Firm-specific determinants influencing tax avoidance among Indian multinational corporations: a panel regression approach
Creators: name: Thayyib, P. V.
Publisher: name: Taylor & Francis
Year: 2025
Subjects: subject: Microbiology
subject: FOS: Biological sciences
subject: Molecular Biology
subject: Pharmacology
subject: Biotechnology
subject: Sociology
subject: FOS: Sociology
subject: Cancer
subject: Science Policy
subject: Hematology
subject: Infectious Diseases
subject: FOS: Health sciences
subject: Plant Biology

description: The unethical tax planning practices of Multinational Companies globally remain a significant and unresolved empirical issue in tax and accounting research. Despite growing research on multinational tax avoidance, research on its determinants remains sparse, particularly within the Indian context. The research aims to fill this gap by (1) identifying firm-specific factors utilized by Indian multinational corporations (MNCs) to minimize corporate tax liabilities, and (2) assessing the impact of the statutory corporate tax cut that took place in 2019 [Income Tax Law Amendment (TLA2019): from ∼34.94% to ∼25.17%] on these determinants. This study conducts a fixed-effect panel data analysis of firm-specific variables and their impact on corporate tax avoidance of Indian MNCs that were Nifty 500 constituents from 2015 to 2020. The results reveal that research intensity inversely correlates with multinational tax avoidance, which I measure through corporate GAAP Effective Tax Rates (ETR) and significantly widened Book-tax Difference (BTD). Additionally, profitability and firm size exhibited inverse relationships with ETR, signifying the potential influence of MNCs on policymaking. The tax-haven nexus significantly amplified BTD, indicating that MNCs prefer permanent difference-based tax-base avoidance strategies. Surprisingly, leverage and capital intensity did not reduce the ETRs, while leverage positively contributed to BTD expansion, highlighting the prevalent tax base avoidance practices. TLA2019 did not impact tax avoidance in India owing to the optional provisions of §115BAA of the Indian Income Tax Act, 1961. These findings underscore the need for targeted policy measures to curb tax avoidance, particularly in relationship-driven economies like India, where tax havens like Mauritius, Singapore, and Netherlands, and firm-specific factors play a crucial role in shaping corporate tax liabilities. The findings contribute to the ongoing debate on global tax fairness, highlighting the need for coordinated tax rules that prevent tax base erosion while ensuring that MNCs contribute fairly to domestic revenues of host countries. This study provides vital empirical insights into the firm-level determinants of corporate tax avoidance among Indian MNCs, a largely under-researched area in the South Asian context. By employing fixed-effects panel regression on Nifty 500 MNCs from 2015 to 2020, the research identifies key corporate attributes—such as profitability, firm size, research intensity, and tax haven linkages—that significantly influence both effective tax rates and book-tax differences. The findings highlight the strategic use of tax havens and firm-specific policies in minimizing tax liabilities and reveal the limited impact of India’s 2019 corporate tax rate reform. This work contributes to the global discourse on tax fairness by emphasizing the need for targeted domestic and globally coordinated international tax regulations that prevent base erosion while ensuring equitable corporate contributions to public revenue. The study holds significant policy relevance for emerging economies, which must balance the imperative of attracting Foreign Direct Investments (FDIs) with the need to uphold tax integrity—especially by curbing Phantom FDIs and tax-motivated Special Purpose Entities (SPEs).