Certified inside directors and tax planning: international evidence

This study examines whether certified inside directors (CIDs) – non-CEO inside directors who simultaneously serve as independent directors in other firms – are associated with tax planning effectiveness. We propose that CIDs’ unique combination of firm-specific expertise and external board experience improves the development and implementation of efficient tax strategies. Using a sample of listed firms across 18 OECD countries, we find that firms with CIDs tend to pay lower taxes. Consistent with this result, CIDs are associated with tax optimisation strategies, including international income shifting. Additional analyses indicate that the effectiveness of CIDs is driven by the depth of their knowledge in the home firm, rather than by the breadth of their externally sourced communication experience. Notably, we find no evidence that these tax savings increase firms’ tax risk exposure.