The Influence of Attraction and Company Values on Aggressive Corporate Tax Decision-Making

Abstract

Little research has been published examining what influences tax decision-making within the corporate environment. What influences corporate tax decisions is an important issue because corporations account for 15.3 percent of the total gross tax collections and $67 billion of the tax gap. Additionally, based on anecdotal and survey evidence, pressure is being applied to tax personnel to be tax aggressive by senior management not associated with the tax department. This exploratory study identifies two factors that impact tax aggressiveness: 1) company values and 2) the individual's attraction to those values. Eighty-eight experienced MBA students are given an instrument describing a hypothetical situation involving tax depreciation and are asked whether they would recommend the asset be classified as a fixture or structural component to a colleague. The company's values are described as either aggressive or nonaggressive. The results indicate that the interaction between the individual’s level of attraction to the organization and the company values is significant. In particular, individuals with higher attraction to aggressive company values make the most aggressive tax recommendations while those with higher attraction to nonaggressive company values make the least aggressive tax recommendations.

Keywords: tax aggressiveness, corporate taxpayer, decision-making, company values, attraction, value congruence

JEL Classification: M14, D23, D81, H25, K34, C91