Journal of Business Ethics, 150(3), 879–902. https://doi.org/10.1007/s10551-016-3168-9

Khatami, B. A., Masri, I., & Suprayitno, B. (2021). PENGARUH NET PROFIT MARGIN, CURRENT RATIO, DAN CAPITAL INTENSITY RATIO TERHADAP TAX AVOIDANCE. Jurnal Ilmiah Akuransi Pancasila, 1 (1).

Kim, J. H., & Im, C. C. (2017). The Study On The Effect And Determinants Of Small—And Medium-Sized Entities Conducting Tax Avoidance. Journal of Applied Business Research (JABR), 33(2), 375–390. https://doi.org/10.19030/jabr.v33i2.9911

Kovermann, J. H. (2018). Tax avoidance, tax risk and the cost of debt in a bank-dominated economy . Managerial Auditing Journal, 33(8/9), 683–699. https://doi.org/DOI 10.1108/MAJ-12-2017-1734

KPMG, 2017. M&A Matters - Hybrid and other mismatch rules - experience to date

Lavermicocca, C., & Buchan, J. (2015). Role of reputational risk in tax decision making by large companies. EJournal of Tax Research, 13, 5–50.

Lin, X., Liu, M., So, S., & Yuen, D. (2019). Corporate social responsibility, firm performance and tax risk. Managerial Auditing Journal, 34(9), 1101–1130. https://doi.org/10.1108/MAJ-04-2018-1868

Masri, I., Syakhroza, A., Wardhani, R., & Samingun. (2019). The role of tax risk management in international tax avoidance practices: Evidence from Indonesia and Malaysia. International Journal of Trade and Global Markets, 12(3/4), 311–322. https://doi.org/10.15014/IJTGM.2019.101561

Moghadam, A., & Rahimi, M. (2016). The Study of the Relationship of Conditional Conservatism for the Market-to-Book Ratio and Tobin’s Q. Open Journal of Accounting, 05(03), 19–24. https://doi.org/10.4236/ojacct.2016.53003

Mulatsih, S., Dharmayanti, N., & Ratnasari, A. (2019). The Effect of Tax Planning, Asset of Deferred Tax, Deferred Tax Expense on Profit Management (Case Study of Manufacturing Companies Listed on the Stock Exchange 2013-2017 Period). KnE Social Sciences, 3, 933. https://doi.org/10.18502/kss.v3i13.4258

Muryani, & Chiputyani, L. (2019). The Analysis of Manufacturing Sector in Indonesia. KnE Social Sciences, 3(13), 1200. https://doi.org/10.18502/kss.v3i13.4277

Neuman, S. S., Omer, T. C., & Schmidt, A. P. (2013). Risk and Return: Does Tax Risk Reduce Firms’ Effective Tax Rates? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2215129

Neuman, S. S., Omer, T. C., & Schmidt, A. (2014). Examining the Association between Tax Risk and Tax Outcomes (SSRN Scholarly Paper ID 2215129). Social Science Research Network. https://doi.org/10.2139/ssrn.2215129

Neuman, S. S., Omer, T. C., & Schmidt, A. P. (2020). Assessing Tax Risk: Practitioner Perspectives. Contemporary Accounting Research, 37(3), 1788–1827. https://doi.org/10.1111/1911-3846.12556

Nurfauzi, R., & Firmansyah, A. (2018). MANAGERIAL ABILITY, MANAGEMENT COMPENSATION, BANKRUPTCY RISK, TAX AGGRESSIVENESS. Media Riset Akuntansi, Auditing & Informasi, 18(1), 75. https://doi.org/10.25105/mraai.v18i1.2775

Oktaviyani, R., & Munandar, A. (2017). Effect of Solvency, Sales Growth, and Institutional Ownership on Tax Avoidance with Profitability as Moderating Variables in Indonesian Property and Real Estate Companies. Binus Business Review, 8(3), 183. https://doi.org/10.21512/bbr.v8i3.3622

Putra, P. D., Syah, D. H., & Sriwedari, T. (2018). Tax Avoidance: Evidence of As a Proof of Agency Theory and Tax Planning. International Journal of Research & Review, 5(9)

Sankar, B. P. B., & Leepsa, N. M. (2018). Payment Methods in Mergers and Acquisitions: A Theoretical Framework. International Journal of Accounting and Financial Reporting, 8(1), 170. https://doi.org/10.5296/ijafr.v8i1.12354

Sari, Y. Y. (2017). 3 The Influence of Company Size, Fixed Asset Intensity, Leverage, Profitability, and Political Connection To Tax Avoidance. 14.

Satyadini, A. E., Erlangga, R. R., & Vdkg, B. S. (2019). WHO AVOIDS TAXES? AN EMPIRICAL EVIDENCE FROM THE CASE OF INDONESIA. 26.

Skousen, C., Sun, L., & Wu, K. (2019). The Role of Managerial Ability in Classification Shifting Using Discontinued Operations. In L. L. Burney & M. A. Malina (Eds.), Advances in Management Accounting (Vol. 31, pp. 113–131). Emerald Publishing Limited. https://doi.org/10.1108/S1474-787120190000031006

Sreesing, P. (2018). Taxes and risk-taking behavior: evidence from mergers and acquisitions in the G7 nations. The Journal of Risk Finance, 19(3), 277–294. https://doi.org/DOI 10.1108/JRF-12-2016-0170

Sugeng, S., Prasetyo, E., & Zaman, B. (2020). Does capital intensity, inventory intensity, firm size, firm risk, and political connections affect tax aggressiveness? JEMA: Jurnal Ilmiah Bidang Akuntansi Dan Manajemen, 17(1), 78. https://doi.org/10.31106/jema.v17i1.3609

Tang, T. Y. H. (2016). Privatization, tunneling, and tax avoidance in Chinese SOEs. Asian Review of Accounting, 24(3), 274–294. https://doi.org/10.1108/ARA-08-2014-0091

Wang, F., Xu, S., Sun, J., & Cullinan, C. P. (2020). Corporate Tax Avoidance: A Literature Review and Research Agenda (SSRN Scholarly Paper ID 3684606). Social Science Research Network. https://doi.org/10.1111/joes.12347

Wang, L. (2015). Tax enforcement, corporate tax aggressiveness, and cash holdings. China Finance Review International, 5(4), 339–370. https://doi.org/10.1108/cfri-12-2014- 0099

Zeng, T. (2019). Relationship between corporate social responsibility and tax avoidance: international evidence. Social Responsibility Journal, 15(2), 244–257. https://doi.org/10.1108/SRJ-03-2018-0056




DOI: https://doi.org/10.26905/jkdp.v25i3.5629

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0