Do Tax Department Employees Care If Their Employers Avoid Taxes?

While many prior studies examine the consequences that tax avoidance has on the corporation and its stakeholders, most research has neglected how the level of tax avoidance that a firm exhibits influences the careers of the employees who work in the firm’s tax department. Since the tax department is a primary driver of the strategies that firms employ to avoid taxes, understanding whether and how tax employees are influenced by their corporation’s tax planning outcomes can shed light on the incentives these employees have to support their firms’ tax planning objectives. We examine two career consequences of tax employees – the likelihood of turnover while working in the firm, and their career prospects after exiting the firm for a new employer.

Using tax employee profiles from the website LinkedIn, we find that tax employees are more likely to experience turnover when their employers exhibit lower levels of corporate tax avoidance. Therefore, tax employee careers appear to be hindered when their firms pay higher taxes, suggesting that these employees may be punished for failing to successfully implement tax strategies. Consistent with this premise, we also find that, after tax employees exit the firm, those who exit firms with lower levels of tax avoidance spend a longer period of time in the job search process and attain lower-ranking positions relative to those who exit firms with higher levels of tax avoidance. We find similar results when we examine how corporate tax risk exposure influences tax employee careers – i.e. tax employees are more likely to exhibit turnover and have worse career prospects when employed in firms exposed to higher tax risk. Overall, these results suggest that tax employee career outcomes are tied to the tax performance of the firms they are employed in.

Since corporate tax avoidance is a pervasive issue for many governments seeking to earn tax revenue, understanding the determinants and consequences of tax avoidance is important for policymakers. Our results suggest that tax employees may have a personal incentive to co-operate with their firms’ tax planning objectives beyond the explicit incentives they are offered in their employment contracts. Thus, curbing corporate tax avoidance may require changing the incentives these tax employees currently face.John Li & Oliver N. Okafor (2024). Tax employee careers and corporate tax outcomes (external link) . European Accounting Review. Doi: 10.1080/09638180.2024.2386144