Tax Avoidance and Geographic Earnings Disclosure
University of Toronto - Rotman School of Management
Mark (Shuai) Ma
American University - Accounting
Wayne B. Thomas
University of Oklahoma - Michael F. Price College of Business
May 28, 2013
This study tests the relation between corporate tax avoidance and disclosure of geographic earnings for U.S. multinational companies. We find that after the adoption of Statement of Financial Accounting Standards No. 131 in 1998, firms opting to discontinue disclosure of geographic earnings in their financial reports have lower worldwide effective tax rates. These results are consistent with managers perceiving that non-disclosure of geographic earnings helps mask tax avoidance behavior. However, the relation between tax avoidance and non-disclosure reduces after implementation of Schedule M-3 in the annual corporate tax filing beginning in 2004. Schedule M-3 requires a detailed reconciliation of book income to tax income and aims to make firms’ tax avoidance activities associated with shifting profits to lower-tax foreign jurisdictions more apparent to the IRS. This study contributes to our understanding of the relation between financial reporting behavior and tax reporting behavior.
Number of Pages in PDF File: 54
Keywords: Tax Avoidance, Geographic Earnings Disclosure, SFAS 131, Schedule M-3, Research Design
JEL Classification: E62, F30, G30, G34, G38, H25, H26, M41
Date posted: March 14, 2012 ; Last revised: May 28, 2013
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