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    Income-shifting arrangements, audit specialization and uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms

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    Authors
    Taylor, Grantley
    Richardson, G.
    Al-Hadi, Al-Hadi Ahmed
    Date
    2018
    Type
    Journal Article
    
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    Citation
    Taylor, G. and Richardson, G. and Al-Hadi, A.A. 2018. Income-shifting arrangements, audit specialization and uncertain tax benefits, international tax risk, and audit specialization: Evidence from US multinational firms. International Journal of Auditing.
    Source Title
    International Journal of Auditing
    DOI
    10.1111/ijau.12117
    ISSN
    1090-6738
    School
    School of Accounting
    URI
    http://hdl.handle.net/20.500.11937/69036
    Collection
    • Curtin Research Publications
    Abstract

    © 2018 John Wiley & Sons Ltd. The purpose of this study is twofold. First, it examines the association between income-shifting arrangements consisting of transfer pricing aggressiveness, tax haven use and foreign tax rate differentials, and Financial Interpretation No. 48 (FIN48, now ASC740-10-25) unrecognized tax benefits (UTBs). Second, it analyzes the impact of audit specialization on the association between income-shifting arrangements and UTBs. Using a dataset of 286 US multinational firms over the 2007-2016 period (2,097 firm-years), our regression results show that income-shifting arrangements represented by transfer pricing aggressiveness, tax haven use and foreign tax rate differentials are significantly positively associated with UTBs. We also observe that audit specialization magnifies the positive association between transfer pricing aggressiveness and UTBs, and foreign tax rate differentials and UTBs. Finally, in additional analysis we provide some evidence that the positive association between income-shifting arrangements and UTBs is magnified in the post-2010 uncertain tax position reporting requirement period. Overall, our study extends prior research on the topic of audit characteristics (i.e., audit specialization) and tax aggressiveness.

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