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臺大管理論叢
第
28
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1
期
shareholders can reap both the benefits of tax saving and rent extracted via obfuscated tax
avoidance and the non-controlling shareholders can be harmed by rent extraction
behaviors.
Second, prior literature argues that a higher level of corporate pyramid leads to
greater information opaqueness of the company, making it more difficult for outside
investors to evaluate a pyramidal firm’s financial position and performance. Chan and Hsu
(2013) find a positive association between the number of investment layers and cost of
debt. Manconi and Massa (2009) also indicate that organizational complexity, captured by
the number of layers, makes the firm less transparent. If a high number of investment
layers is associated with high opaqueness, it will become more difficult for tax authorities
to detect inappropriate tax avoidance activities within multiple pyramidal layers. In
particular, regulators and practitioners also have concerns about lower quality of
subsidiary audit (Doty, 2011). Thus, we expect that the increase in the number of layers
allows the parent firm to conduct tax avoidance activities because the corporate pyramid
may shield the tax avoidance activities from detection.
In addition, our study also tests whether the positive association between tax
avoidance activities and having investees in tax haven can increase with the number of
layers in corporate pyramids. Prior literature documents that a parent shifts income to the
‘tax havens’ (e.g., see Hines and Rice, 1994 and Grubert and Slemrod, 1998), and there is
a positive association between tax avoidance and the number of subsidiaries in tax havens
(Wilson, 2009; Lisowsky, 2010). Tax haven operations facilitate tax avoidance both by
reducing the burden of home country taxation of foreign income and by permitting firms
to allocate taxable income on the lower-tax jurisdictions (Dyreng and Lidsey, 2009). As
the number of layers within a pyramid increases, organizational complexity and
obfuscation of tax activities also increase, which makes tax aggressive activities become
less likely to be detected. Thus, we predict that the impact of having investees in tax
havens on tax avoidance can increase with the number of investment layers.
We conduct our analyses using a sample of listed non-financial firms of Taiwan for
the period of 2000-2011; as all listed companies in Taiwan are required to disclose
information on all of their affiliated enterprises according to “
Criteria Governing
Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated
Financial Statements of Affiliation Enterprises
” (hereafter CGPAR). This allows us to
calculate the number of layers based on publicly available affiliation information. In many