Tax Avoidance & Firm Growth What follows in the next few pages is a review of whether there is a correlation between tax avoidance with corporations and firm growth. Indeed, looking at the literature reveals that the evidence is mixed but that the overall answer is a condition "yes," that there can indeed be a link between tax avoidance and firm growth. To explain the conditional nature of the answer garnered, one can look to the work of Desai, Foley and Hines (2006) when they assert that "firms with sizable foreign operations benefit the most from using tax havens, an effect that can be evaluated by using foreign economic growth rates as instruments for firm-level growth of foreign investment outside of tax havens" (Desai, Foley & Hines, 2006). They further state that "one percent greater sales and investment growth in nearby non-haven countries is associated with a 1.5 to 2% greater likelihood of establishing a tax haven operation" (Desai, Foley & Fritz, 2006). An alternating viewpoint offered by Desai and Dharmapala states that high levels of tax avoidance along with large book-tax gaps leads to subsequent "negative abnormal returns" on investment (Desai & Dharmapala, 2006).

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For example, investors in certain types of real estate investment trusts (REIT's) are able to pay no corporate income taxes on those investments so long as a substantial majority of the profits are paid out to investors. This fact alone would correlate to higher growth than if the REIT tax write-off was not present (Fisher, 2002). In that same vein, many firms make use of investments and tax shelters that are tax at the lower capital gains rate rather than corporate income rates, thus an automatic net gain in profits and growth in many cases (O'Neill, 2012). A similar example that shows that at least some forms of tax avoidance and/or in certain types of firms would be tax loopholes for domestic production activities. Firms that make use of those loopholes often realize very promising corporate growth rates in terms of profits, employee headcount and overall revenues (Coy, 2012).
Another example, albeit limited, where a firm can grow itself and reduce its taxes at the same time is what Burger King was pilloried for trying to do in 2014. It was discussed that they would merge with a…