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Article

Florence Depoers and Tiphaine Jérôme

International Accounting Standard (IAS) 12 requires the disclosure of a tax reconciliation (TR). The purpose of the TR is to explain the differences between the corporate…

Abstract

Purpose

International Accounting Standard (IAS) 12 requires the disclosure of a tax reconciliation (TR). The purpose of the TR is to explain the differences between the corporate effective tax expense and the corporate theoretical tax expense. In this paper, the authors investigate which institutional pressures influence the level of disclosure of the TR.

Design/methodology/approach

The study draws on an empirical archival approach in which the level of disclosure is first measured and then associated with institutional pressures. The sample comprises 120 companies listed on the Paris stock exchange, i.e. a highly institutionalized setting.

Findings

The findings show a wide variation in the level of disclosure of the TR across the sample and that all three types of isomorphism (coercive, normative and mimetic) are associated with disclosure.

Research limitations/implications

The paper deals exclusively with TR given its importance to a wide range of users. Additional tax information available in annual reports, most of the time at an expert level, may be the subject of further research.

Practical implications

The results have important implications for standard setters, regulators, and practitioners as the research outlines the institutional pressures at work in corporate reporting policies and pushes forward the debate on fiscal transparency.

Originality/value

This paper documents the influence of institutional pressures on the level of the TR disclosure at a country level. It contributes to the literature on corporate tax disclosure which mainly focuses on differences across countries. An innovative ad hoc index is used to measure information completeness.

Details

Journal of Applied Accounting Research, vol. 21 no. 1
Type: Research Article
ISSN: 0967-5426

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Article

Mahfoudh Hussein Mgammal

This paper aims to examine the impact of corporate tax planning (TP) on tax disclosure (TD). Using tax expenses data set, with the detailed effective tax rate (ETR) by…

Abstract

Purpose

This paper aims to examine the impact of corporate tax planning (TP) on tax disclosure (TD). Using tax expenses data set, with the detailed effective tax rate (ETR) by reconciling individual items of income and expenses.

Design/methodology/approach

A firm-level panel data set is used to analyse 286 non-financial listed companies on Bursa Malaysia that spans the period 2010-2012. Multivariate statistical analyses were run on the sample data. The empirical understanding of TD depends on public sources of data in the financial statement, characterized in the aggregated note of tax expenses. Fitting with Malaysian environment, the authors measured TD using modified ETR reconciling items.

Findings

Results show that TP, exhibit a robust positive influence on TD. This suggests that TP is related to lower corporate TD. In addition, companies with high TP attempt to mitigate the disclosure problem by increasing various TD. The authors further find significant positive impact between each of firm size and industry dummy, on TD. This means that company-specific characteristics are significant factors affecting corporate TD.

Research limitations/implications

This study contributes to the literature on the effect of TP on TD. It depends on both the signalling theory and the Scholes–Wolfson framework, which are the main theories concerned with TP and TD. Therefore, from a theoretical side, the authors add to the current theories by verifying that users are the party influenced whether positively or negatively, by the extent of TD or the extent of TP activities through Malaysian organizations.

Practical implications

The evidence found in this paper has important policy and practical implications for the authorities, researchers, decision makers and company managers. The findings can provide them some relevant insights on the importance of TP actions from companies’ perspective and contribute to the discussion of who verifies and deduces from TD directed by companies.

Originality/value

This paper originality is regarded as the first attempt to examine the impact of TP on TD in a developing country such as Malaysia. Malaysian setting is an interesting one to examine because Malaysia could be similar to other countries in Southeast Asia. Results contribute significant insights to the discussion about TD regarding, which parties are responsible for the verification of TD by firms, and which parties benefit from this disclosure. Findings suggest that companies face a trade-off between tax benefits and TD when selecting the type of their TP.

Details

Meditari Accountancy Research, vol. 28 no. 2
Type: Research Article
ISSN: 2049-372X

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Book part

Raquel Meyer Alexander, LeAnn Luna and Steven L. Gill

Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001…

Abstract

Section 529 college savings plans are tax-favored investment vehicles, which saw tremendous growth after the Economic Growth and Tax Relief Reconciliation Act of 2001 expanded 529 plan benefits to include tax-free distributions for qualified higher education expenses. However, regulators, the press, and fund advisors criticized the Section 529 college savings plan industry for inadequate and nonuniform disclosures of investor information, such as historical returns, fees, taxes, and underlying investments. We investigate consumers’ investment choices after a disclosure regime change in 2003 and find that after enhanced disclosures became widely available, investors selected fewer plans offered exclusively through brokers, increasingly chose portfolios based on past investment performance, but remained unresponsive to state tax benefit disclosures. We also analyze the plans’ performance and find evidence that 529 investors are constrained to invest in portfolios with high, return-eroding fees. Nearly 20 percent of the portfolios have a statistically significant negative alpha, the measure of risk-adjusted excess return, while less than 1 percent have a statistically significant positive alpha.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78560-277-1

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Book part

Stephanie Walton and Michael Killey

This study examines the impact of expanded geographical disclosures on nonprofessional investor judgments. Public country-by-country reporting (CBCR) is a way to increase…

Abstract

This study examines the impact of expanded geographical disclosures on nonprofessional investor judgments. Public country-by-country reporting (CBCR) is a way to increase corporate transparency, enhancing tax fairness and accountability (European Commission, 2016). Public disclosure would make large multinational companies share information about profits, taxes paid, and number of employees on a per-country basis. However, it is unclear whether nonprofessional investors would even use CBCR and how they would interpret the information. Adding to the policy debate on whether publicly available country-by-country information will be properly used, this study employs an experimental design to investigate the effect of disclosure availability and content on nonprofessional investor judgments. We find that participants receiving an expanded disclosure are able to more accurately assess the state of the social contract between the organization and society, imposing sanctions if necessary. Exploring CBCR provides timely evidence to regulators, standard setters, and tax fairness campaigners on the impact of expanded geographical disclosures as a means of increasing transparency and improving competitiveness.

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Article

Mahfoudh Hussein Mgammal, Barjoyai Bardai and Ku Nor Izah Ku Ismail

This paper aims to examine the impact of corporate governance internal mechanisms on tax disclosure in non-financial firms in Malaysia. Managerial ownership and incentive…

Abstract

Purpose

This paper aims to examine the impact of corporate governance internal mechanisms on tax disclosure in non-financial firms in Malaysia. Managerial ownership and incentive compensation are used as proxies to reflect corporate governance conduct.

Design/methodology/approach

This study uses panel data set to analyse 286 non-financial listed companies on Bursa Malaysia for the years 2010-2012. Tax disclosure was gathered from the financial statements, particularly in the consolidated of tax expenses. Tax disclosure was measured using modified effective tax rate reconciling items. Multivariate statistical analyses were run on the sample data.

Findings

This study finds that managerial ownership and incentive compensation do not significantly influence tax disclosure. On the other hand, it is found that there are significant positive associations between each of firm size and industry dummy, and tax disclosure. This means that company-specific characteristics are important factors affecting corporate tax disclosure.

Research limitations/implications

This study extends the work of previous studies by suggesting that the signalling theory and the agency theory are the main theories concerned with tax disclosure and corporate governance. The authors add an additional appreciation of the contribution of corporate governance from the interested parties’ tax disclosure evaluation in the Malaysian environment.

Practical implications

The evidence found by this study has important policy and practical knowledge implications for the authorities, researchers, decisionmakers and firm managers. The findings provide them with some relevant insights on the importance of corporate governance practices from the companies’ perspectives and contribute to the discussion of who verifies and deduces from tax disclosure directed by companies.

Originality/value

To the best of the authors’ knowledge, this study is the first attempt to examine the influence of the corporate governance internal mechanisms on tax disclosure in a developing nation like Malaysia. Although this paper focuses on a single country, it contributes significantly to the debate about tax disclosure in relation to “comply or explain”, as suggested in the Code of Corporate Governance. This study shows that companies are trying to avoid as far as possible disclosing tax-related information.

Details

Corporate Governance: The International Journal of Business in Society, vol. 18 no. 5
Type: Research Article
ISSN: 1472-0701

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Article

Kim Mear, Michael Bradbury and Jill Hooks

This study aims to compare the value relevance of the recognised deferred tax elements under International Accounting Standard 12 (IAS 12): Income Taxes (balance sheet…

Abstract

Purpose

This study aims to compare the value relevance of the recognised deferred tax elements under International Accounting Standard 12 (IAS 12): Income Taxes (balance sheet method) relative to the taxes payable (flow through) method. It also investigates the value relevance of the IAS 12 deferred tax disclosures.

Design/methodology/approach

This study used standard valuation models to examine the association between share price and the recognised amounts and footnote disclosures of IAS 12. The Vuong (1989) test is then used to assess which information set is more value relevant. The sample includes 440 firm years over the period 2008-2012.

Findings

The results show that deferred tax amounts recognised under the balance sheet method provide no more information to investors than the taxes payable method (TPM). Deferred tax footnote disclosures, however, are more relevant than the amounts recognised under the balance sheet method. This study investigates potential reasons for the relevance of footnote disclosures.

Research limitations/implications

This study has not addressed whether the deferral method of deferred tax is relevant. In addition, while footnote disclosures look promising, further research is necessary.

Practical implications

The results suggest, given the complexity and cost of compliance with IAS 12, that the International Accounting Standards Board (IASB) should undertake a comprehensive re-think on the relevance of the balance sheet method in IAS 12 and revert to the TPM.

Originality/value

The IASB and the European Financial Reporting Advisory Group have expressed concerns over the balance sheet method under IAS 12. The IASB and the Financial Accounting Standards Board also have concerns over the cost and complexity of the deferred tax disclosures. The study’s results offer a perspective by examining whether the balance sheet method is value relevant. Prior research has addressed this issue using local data (i.e. pre-International Financial Reporting Standards). This study also provides suggestions for future research into deferred tax footnote disclosures.

Details

Pacific Accounting Review, vol. 32 no. 1
Type: Research Article
ISSN: 0114-0582

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Article

George D. Sanders and Robert W. Ingram

Two competing hypotheses have been developed in the public economics literature to explain the growth of government spending. The first, termed the fiscal illusion…

Abstract

Two competing hypotheses have been developed in the public economics literature to explain the growth of government spending. The first, termed the fiscal illusion hypothesis, holds that governments have incentives to induce a misperception in the population about the cost of government. By constructing complex systems of taxation that obscure the true cost of government services, governments can lead the taxpayer to demand a larger quantity of services. The other hypothesis, the fiscal stress hypothesis, holds that tax complexity diversifies revenues, leading to less revenue variability and, hence, lower costs. Taxpayers, then, demand more government services. The two hypotheses make very different assumptions about the incentives of governments in regard to an informed electorate. The fiscal illusion hypothesis suggests incentives to obscure information, while the fiscal stress hypothesis suggests incentives to reveal true costs.

Accounting and financial reporting can play a role in revealing fiscal information to taxpayers, directly or indirectly, through information intermediaries. If the fiscal illusion hypothesis describes the behavior of governments, we would expect that such governments would attempt to protect the information advantage that is conveyed by a complex tax structure by minimizing accounting disclosures. On the other hand, the fiscal illusion hypothesis suggests that a government with a complex tax structure has no reason to minimize disclosure, and may have incentives publicize lower service costs.

This study examines the association of tax complexity and financial disclosure. We find that there is more disclosure in cities with more complex tax systems, a result that supports the fiscal stress hypothesis.

Details

Journal of Public Budgeting, Accounting & Financial Management, vol. 6 no. 4
Type: Research Article
ISSN: 1096-3367

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Article

Mahfoudh Hussein Mgammal

The purpose of this study is to examine the impact of tax planning (TP), which measured by the component of tax saving (TS), namely, permanent differences (PDs), temporary…

Abstract

Purpose

The purpose of this study is to examine the impact of tax planning (TP), which measured by the component of tax saving (TS), namely, permanent differences (PDs), temporary differences (TDF), foreign tax rates (FTRs) differentials and tax losses (TLOS) on tax disclosure (TD).

Design/methodology/approach

This study uses panel data set from sample consisted of 286 non-financial listed companies in the main market of Bursa Malaysia (formerly known as Kuala Lumpur stock exchange) for three years 2010-2012. The empirical understanding of TD depends on publicly source of data in the financial statement, characterized in the aggregated note of tax expenses. TD was measured using modified effective tax rate reconciling items, as it is appropriate in the Malaysian environment. The paper uses multivariate statistical analyses on this sample.

Findings

The empirical results of the multivariate regressions indicated that TD exhibits significant positive association with the TLOS component of TS but has significant negative relationship related to the PDs component of TS and TDFs component of TS.

Research limitations/implications

This study extends the prior-related literature by examining the relation between TD and component of TS. This study depends on both the signaling theory and the Scholes–Wolfson framework. These are the main theories concerned with TD and TP (TSs), respectively. Therefore, from a theoretical side, the authors adds to the current theories by verifying that users are the party influenced whether positively or negatively, by the extent of TD or the extent of activities of TP through Malaysian organizations.

Practical implications

The evidence found by this study has important policy and practical knowledge implications for a minimum of three parties, namely, authorities, researchers in academic field and decision-makers and firm managers. The findings can provide them some relevant insights on the importance of TS actions from companies’ perspective and contribute to the discussion of who verifies and deduces from TD directed by companies.

Originality/value

This study is regarded as the first attempt to examine the impact of the component of TS, namely: PDs, TDFs, FTRs differentials and TLOS on TD in a developing nation such as Malaysia. In spite of this paper focuses on a single country, it contributes significant insights to the debate about TD.

Details

Pacific Accounting Review, vol. 31 no. 4
Type: Research Article
ISSN: 0114-0582

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Article

Marta De la Cuesta-González and Eva Pardo

The purpose of this paper is to explore the emerging discourse on corporate taxation from a corporate social responsibility perspective to develop a consensual definition…

Abstract

Purpose

The purpose of this paper is to explore the emerging discourse on corporate taxation from a corporate social responsibility perspective to develop a consensual definition of corporate tax responsibility (CTR) and to identify a set of indicators that firms should publicly communicate to their stakeholders as an accountability mechanism.

Design/methodology/approach

Data were obtained from semi-structured interviews with representatives of stakeholders closely related to taxation: tax authorities, companies, NGOs, tax advisors and academics. Based on a discourse analysis approach, data were coded and analyzed using computer-assisted qualitative data analysis software.

Findings

CTR is defined as the set of tax-related practices and policies that allow companies to pay a fair share of taxes as a function of the generated value in each jurisdiction in which they operate and to then publicly disclose them. Disclosure should cover disaggregated quantitative data and information on practices and policies.

Originality/value

Despite the wealth of research on sustainability reporting and increasing public awareness of tax aggressiveness and disclosure, academic research has not explored tax-responsible reporting. Moreover, no consensual definition of CTR has been formulated, and no indicators to properly account for responsible taxation have been identified. This paper contributes to filling these gaps by providing rich interview evidence regarding the nature of the emerging discourse on CTR reporting and a set of material indicators for CTR disclosure. This paper encourages researchers to foster the development of social accountability by engaging in future empirical studies of CTR.

Details

Accounting, Auditing & Accountability Journal, vol. 32 no. 7
Type: Research Article
ISSN: 0951-3574

Keywords

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Book part

Paul N. Tanyi, J. Philipp Klaus and Hughlene Burton

We examine the relationship between tax-related accounting misstatements and changes in the uncertain tax benefits accrual account in the year of the disclosure of a…

Abstract

We examine the relationship between tax-related accounting misstatements and changes in the uncertain tax benefits accrual account in the year of the disclosure of a misstatement. We find that the disclosure of a tax-related misstatement is associated with an increase in unrecognized tax benefits during that year. We show that the increase in unrecognized tax benefits in the year of disclosure is from uncertain tax positions taken in prior periods. Overall, this finding is consistent with increase in financial reporting conservatism upon disclosure of tax-related accounting misstatement.

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