Tax Planning Through Advanced Tax Rulings–An Exploratory Analysis Using the Luxembourg Tax Leaks

Oliver Zhen Li; Stephen J. Lusch; Frank Murphy

doi:10.1080/09638180.2023.2182336

Tax Planning Through Advanced Tax Rulings–An Exploratory Analysis Using the Luxembourg Tax Leaks

Oliver Zhen Li
, Stephen J. Lusch
, Frank Murphy

Accountancy

Research output: Contribution to journal › Article › peer-review

1 Scopus citations

Abstract

We use Luxembourg advanced tax rulings (ATRs) to provide readers with insight into the nature of tax planning that uses ATRs. Accordingly, we descriptively examine this sample of leaked Luxembourg ATRs and evaluate the determinants and outcomes associated with requesting a Luxembourg ATR. We find that the determinants of requesting an ATR differ between financial services firms and industrial firms. We document a positive spillover market reaction to non-ATR firms sharing characteristics of ATR firms. While prior research documents a positive association between ATRs and tax avoidance, we fail to document a significant relations between ATRs and tax risk. We do, however, find that firms that are required to disclose unrecognized tax benefits in their financial statements record higher UTBs after requesting an ATR, which suggests that ATRs may lead to higher uncertainty in jurisdictions not covered by the ATR itself. Our research provides insight into transactions used by MNEs to move income through organizations.

Original language	English
Pages (from-to)	1431-1465
Number of pages	35
Journal	European Accounting Review
Volume	33
Issue number	4
DOIs	https://doi.org/10.1080/09638180.2023.2182336
State	Published - 2024

Bibliographical note

Publisher Copyright:
© 2023 European Accounting Association.

Funding

Frank Murphy would like to acknowledge the Nicholas DuBiago ‘66 Accounting Fund for providing research support. We thank Martin Jacob (editor), two anonymous reviewers, Eric Allen, Shannon Chen, Katharine Drake, Alex Edmans, John Gallemore, Russ Hamilton, Brad Hepfer (discussant), Mollie Mathis, George Plesko, Steven Rosenthal (discussant), Steve Utke, Connie Weaver (discussant), Jaron Wilde (discussant), participants at the University of Illinois/Deloitte Tax Symposium XVI, 2019 National Tax Association Annual Conference, 2020 ATA Midyear Meeting, and workshop participants at the University of Connecticut for their helpful feedback. We thank Shayna Beckwith and Ilona Bastiaansen for their excellent research assistance.

Funders
Connecticut 06520 Yale University New Haven Connecticut 06520

ASJC Scopus subject areas

Business and International Management
Accounting
Business, Management and Accounting (miscellaneous)
Automotive Engineering
Aerospace Engineering
Economics, Econometrics and Finance (miscellaneous)

Access to Document

10.1080/09638180.2023.2182336

Cite this

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abstract = "We use Luxembourg advanced tax rulings (ATRs) to provide readers with insight into the nature of tax planning that uses ATRs. Accordingly, we descriptively examine this sample of leaked Luxembourg ATRs and evaluate the determinants and outcomes associated with requesting a Luxembourg ATR. We find that the determinants of requesting an ATR differ between financial services firms and industrial firms. We document a positive spillover market reaction to non-ATR firms sharing characteristics of ATR firms. While prior research documents a positive association between ATRs and tax avoidance, we fail to document a significant relations between ATRs and tax risk. We do, however, find that firms that are required to disclose unrecognized tax benefits in their financial statements record higher UTBs after requesting an ATR, which suggests that ATRs may lead to higher uncertainty in jurisdictions not covered by the ATR itself. Our research provides insight into transactions used by MNEs to move income through organizations.",

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AB - We use Luxembourg advanced tax rulings (ATRs) to provide readers with insight into the nature of tax planning that uses ATRs. Accordingly, we descriptively examine this sample of leaked Luxembourg ATRs and evaluate the determinants and outcomes associated with requesting a Luxembourg ATR. We find that the determinants of requesting an ATR differ between financial services firms and industrial firms. We document a positive spillover market reaction to non-ATR firms sharing characteristics of ATR firms. While prior research documents a positive association between ATRs and tax avoidance, we fail to document a significant relations between ATRs and tax risk. We do, however, find that firms that are required to disclose unrecognized tax benefits in their financial statements record higher UTBs after requesting an ATR, which suggests that ATRs may lead to higher uncertainty in jurisdictions not covered by the ATR itself. Our research provides insight into transactions used by MNEs to move income through organizations.

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Tax Planning Through Advanced Tax Rulings–An Exploratory Analysis Using the Luxembourg Tax Leaks

Abstract

Bibliographical note

Funding

ASJC Scopus subject areas

Access to Document

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