Determinants of Corporate Tax Avoidance Strategies among Multinational Corporations in Malaysia

Abstract

Tax avoidance has been widely discussed around the globe, particularly among multinational corporations (MNCs). The MNCs are reported to have better opportunities to engage in aggressive tax planning techniques. Hence, this study examines the determinants of MNCs tax avoidance strategies by looking at their effective tax rates (ETRs). This study utilized the tax return form data from the Inland Revenue Board Malaysia (IRBM) to model ETRs of the MNCs in Malaysia, as a proxy of the tax avoidance. Regression analysis was performed in order to meet the objectives of the study. The findings suggest that MNCs in Malaysia can be associated with the tax avoidance since their ETRs are below the statutory tax rates (STRs) as stipulated under the Income Tax Act 1967. The results also suggest that firm’s size, profitability, extensiveness of foreign operation, capital intensity and leverage are the determinants of the tax avoidance of MNCs in Malaysia. The findings would assist the policymakers on the selection criteria of audit cases by focusing on MNCs with high profitability, extensive foreign operation, capital intensity and high leverage.