COVID-19 and Corporate Tax Avoidance: International EvidenceAthira A, Vishnu K Ramesh
Journal: International Business Review
Abstract: Governments across the globe initiated various tax reforms in the post- Global Financial Crisis period to rein in aggressive corporate tax avoidance for managing budget deficits. These developments created new realities in the international business environment by altering the costs and benefits of corporate tax management. Yet, we have a limited understanding of the effectiveness of tax reforms in controlling corporate tax avoidance at the global level. COVID-19 offers a litmus test for how corporates manage their taxes during the pandemic in light of past tax reforms. The authors use financial constraints and reputational costs as two contradicting theoretical perspectives to explain corporate tax avoidance during the crisis. Consistent with the financial constraints hypothesis, they find that firms avoid taxes amid COVID-19 to prevent liquidity crunches. This study also highlights the role of country-level information and governance quality in curbing tax avoidance during extreme events like COVID-19. The findings call for an immediate tax policy intervention to limit corporate tax avoidance during the ongoing pandemic phases.