Financial derivatives in corporate tax avoidance: A conceptual perspective

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Financial derivatives play an increasingly common role in corporate tax avoidance. This paper takes a descriptive approach to answer the fundamental, yet underexplored, questions of why derivatives are useful for corporate tax avoidance and how they fulfill this objective. To evaluate why, I develop and discuss a simple framework of research, practical issues, and anecdotes about derivatives-based tax avoidance. I then provide unique insight into how derivatives reduce taxes by discussing the complex transaction-level detail of two derivatives-based tax-planning strategies. Finally, I identify potential issues that might be addressed in future research. Overall, by discussing the concepts and mechanics of derivatives-based tax avoidance, this study serves as prologue to extant and future research on the topic.

Original languageEnglish (US)
Pages (from-to)37-68
Number of pages32
JournalJournal of the American Taxation Association
Issue number1
StatePublished - Mar 1 2015


  • Derivatives
  • Financial instruments
  • Tax avoidance
  • Tax shelter

ASJC Scopus subject areas

  • Accounting
  • Finance


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