Pyramid ownership structure and tax avoidance among Canadian firms

Abstract

This paper examines the relationship between pyramid ownership structure and tax avoidance. Unlike the U.S., many Canadian firms belong to pyramid ownership structures with multiple tiers. Using Canadian listed companies and relying on several proxies for tax avoidance including the effective tax rate, firms in low-tax jurisdictions, and the book-tax difference, we find that firms affiliated with the pyramidal structures engage in more tax avoidance activities than non-affiliated firms. We also find that firms affiliated with more complex pyramids engage in more tax avoidance practices and firms positioned at the lower tiers of the pyramids avoid more taxes. Overall, the results found in this study indicate that pyramid ownership structure and tax avoidance are strongly connected to each other.