Tax Avoidance And Tax Evasion Essay

1573 Words Sep 11th, 2016 7 Pages
1. Case study: Tax Avoidance and Tax Evasion
As stated in the text, the biggest challenge the tax administration has is cheating (Rosen & Gayer, 2014). There is difference between tax avoidance, which is legal and a good business practice, and tax evasion, which is failing to pay due taxes (Rosen & Gayer, 2014). The public finance principle of tax avoidance is efficient. In the case reviewed, it is suggested that having a fiscal year end on December 31st drives companies to be more aggressive in the tax behaviors (Lingxiang, Winkelman, & D’Amico, 2014). More than 60% of U.S. public companies share the December 31st year end fiscal year (Lingxiang et al., 2014). Lingxiang, Winkelman, & D 'Amico analyze the potential for firms to have higher levels of tax avoidance when their fiscal year falls at year end, December 31st (Lingxiang et al., 2014). After analyzing many different companies, the case provides supporting data to prove the hypothesis, that the aggressive tax behavior of December 31 fiscal year companies is caused by peer pressure (Lingxiang et al., 2014). In this case, peer pressure is defined as corporate decisions, such as production levels, timing of public financing, production levels, executive compensation and retention (Lingxiang et al., 2014). Firms with the same year end fiscal year compete on many levels. Since their reporting is made at the same time, it is easy for outsiders to compare the performance of many competing firms with the same time…

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