Board Oversight Can Help Companies Lower Tax Bills, Study Says

(Bloomberg) -- Corporate boards that take an interest in a company’s tax strategy can lead to tax bills that are on average 13.2% lower, according to a new academic study.

Researchers at North Carolina State University and Northern Arizona University reviewed earnings and proxy statements of 665 U.S. companies that were part of the Russell 1000 from 2014 to 2017 and found that those where the board actively oversaw tax risk not only faced lower bills, but also avoided challenges from the Internal Revenue Service or foreign authorities.

“Ultimately, our study suggests that companies are more likely to make high-risk decisions when the board is not involved and more likely to make decisions that balance risk and reward when the board is involved,” Nathan C. Goldman, one of the authors, said in a news release.

The authors estimate that companies with the highest levels of board oversight have 31% less tax uncertainty, or risk that their tax position will be overturned by the IRS or foreign government, resulting in back taxes and penalties.

The findings could be relevant for thousands of U.S. companies that have been re-evaluating their long-term planning practices in light of the 2017 overhaul that changed how the IRS imposes levies on foreign profits and updates to the global system that prioritize taxing income where companies have a physical presence.

The results could become even more prescient if former Vice President Joe Biden were to win the presidential election in November. He has vowed to raise taxes on companies that use foreign subsidiaries and other techniques to lower tax bills.

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