The Moderating Role of Tax Collection Intensity in the Relationship between Internationalization and Tax Avoidance: a Multilevel Analysis

Abstract

This study aimed to evaluate the moderating role of tax collection intensity in the relationship between the degree of internationalization and the tax avoidance of multinational companies headquartered in G20 countries. We operationalized a multilevel hierarchical linear model on a database of 9,453 multinational companies from 2019 to 2022, resulting in 37,812 firm-year observations. Results indicate that, in general, internationalization is negatively associated with tax avoidance. However, in countries with high tax collection intensity, the effect is reversed, meaning that internationalization has a positive impact on tax avoidance. Robustness tests demonstrated that the results hold when using a traditional Ordinary Least Squares (OLS) model; however, they are sensitive to changes in the classification of countries as having high or low tax collection intensity. The study contributes to the literature by demonstrating that the greater a firm’s degree of internationalization, the greater the chances that the costs will outweigh the benefits associated with tax planning. It also contributes to the literature analyzing government actions to combat base erosion and profit shifting (BEPS), suggesting that countries with higher tax collection intensity may be directing their tax enforcement efforts toward companies without international operations, perhaps due to the lower complexity of the cases. The study also highlights the need for greater investment in specific actions to combat abusive tax planning at the international level.