Theories and Empirical Proxies for Corporate Tax Avoidance

This study critically reviews the accounting literature of tax avoidance with an emphasis on theories of corporate tax avoidance as well as empirical proxies for tax avoidance. The agency theory should be one of the relevant analytical bases to improve the understanding of the interactions between managers and shareholders with respect to corporate tax avoidance strategies. A number of empirical proxies for corporate tax avoidance are computed using financial statement variables, but their relevance is limited for firms that engage in conforming tax avoidance that reduce both book and taxable income. Alternatively, tax shelters and uncertain tax benefits can be used as proxies for aggressive tax avoidance.