ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Corporate Tax Burden and Business Groups

  • An Sook Chan Duksung Women's University

Asian Tax Journal Vol. 12 No. 4 (2011), pp. 279-305

Abstract

This study investigates the impact of characteristics of subsidiaries such as the number, location,and intra－transaction volume on the tax burden of consolidated entities. I use consolidated financial data of 1,318 firms－years collected from Korean stock market between 2005－2009. In this study, I find that tax burden of consolidated entity goes down significantly as the number of total subsidiaries, foreign subsidiaries, and subsidiaries in the low－tax countries increases. But the number of domestic subsidiaries or the number of subsidiaries in the high－tax countries does not have significant effect on the firms' tax burden. In addition, firms' tax burden decreases as the location of subsidiaries are diversified. As total intra－transaction volume among consolidated entity and the foreign intra－transaction volume increase, the tax burden alleviates significantly. However, the domestic intra－transaction volume does not have significant impact on the tax burden of consolidated entities. Also, the volume of intra－transaction with subsidiaries in the low－tax countries lightens firms' tax burden significantly, but the volume of intra－transaction with subsidiaries in the high－tax countries does not lower it. In the analysis of interaction of the number, the diversity of location, and the intratransaction volume, there is a significant interaction effect between the diversity of location and the intra－transaction volume. The results of this study that investigates the effect of characteristics of domestic and foreign subsidiaries on the tax burden of consolidated entities may be useful for understanding the tax avoidance activities of consolidated entities through international operations.

Keywords

  • tax burden
  • consolidated entity
  • subsidiary
  • the number of subsidiaries
  • the location of subsidiaries
  • an intra－transaction volume

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