This paper investigates the extent to which multinational enterprises (MNEs) utilize tax haven networks and the role of the Big 4 accounting firms in tax avoidance activities. The study tests three hypotheses: 1) MNEs with higher intangible assets relative to total assets will have more tax haven subsidiaries, 2) MNEs audited by a Big 4 firm will have more tax haven subsidiaries than those not audited by a Big 4, and 3) MNEs from liberal market economies will have more tax haven subsidiaries than those from coordinated market economies. The results support all three hypotheses and find MNEs that use a Big 4 auditor have a 10-12% higher rate of tax haven subsid

1. Tax Haven Networks and the Role of the Big 4 Accountancy Firms
by
Chris Jones, Yama Temouri (Aston University)
& Alex Cobham (Tax Justice Network)
43rd AIB UK & Ireland Chapter Conference, Birkbeck, University of London, 7-9th April
Note: This paper is a work in progress, the results are preliminary.

2. Research Question & Motivation
The focus of this paper, is about investigating the extent to which tax haven networks
are utilised by MNEs by identifying a set of firm and country level factors that drive
this activity. More specifically we focus on the role of the Big 4 in relation to tax
avoidance.
• Panama Papers
• Zucman (2015) US tax avoidance = $130billion p.a.
• Facebook, Google, Amazon & Starbucks etc.
• BEPS (OECD, 2015)
• Set within the inequality context (Piketty, 2013) & the poor state
of OECD public finances
• Race to the Bottom – UK Corporate Tax to 17%! Patent Box!
• Lux. Leaks – symbiotic nature of the Big 4 in terms of tax
avoidance.

3. Theoretical Framework
• Jones & Temouri 2016 JWB paper
• Internalization Theory: Rugman (1981) CSA-FSA matrix
• Varieties of Capitalism (Hall & Soskice, 2001)
• Maydew & Shackleford (2005): Relationship between audit/tax consultancy

4. Testable Hypotheses
• H1. The extent of a MNEs network of tax haven subsidiaries
depends positively on the value of its intangible assets relative
to total assets.
• H2: MNEs audited by the Big4 Accounting Firms will utilise
tax haven subsidiaries to a greater extent in comparison to
MNEs who do not use these firms to file their accounts.
• H3: MNEs incorporated in Liberal Market Economies will
utilise tax haven subsidiaries to a greater extent in comparison
to MNEs from Coordinated Market Economies.

5. Econometric Model
• Random Effects Negative Binomial Count Model
• Panel Model with i (firm) and t (time) variation
• Variable lagged to partially control for endogeneity
• Sample only includes firms who do Tax Haven FDI
• Dependent Variable = Number of Tax Haven Subs
• IATA = Intangible Assets/Total Assets
• VOC = Varieties of Capitalism Dummy: 1=LME; 0=CME
• Big4 = MNE utilizes a Big 4 auditor
• X = Vector of firm-specific characteristics i.e. Turnover, Age, Number of
non tax haven subsidiaries.

6. Data
• ORBIS firm-level data Bureau van Dijk
• Data from 12 OECD countries from between 2005-2013
• Every firm included which has at least 1 tax haven sub and >5
employees
• Work builds upon Jones & Temouri (2016)
• 5,912 MNEs; 3,259 (LME); 1,960 (CME)
• Unbalanced Panel: 24,781 obs.
• ORBIS includes info on an MNEs auditor
• Definitions of Tax Havens utilises the Tax Justice Network's
Financial Secrecy Index. (all the usual suspects are in there!)

7. Descriptive Statistics

8. Descriptive Statistics

9. Results
• Coefficients on the following slides should be interpreted as “incidence
rates”.
• Support found for all 3 hypotheses.
• Our key finding is that of those MNEs that utilise Big 4 auditors, the tax
haven incidence rate is 10-12% higher compared to those MNEs who do
not use them.
• Variation across the Big 4 – highest incidence rate MNEs who use PwC
• Incidence rate for LME MNEs is 47-49% higher than CME MNEs
• Of those firms that take on a Big 4 auditor the incidence rate is 20%
• Growth rate of tax haven subs is 2.9 times higher for MNEs that take on
a Big 4 auditor compared to MNEs who do not utilise a Big 4 Auditor.

12. • OLS Model
• Dep. Var. = Growth Rate in Tax Haven Subs.
• Sample only includes MNE’s who take on a Big 4 Auditor and MNEs who do not
use a Big 4 auditor at all.

13. Discussion & Conclusion
• Firm-specific and country specific factors drive the extent to
which MNEs use tax haven subs.
• High-tech, liberal market orientation increases the incidence
rate.
• Utilising a Big 4 auditor to “sign off the accounts” has an
impact.
• More research is needed to uncover the relationship between
Big 4 tax advice and a Big 4 Audits in relation to tax
avoidance.
• Does Sarbanes Oxley go far enough?
• Policy makers should further scrutinize the role of the Big 4 in
terms of tax avoidance.