Abstract
The purpose of this study is to investigate the tax planning through cost－shifting in Not－For－Profit Organizations(“NFPO”) when they operate special purpose business with a different corporate tax status and profit－making business at the same time. Not－for－profit organizations are exempt from corporate tax on the income of special purpose business but are subject to taxation on the income of profit－making business. This setting provides NFPO with an incentive to shift the costs incurred in the department of special purpose business into the department of profit－making business that its costs are allowed to be deductible as business expenses. Not－for －profit organizations may establish tax planing through cost－shifting in order to reduce their tax burden.
This paper conducts an empirical analysis how the NFPO’s characteristic factors such as level of reliance on profit－making business, ownership, use of tax experts, and governance structure affect cost－shifting. Samples in this study, selected from K－IFRS disclosure system, consist of 916organization－years.
The results of this study are as follows；First, the amount of cost－shifted(“ACS”) is about 5.47% of total costs(about 2,097 million won) and corporate tax shields reach 461 million won.
Second, there is positive relationship between level of profit－making business reliance and ACS.
So, as the level of reliance on profit－making business is higher, because of higher tax－burden,stronger incentive to shift costs. Third, both central and local governmen－owned organizations have weak incentives to shift costs. This is the result from strong and regular audit, control, and restraint of government. Fourth, not－for－profit organizations employing tax experts have strong incentives to shift costs for efficient tax planning using expert advice. Finally, as the ratio of external directors is higher, ACS is lesser. This result implies that the external directors can efficiently control and restrain the managerial incentives of CEOs for earnings management or cost－shifting.
These results of this study provide empirical evidence to tax authority that develops taxation of NFPO.
This paper conducts an empirical analysis how the NFPO’s characteristic factors such as level of reliance on profit－making business, ownership, use of tax experts, and governance structure affect cost－shifting. Samples in this study, selected from K－IFRS disclosure system, consist of 916organization－years.
The results of this study are as follows；First, the amount of cost－shifted(“ACS”) is about 5.47% of total costs(about 2,097 million won) and corporate tax shields reach 461 million won.
Second, there is positive relationship between level of profit－making business reliance and ACS.
So, as the level of reliance on profit－making business is higher, because of higher tax－burden,stronger incentive to shift costs. Third, both central and local governmen－owned organizations have weak incentives to shift costs. This is the result from strong and regular audit, control, and restraint of government. Fourth, not－for－profit organizations employing tax experts have strong incentives to shift costs for efficient tax planning using expert advice. Finally, as the ratio of external directors is higher, ACS is lesser. This result implies that the external directors can efficiently control and restrain the managerial incentives of CEOs for earnings management or cost－shifting.
These results of this study provide empirical evidence to tax authority that develops taxation of NFPO.
| Translated title of the contribution | Tax Planning of Not－For－Profit Organizations －Minimization of Tax Burden through Cost－Shifting－ |
|---|---|
| Original language | Korean |
| Pages (from-to) | 225-255 |
| Number of pages | 31 |
| Journal | 세무학연구 |
| Volume | 29 |
| Issue number | 4 |
| State | Published - 2012 |