The Economic Effects of Special Purpose Entities on Corporate Tax Avoidance

Paul Demeré, Michael P. Donohoe, Petro Lisowsky

Research output: Contribution to journalArticlepeer-review


This study provides the first large-sample evidence on the economic tax effects of special purpose entities (SPEs). These increasingly common organizational structures facilitate corporate tax savings by enabling sponsor firms to increase tax-advantaged activities and/or enhance their tax efficiency (i.e., relative tax savings of a given activity). Using path analysis, we find that SPEs facilitate greater tax avoidance such that an economically large amount of cash tax savings from research and development (R&D), depreciable assets, net operating loss carryforwards, intangible assets, foreign operations, and tax havens occur in conjunction with SPE use. We estimate that SPEs help generate over $330 billion of incremental cash tax savings, or roughly 6 percent of total U.S. federal corporate income tax collections during the sample period. Interaction analyses reveal that SPEs enhance the tax efficiency of intangibles and R&D by 61.5 percent to 87.5 percent. Overall, these findings provide economic insight into complex organizational structures supporting corporate tax avoidance.

Original languageEnglish (US)
Pages (from-to)1562-1597
Number of pages36
JournalContemporary Accounting Research
Issue number3
StatePublished - Sep 1 2020

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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