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We show that firms' ability to avoid taxes is greatly affected by the quality of the firm's internal information environment, with effective tax rates (ETRs) substantially lower for high internal information quality firms. Furthermore, we show that firms that experience an internal information quality improvement (reduction) are reducing (increasing) their ETRs. The effect of internal information quality on tax avoidance is strongest for firms in which information is likely to play a more important role. First, firms with high coordination needs because of their dispersed geographical or business industry presence benefit more from the reduced information asymmetry and improved information coordination between their various business units, allowing for more effective tax planning. Second, firms that are operating in a more uncertain environment are able to offset some of the negative effect of uncertainty on their ETRs through the quality of their internal information system. Because lower ETRs are obtained through better internal information quality, they do not come at the cost of increased risk in the tax positions taken: unrecognized tax benefits and ETR volatility are lower in high quality information environments.

We show that firms' ability to avoid taxes is greatly affected by the quality of the firm's internal information environment, with effective tax rates (ETRs) substantially lower for high internal information quality firms. Furthermore, we show that firms that experience an internal information quality improvement (reduction) are reducing (increasing) their ETRs. The effect of internal information quality on tax avoidance is strongest for firms in which information is likely to play a more important role. First, firms with high coordination needs because of their dispersed geographical or business industry presence benefit more from the reduced information asymmetry and improved information coordination between their various business units, allowing for more effective tax planning. Second, firms that are operating in a more uncertain environment are able to offset some of the negative effect of uncertainty on their ETRs through the quality of their internal information system. Because lower ETRs are obtained through better internal information quality, they do not come at the cost of increased risk in the tax positions taken: unrecognized tax benefits and ETR volatility are lower in high quality information environments.

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