Determinants of Voluntary Tax Disclosures and Consequences for the Value Relevance of Tax Positions

Abstract

I explore the determinants of voluntary tax disclosures and implications for the value relevance of financial statement tax items. Using a sample of Australian ASX300 firms that can voluntarily publish private tax information under the Australian Tax Transparency Code (TTC), I find that disclosing firms exhibit higher cash effective tax rates (cash ETRs) and report larger deferred tax assets and smaller deferred tax liabilities than non-disclosers. In addition, firms start voluntarily disclosing private tax information when facing persistently high cash ETRs, large deferred tax assets and small deferred tax liabilities. When excluding loss observations, the results suggest that firms begin disclosing after incurring higher tax expenses, which may signal profitability. Furthermore, I find a positive valuation effect of tax expense in firm years when private tax information is disclosed, supporting the notion that voluntary tax disclosure enhances the profitability signals inherent in tax expenses.

Keywords: Voluntary tax disclosure, disclosure theory, tax uncertainty, deferred taxes, value relevance

JEL Classification: M41, M48, H26