The influence of foreign ownership on tax avoidance in Thailand: A study from an emerging economy

Tax avoidance is an effort to avoid paying more taxes lawfully, but it results in a tax revenue loss for the government. Even though the nominal avoided tax is enormous in advanced economies, the impact of tax avoidance is more severe in emerging economies. Thailand is a developing country whose government has been actively putting action to tackle aggressive tax avoidance. Like other similar economies, Thailand invites more foreign investors to invest in its local businesses. However, literature has said that ownership level can influence tax avoidance, and ownership by foreign shareholders in emerging countries can increase tax avoidance. Thus, examining whether foreign ownership increases tax avoidance in a developing country is crucial and interesting. By owning shares in the company, foreign investors have the power to influence the firm's decision-making process, including the decision for tax avoidance. This paper is the pioneer in discussing foreign ownership and tax avoidance in a Thai setting in its 100 most profitable companies. The observation is based on the five-year observations during 2015-2019. We measured tax avoidance using effective tax rate (ETR) and cash-flow ETR and manually collected foreign ownership data from the 500 annual reports. The statistical test verified that foreign ownership has a positive relationship with tax avoidance, which means that greater foreign ownership leads to a greater level of tax avoidance. This study recommends policymakers monitor the level of foreign ownership/control to limit aggressive tax avoidance that could be practised in the country.