Tax aggressiveness and the proportion of quantitative information in income tax footnotes

Abstract

Purpose This paper aims to analyse the determinants of the proportion of quantitative data in financial statement footnote disclosures. Quantitative data represents “hard” information and has been considered to be more persuasive than qualitative data. The primary focus is on income tax footnotes because revenue agents use them as a reference in tax audits, and citizen groups use them to analyse tax inequalities. This study posits that firms with lower effective tax rates (“tax aggressive” firms) disclose less quantitative data in their income tax footnotes. Design/methodology/approach The multivariate analysis uses data from the contents of income tax footnotes extracted from 10-K filings in eXtensible Business Reporting Language (XBRL). It uses the alphanumeric characters identified in the income tax footnotes to calculate the proportion of quantitative data relative to the entire footnote disclosure as the dependent variable in a multivariate regression analysis. Findings The findings show that firms which avoid more taxes disclose less quantitative data in income tax footnotes after controlling for the readability of the income tax footnotes and the entire annual report. Therefore, firms seem to reduce the publication of measurable data accessible to revenue agencies and citizen groups. Originality/value This analysis provides evidence that firms weigh the financial reporting requirements and tax audit risks when they disclose quantitative income tax data. Also, it supports the Financial Accounting Standards Board’s (FASB’s) proposal to require more disaggregated income tax disclosure. To the researcher’s knowledge, this is the first analysis that focuses on the determinants of disclosing quantitative data in income tax footnotes.

Disclosure em Notas Explicativas: Uma Revisão Sistemática

“…Nos demais países, percebe-se um foco das pesquisas primárias na avaliação da legibilidade, da similaridade e do tamanho das NE, conforme exposto na Tabela 5. Os trabalhos primários realizados nos Estados Unidos avaliaram: o nível de legibilidade em relação ao risco fiscal da empresa (Liu, 2021, Inger, Meckfessel, Zhou & Fan, 2018 e volume de informações com relação ao desempenho financeiro da entidade (Karim & Sakar, 2019). O primeiro estudo indica que empresas com maior risco fiscal tendem a divulgar menor quantidade de informações quantitativas sobre imposto de renda nas NE e com menor nível de legibilidade.…”

The effect of XBRL adoption on corporate tax avoidance: empirical evidence from an emerging country

“…Specifically, tax treaty shopping, debt shifting, tax deferral and transfer mispricing are all forms of tax avoidance (Baumann et al , 2020). Other forms include tax loopholes in regulations, revenue transfers by geographical area and tax havens (Jaafar and Thornton, 2015; Ftouhi and Ghardallou, 2020; Liu, 2021). In general, tax avoidance activities are the primary source of permanent differences, allowing a firm to reduce taxes payable while maintaining accounting profit (Ftouhi and Ghardallou, 2020).…”