Defining and Measuring Tax Planning Aggressiveness

In this paper, I discuss the concepts of tax aggressiveness and tax risk from an academic point of view. Although tax aggressiveness is often defined as being in the "eye of the beholder," this is not terribly satisfactory when attempting to measure empirically tax planning aggressiveness and its associations with firm attributes. I explain that tax planning that results in certain tax benefits should not constitute aggressiveness. Although policy makers may argue that these tax planning opportunities are attributable to tax loopholes, this assertion does not imply that the firm has undertaken any significant risk by entering into such tax planning. By documenting that low effective tax rates are not necessarily associated with risky or uncertain tax planning, I hope to convince future researchers to develop better empirical proxies for capturing aggressive tax planning.