Firm-specific determinants influencing tax avoidance among Indian multinational corporations: a panel regression approach

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. Our study 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 similar to 34.94% to similar to 25.17%] on these determinants. I conducted 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.