Accounting for Income Tax Uncertainty and Corporate Tax Avoidance: International Evidence

Description

The International Financial Reporting Interpretation Committee (IFRIC) 23 stipulates firms to recognize and measure uncertain tax treatments to increase transparency and comparability in reporting firms’ tax position. Under this interpretation, firms must assume that tax authorities have full knowledge of the tax information reported in the financial statements. Audit probability assumption and explicit guidelines are expected to limit firm’s discretion in avoiding their taxes. I examine the effect of IFRIC 23 on corporate tax avoidance and whether the effect varies to avoider and non-avoider firms across 51 countries. Overall, I find that, compared to non-IFRS firms, IFRS firms experienced a reduction in cash-based tax avoidance after the IFRIC 23 implementation. I also document that the effect differs among avoiders and non-avoiders. Compared to non-avoiders, avoider firms become less aggressive in the post IFRIC 23 adoption. Moreover, domestic firms respond more strongly to the interpretation than multinational firms.

Period	20 Dec 2023
Event title	Virtual Doctoral Tax Seminar
Event type	Seminar
Degree of Recognition	Regional