Are financial derivatives related to intra-entities' tax aggressiveness? UK Evidence

This study investigates the effect of hedged versus non-hedged financial derivative instruments on the intra-entities’ tax aggressiveness. Our findings provide evidence that multinational enterprises manage derivatives instruments to avoid their tax expenses aggressively. Specifically, non-hedged derivatives are an excellent determinant of the tax aggressiveness practices of corporate groups. Besides, this study speaks to the central role of governance quality in mitigating this aspect of tax aggressiveness and provides practical guidance to tax authorities and regulators for establishing new policies for governing financial derivative instruments and preventing tax aggressiveness from negatively affecting firms and society.