The incentives for tax avoidance in Australia
- Publication Type:
- Thesis
- Issue Date:
- 2025
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This thesis investigates the global issue of corporate tax avoidance (CTA) and its implications for government tax revenues. It examines whether after-tax performance targets embedded in executive compensation contracts incentivise managers to adopt aggressive tax strategies, even when such behaviour offers no benefit to shareholders. The findings reveal that firms employing after-tax performance measures are more inclined to engage in aggressive tax planning, particularly those with higher profitability. This result underscores how executive compensation can influence corporate tax behaviour, revealing that certain performance targets may drive managers to pursue strategies that are misaligned with shareholder interests. The analysis then turns to the Multinational Anti-Avoidance Law (MAAL) and Diverted Profits Tax (DPT), introduced by the Australian Federal Government, with particular attention to whether these measures have had a sustained impact on constraining CTA among foreign significant global entities (SGEs) operating in Australia and especially in light of the ‘PwC scandal’. The findings suggest that Australia's unilateral strategies to constrain CTA appear to be relatively short-lived. These results imply that such legislative policies function more as constraints than as deterrents, potentially serving only to increase the costs associated with tax avoidance, as the incentives for CTA are likely to persist.
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