Tax Avoidance and Geographic Earnings Disclosure

54 Pages Posted: 27 Jun 2013

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Mark (Shuai) Ma

University of Pittsburgh - Accounting Group

Wayne B. Thomas

University of Oklahoma

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2013

Abstract

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.

Keywords: Tax Avoidance, Geographic Earnings Disclosure, SFAS 131, Schedule M-3, Research Design

JEL Classification: E62, F30, G30, G34, G38, H25, H26, M41

Suggested Citation

Hope, Ole-Kristian and Ma, Mark (Shuai) and Thomas, Wayne B., Tax Avoidance and Geographic Earnings Disclosure (June 25, 2013). Journal of Accounting & Economics (JAE), Forthcoming; Rotman School of Management Working Paper No. 2285110. Available at SSRN: https://ssrn.com/abstract=2285110

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Mark (Shuai) Ma

University of Pittsburgh - Accounting Group ( email )

United States

Wayne B. Thomas

University of Oklahoma ( email )

Michael F. Price College of Business,
307 W Brooks, Rm 212B
Norman, OK 73019
United States
405-325-5789 (Phone)
405-325-7348 (Fax)

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