ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Tax Aggressiveness and Reputational Costs

  • Si－Hun Park Dongguk University
  • Kapsoon Kim Dongguk University

Asian Tax Journal Vol. 21 No. 6 (2020), pp. 155-188

Abstract

This study investigates the effect of reputation cost using tax aggressive measures. The concept of tax avoidance includes not only the tax reduction activities that are likely to be illegal but also all other legal choices, including the consequences of tax benefits. As a result, prior studies have tried to distinguish aggressive tax avoidance from normal and legal tax reductions using various measures including tax shelter, UTB, and ETR. In this study, we tested its effect on the reputation cost, one of the non－tax costs of the tax aggressive. As tax aggressive is likely to be criticized by the public due to its possible illegality and immorality, a company’s reputation can be flawed；therefore, we assumed that the higher the reputation of a company, the less likely it will be to make aggressive choices to avoid tax. Using non－financial companies listed on the Korean Stock Markets from 2003 to 2019, we found that the reputable companies proxied by the highest scored firms in the industry image survey by Korea Management Association Consulting (REP1), the companies that owned 100 brand products selected by Brandstock (REP2), the companies included into the KOSPI 200 (REP3), and the top 50 businesses in the economic justice index announced by the Institute of Economic Justice (REP4) showed less aggressive tax avoidance. Specifically, The analysis showed that aggressive tax avoidance levels were related to significant negative (－) in companies with top 100 brand products, those included in the KOSPI 200, and those in the top 50 in the economic justice index. This shows that companies with a high reputation are passive in tax aggressive. However, some of the tax aggressiveness measures used in this study are the results, so analytical caution is needed. This study differs from previous studies in that it analyzed the effect of reputation cost on aggressive tax evasion. This study contributes to the literature by analyzed as a measure of the various cost of fame in a situation where there is a lack of domestic empirical research to verify the effectiveness of the cost of fame. However, our new measure has some limitations that originated from the effective tax rate and the fundamental inability to distinguish between tax avoidance and tax benefits from the archival accounting data.

Keywords

  • Tax Aggressiveness
  • Decremental Effective Tax Rate
  • Reputational Costs

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