Tax avoidance over time: A comparison of European and U.S. firms
Journal of Accounting
Martin Thomsen
Institute of Accounting and Taxation, University of Muenster, Germany
Christoph Watrin
Institute of Accounting and Taxation, University of Muenster, Germany

Keywords

Tax avoidance Effective tax rate
Statutory tax rate

Abstract

In recent years, the international tax policy debate has focused on the tax avoidancestrategies applied by multinational firms. We investigate whether differences can be observed over time between the tax avoidance behaviors of U.S. firms and those of firms from 12 European countries. Our results show that the mean effective tax rate (ETR) of U.S. firms and that of firms in large European countries, such as France and Germany, are similar. Additionally, we investigate whether changes in statutory tax rates (STRs) explain the declining ETRs of European firms. In contrast to observations for the U.S., we find that the gap between the STR and the ETR significantly decreases over time for EU firms. This finding suggests that tax avoidance in EU firms may have, on average, decreased over time.