Business strategy and tax aggressiveness in Brazil

Abstract

Purpose

The purpose of this paper is to analyse the relationships between company business strategy type and tax aggressiveness for companies listed on the Brazilian Bovespa stock exchange.

Design/methodology/approach

Following the concepts of Miles and Snow (1978, 2003), we classified company strategies into four types, analyser, defender, prospector and reactor, using data from 2012 to 2016. The authors excluded financial companies due to a differential tax regime. Next, prospector and defender companies were identified, and the relationship of these strategies with tax aggressiveness assessed using regression analysis; analyser and reactor types were not included as these are defined as a combination of the prospector and defender type, or non-strategic, respectively. To assess aggressiveness, the authors used effective tax rates on corporate profits, as well as a metric that captures tax burden in terms of all taxes paid by a company.

Findings

Most Brazilian companies were analysers (76.66 per cent), with prospector companies being a minority, and defenders representing a little over 21 per cent. Unlike the findings of Higgins et al. (2015), the authors found that defender companies also have a tendency to practice aggressive tax planning.

Practical implications

The authors found the Brazilian defender companies similar to prospectors, tended to be more tax aggressive or to take higher tax risks. Thus, findings in economies such as the USA may not be generalizable to other countries, such as Brazil, Russia, India or China (i.e. the BRICs), for example. The particularities of each country, such as ease of access to the capital market, tax deductibility of investment in research and development and legal issues must be considered before applying generalized prognostics.

Originality/value

This paper offers original empirical evidence from Brazil of the relationship between company strategy type and the tax aggressiveness, offering a clear result that differs in part from results from American companies. It therefore encourages further studies on this topic.

Citation

Lopo Martinez, A. and Ferreira, B.A. (2019), "Business strategy and tax aggressiveness in Brazil", Journal of Strategy and Management, Vol. 12 No. 4, pp. 522-535. https://doi.org/10.1108/JSMA-03-2019-0040