Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transition economy

Abstract

We investigate whether a departure from a tax-based accounting system toward the adoption of International Financial Reporting Standards encourages tax noncompliance. We also examine whether such a departure, which weakens book-tax conformity, affects the informativeness of book-tax differences for tax noncompliance. Our evidence suggests that as book-tax conformity decreases, tax noncompliance increases. Although book-tax differences remain informative of tax noncompliance, the informativeness attenuates as book-tax conformity weakens. Additionally, firms with high incentives to inflate book income are more tax compliant than their counterparts after the departure from a tax-based accounting system

Fatores determinantes das book-tax differences

“…O ativo total tem sido empregado como proxy para medir o tamanho da empresa (Chan et al, 2010). Chan et al (2010) identificaram uma relação negativa entre o tamanho da empresa e a BTD, argumentam que grandes empresas tendem a obedecer mais aos regulamentos fiscais, porque são mais fiscalizadas pelos órgãos reguladores.…”

“…Chan et al (2010) identificaram uma relação negativa entre o tamanho da empresa e a BTD, argumentam que grandes empresas tendem a obedecer mais aos regulamentos fiscais, porque são mais fiscalizadas pelos órgãos reguladores. Assim, tem-se a oitava hipótese de pesquisa:…”

Government ownership, corporate governance and tax aggressiveness: evidence from China

“…Consistent with prior studies (e.g. Gupta and Newberry, 1997;Frank et al, 2009;Chan et al, 2010), we excluded finance and insurance firms because of their special financial reporting requirements. We deleted 1454 observations with missing data and 1337 observations with insufficient data to calculate measures of tax aggressiveness (i.e.…”

“…Capitalintensive (CAPINT) firms are more affected by the differences in accounting and tax treatments of depreciation. In China, after the adoption of IFRS, the significant increase in book-tax differences would lead to more scrutiny by tax authorities (Chan et al, 2010). To reduce the risk of being selected for tax audit, CAPINT firms may want to have a higher ETR.…”

“…To control for the effect of earnings management on a firm's tax aggressiveness, we include a dummy variable, RIGHTS, which equals to 1 if the firm applies for a rights offering in one of the next 3 years (Chan et al, 2010). Firms with a rights offering have more incentive to manage earnings to satisfy Chinese regulatory requirements.…”