The Impact of Thin-Capitalization Rules on Corporate Tax Avoidance and Financing Decision

• Main Authors: CHANG, YA-CHU, 張雅筑
• Other Authors: LEE, CHUAN-CHING
• Format: Others
• Language: zh-TW
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/qx63ek

碩士 === 銘傳大學 === 會計學系碩士班 === 106 === There are tax shield benefits from interest expense on debt financing. Some companies take borrowing from related companies as a tool of tax evasion. It is a common business model in recent years that firms gain more competitive advantage by internationalization and diversification. By referencing OCED guidance of Base Erosion and Profit Shifting, in 2011, Taiwan authority amended Income Tax Article 43-2 to minimize the impact on tax revenue from multinational corporations’ tax avoidance behavior via debt-financing instead of equity-financing. This study takes those companies listed in Taiwan during 2005-2016 as sample. Firstly, we adopt independent sample test to examine whether there is difference in related companies’ debt level, group companies’ debt level and corporates’ tax avoidance behavior after the implementation of the anti-thin capitalization ruling. We then analysis the impact of anti-thin capitalization ruling on corporate’s tax avoidance behavior and related companies’ debt level. there are several factors affecting corporate’s tax avoidance behavior and capital structure and the anti-thin capitalization ruling cannot apply to all companies. We further employ the difference in differences (“DID”) with matching model to examine if the debt level difference between group companies and non-group companies or multinational companies and non-multination companies is narrowed after the ruling implemented. The empirical results show that there is significant difference in the debt level of related companies after anti-thin capitalization ruling is implemented. We find that DID with matching model shows that the debt level of group or multinational companies have significantly lower than non-group or non-multinational companies, whether before or after pairing. After pairing, the group or multinational company's debt level is significantly lower than that of non-group or non-multinational companies after the ruling. However, it is still unable to support a certain causal relationship between anti-thin capitalization ruling and the reduction of the debt level of the group or multinational enterprises.