Conclusion
The objective of this paper is to evaluate whether dividend imputation impacts corporate tax avoidance. Next, is to test the assumption of extant literature that in dividend imputation environments, managers in all firms will not engage in tax avoidance, as it is ineffective in increasing shareholders‘ wealth (Lasfer, 1996; Amiran et al., 2016). Specifically, testing if the costs and benefits of corporate tax avoidance, as implicitly assumed by Lasfer (1996) and Amiran et al. (2016) are homogenous in an imputation setting. Rigorous theoretical analysis in this paper proposes (H1) that firms paying tax credits undertake less tax avoidance than those which do not. A significantly lower level of corporate tax avoidance for firms that are paying dividends with tax credits is found to be exhibited across sample firm-years. This is economically significant with firms paying dividends with tax credits attached having a cash ETR up to 16.9 percentage points higher than firms that pay dividends without tax credits, and up to 14.7 percentage points higher than firms that do not pay dividends. Therefore, dividend imputation alters the balance between the costs and benefits of tax avoidance by providing the same level of benefits as tax avoidance without incurring the associated costs. This confirms that there is a corporate response to Australian dividend imputation in the form of changed firm tax behaviour. H2, H3 and H4 specifically relate to the contention that the costs and benefits of tax avoidance are homogenous, thereby, as corporate tax avoidance increases the return to shareholders it would be in the best interest of shareholders of all firms in a classical tax regime and as corporate tax avoidance decreases the return to shareholders it would not be in the best interest of shareholders of all firms in an imputation regime (Lasfer, 1996; Amiran et al., 2016).
