Resumo:
Propsito do Trabalho:
Tax governance is associated with good tax management practices, involving lawful tax planning, or legitimate tax avoidance, achieved through a set of management procedures with the objective of improving control and revising procedures to reduce tax expenses without raising the risk of being audited, as well as to increase the transparency, trustworthiness and reliability of the financial statements.
The theme of tax governance has gained greater importance with the movement toward improved overall corporate governance practices after the fraud scandals that emerged in the United States in the early 2000s (especially Enron and WorldCom). The unexpected bankruptcies of these two companies as well as the formers auditor, Arthur Andersen, revealed serious governance problems and acted as sparkplugs to pressure regulators and lawmakers into establishing stricter rules. Chief among these was the Sarbanes-Oxley Act. While the combination of this law and more rigorous regulatory rules has brought many benefits (Holmstrom & Kaplan, 2003), it also has imposed added costs (Engel, Hayes & Wang, 2007). The main cost is for compliance with the more stringent rules on internal controls and auditing, while the improved corporate governance has brought several direct and indirect benefits (Funchal & Gottlieb, 2011).
In this context, our aim is to look for empirical evidence of a relationship between SOX and tax management by Brazilian firms. For this purpose, we compared listed Brazilian firms with level 2 or 3 ADRs (treatment group) in comparison with their peer firms only listed in Brazil, or issuers of lower level ADRs not subject to SOX (control group). We also analyzed the two groups of firms separately in the period before and after the inclusion of Section 404 in the Act, which made it mandatory for foreign companies in 2006.
Base da plataforma terica:
According to Zingales et al. (2010), the large and numerous corporate fraud scandals that occurred in the United State shortly after the turn of the century prompted Congress to enact the Sarbanes-Oxley Act (SOX). As argued by Arping & Sautener (2011), SOX is the most important reform of corporate law in the history of the United States, with the main objective of protecting investors by improving the precision and reliability of the financial information disclosed by listed corporations. One of these mechanisms is the requirement to create internal committees to assure better independence of external auditing and more accountability of directors and officers for the financial information disclosed, thus enhancing transparency (Funchal et al., 2008).
The various rules of SOX apply not only to listed American firms, but also to foreign companies that issue ADRs. This application to foreign companies is established in Section 404 of the law, applicable as of 2006. The importance of Section 404 is that it sets the bar higher regarding financial disclosures and internal management controls, to assure better efficacy of these controls and more independence of the audit process, thus making financial data more reliable (Bryen & Lilien, 2005).
Since the objective of this paper is to investigate the effects of SOX on the tax aggressiveness of Brazilian firms, it is first necessary to understand the relationship of SOX with corporate governance and tax aggressiveness. According to Funchal & Gottlieb (2008), the Sarbanes-Oxley Act, also known as the Company Accounting Reform and Investor Protection Act, imposed stricter rules on executive compensation and accountability, internal controls and punishment of fraud, besides strengthening monitoring by shareholders. These changes induced more conservative behavior by managers, mitigating negligent behavior and moral hazard, such as by inhibiting risky investment decisions with the main aim of increasing personal gains. This greater conservatism also reduces the propensity of manipulate the financial statements, and consequently the numbers revealed to the market, and indirectly has an influence on stock prices.
Mtodo de investigao:
Our sample, obtained from the Economatica database, consists of 469 firms listed on the BM&FBovespa between 2004 and 2012, with a total of 3,093 firm-year observations. We excluded financial institutions from the sample because they have different governance requirements and accounting rules. We divided the firms between those with and without ADRs and between those required and not required to follow the rules of the Sarbanes Oxley Act.
We used three metrics to measure tax management (aggressiveness): effective tax rate (ETR), long-run cash effective tax rate (CASH ETR) and book-tax differences (BTD), as proposed for analysis of corporate tax avoidance by Hanlon & Heitzman (2010). According to Minnick & Noga (2010), the ETR is a good measure of tax management because, as the name suggests, it measures the actual tax rate paid by companies. In turn, Dyreng, Hanlon & Maydew (2008) argued that CASH ETR is a better proxy to measure lawful tax planning over the long run, because it takes into account not only the actual taxes paid in the current year, but also the effects of deferred taxes or tax credits in future years.
Hanlon & Heitzman (2010) define book tax differences (BTD) as the difference between book or accounting income and taxable income. This difference can arise because the taxable income is subject to different rules than accounting income, so that companies can legitimately report different values. Another relevant aspect of BTD, according to Tang et al. (2010) is its ability to measure the quality of profits, due its ability to serve as proxy for opportunistic management behavior. In other words, BTD can be used as a metric both of earnings management and tax management. For this reason, Halon & Heitzman (2010) claim it is one of the most important themes in the literature.
Resultados, concluses e suas implicaes:
The results of the models with the inclusion of SOX, aiming to observe an exogenous shock in corporate governance levels, indicate that the relations between issuance of level 2 or 3 ADRs (representing a higher level of corporate governance) and the tax aggressiveness measures ETR, CASH ETR and BTD are not statistically significant. Therefore, even though there is a causality effect of the impact of SOX on the firms studied, there is no evidence that the enhanced corporate governance required by the Act influenced the tax aggressiveness of Brazilian firms according to the tax management metrics applied in the model. In short, the model proposed here points to no statistically significant effect of SOX on these three tax management metrics.
These results run counter to the theory proposed by most authors in the literature, as summarized here. A possible explanation for this is that most of the firms in the sample that were subject to SOX were also listed for trading in premium segments of the BM&FBovespa that require stronger governance, so they already had better tax governance than their peers not subject to SOX (of which a much smaller percentage were listed for trading in the enhanced governance segments). Another is that perhaps the tax management metrics applied here are independent of whether or not firms have a high level of corporate governance.
The results point to a weak relationship between subjection to SOX because of issuance of level 2 or 3 ADRs and the tax aggressiveness metrics employed. In other words, we did not find evidence of an influence on tax aggressiveness, measured by the metrics ETR, CASH-ETR and BTD, of having higher levels of corporate governance.
To confirm these results, we also applied a robustness test, using as a metric of tax management the amount of taxes reported by firms in the statement of value added (SVA). The results of this robustness test confirmed the results of the principal test, also showing no statistically significant relationship between subject to SOX and allocation of added value to society in the form of tax payments.
This might have occurred because the sample in the main test was composed of publicly traded companies, and most of those subject to SOX (by issuing level 2 and 3 ADRs) were listed in premium governance segments of the BM&FBovespa, while in the case of the robustness test, the firms were drawn from among the 500 largest in Brazil. In both cases, the sample with respect to firms subject to SOX was perhaps biased toward firms with good overall governance and tax governance, so that the additional effect of SOX was not sufficiently significant.
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