The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance
70 Pages Posted: 1 Feb 2015 Last revised: 21 Oct 2018
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The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance
The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance
The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance
Date Written: October 17, 2018
Abstract
This study provides the first large-sample evidence on the economic tax effects of special purpose entities (SPEs). These increasingly common organizational structures facilitate corporate tax savings by enabling sponsor-firms to increase tax-advantaged activities and/or enhance their tax efficiency (i.e., relative tax savings of a given activity). Using path analysis, we find that SPEs facilitate greater tax avoidance, such that an economically large amount of cash tax savings from research and development (R&D), depreciable assets, net operating loss carryforwards, intangible assets, foreign operations, and tax havens occur within SPEs. We estimate that SPEs facilitate over $330 billion of incremental cash tax savings, or roughly 6% of total U.S. federal corporate income tax collections during 1997-2016. Interaction analyses reveal that SPEs enhance the tax efficiency of R&D and intangibles by 87.5% and 61.5%, respectively. Overall, these findings provide economic insight into complex organizational structures facilitating corporate tax avoidance.
Keywords: organizational structure, special purpose entity, tax avoidance
JEL Classification: H25, L22, M40
Suggested Citation: Suggested Citation