About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

52 Int'l J.L. & Mgmt. 5 (2010)

handle is hein.journals/ijlm52 and id is 1 raw text is: The current issue and full text archive of this journal is available at www.emeraldinsight.com/1754-243X.htm Corporate tax shield or fraud? Insight from Nigeria Abel Ebeh Ezeoha Department of Banking and Finance, Ebonyi State University, Abakaliki, Nigeria, and Ebele Ogamba Department of Banking and Finance, University of Nigeria, Enugu, Nigeria Abstract Purpose - The purpose of this paper is to establish whether inefficiency in a tax system and the likely difficulty in resolving tax matters can reduce the appeal for tax shield as incentive for debt financing, and by so doing exacerbate the cases of tax fraud. Design/methodology/approach - A review approach/theoretical approach is adopted in the paper, where, in addition to reviewing literature on the relationship between tax incentives and corporate financing, the paper examines the structure of the Nigerian tax system, the gaps, and some pending tax cases involving foreign firms in Nigeria. Based on some theoretical judgments, efforts were made to link the rising cases of tax frauds to the dwindling appeal for tax shield as an incentive for the use of debt. Findings - The study reveals that, as in the case of Nigeria, an environment of multiple tax system reduces incentives to pay tax or for voluntary compliance; that the exclusion of crucial non-debt tax shelters such as depreciation, heightens pressure on the use of debt-based tax shelters; and that controversies on deductibility make it difficult to distinguish between criminal and civil proceedings in tax cases. Research limitations/implications - The paper is only theoretical. The number of cases captured is very limited. However, the issue of tax frauds among corporate entities in the country remains very popular. Originality/value - The paper is the first to examine the likelihood of an inefficient tax environment to reduce the appeal of tax shield as an incentive to debt financing. Keywords Tax havens, Fraud, Law, Debt financing, Nigeria, Corporate taxation Paper type Research paper Introduction The influence of tax on corporate management decisions remains very encompassing. Tax affects the level and combination of financing sources a firm can explore. It is also a major determinant of a firm's choice of investment projects and destinations (Palomba, 2002). Dividend policies, which constitute one of the strategic functions of financial management, are determined by the rate at which dividend income and capital gains are taxed. According to Graham (2001), tax affects capital structure decisions, including the choice of debt, equity, leasing, and other financing instruments play a role in corporate risk management; and affect the form and timing of compensation and pension policies of a firm. Due to its diminishing impact on corporate earnings, tax payment is of very important concerns to managers. In addition to finding out how to minimize the impact of tax payment on firm value, corporate managers also concern themselves with the fiscal objectives of governments in countries where they operate. This explains why value maximizing managers normally lay strategic emphasis on the application of tax shelter instruments such as debt, depreciation, research and development, corporate arms giving, and so on. Essentially, debt financing provides some widely acclaimed premises for tax shelters. According to theoretical postulations, debt has enormous tax-shield capacity Corporate tax shield or fraud? 5 International Journal of Law and Management Vol. 52 No. 1, 2010 pp. 5-20 © Emerald Group Publishing Limited 1754-243X DOI 10.1108/17542431011018516

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most