Does Accounting for Taxes on Income Provide Information About Tax Planning Performance? - Evidence from German Multinationals

29 Pages Posted: 14 Nov 2006 Last revised: 26 Aug 2008

See all articles by Michael Overesch

Michael Overesch

Universität zu Köln

Ulrich Schreiber

University of Mannheim - Department of Business Administration and Taxation; Centre for European Economic Research (ZEW)

Date Written: November 2006

Abstract

This paper investigates the quality of information on tax planning performance which is provided by financial accounting based on IAS 12 (Income taxes). A simple theoretical investment model is used to show that reported tax expenses can be misleading as an indicator of tax planning performance, since timing effects of tax depreciations are suppressed. However, it is shown that IAS 12 provides meaningful information if tax planning strategies are driven by statutory tax rate differences, e.g. in the case of profit shifting. Our empirical analysis of actual tax planning behaviour, based on a panel of German balance sheet data, suggests that in practice international tax planning is significantly driven by statutory tax rates. However, we find that tax depreciation impacts on the size of investment as well and thus, IAS 12 does not fully disclose tax planning performance.

Keywords: International Taxation, Financial Accounting, Income Taxes, Firm-level Data

JEL Classification: G31, H32, M41

Suggested Citation

Overesch, Michael and Schreiber, Ulrich, Does Accounting for Taxes on Income Provide Information About Tax Planning Performance? - Evidence from German Multinationals (November 2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-072. Available at SSRN: https://ssrn.com/abstract=944767 or http://dx.doi.org/10.2139/ssrn.944767

Michael Overesch (Contact Author)

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

Ulrich Schreiber

University of Mannheim - Department of Business Administration and Taxation ( email )

D-68131 Mannheim
Germany
+49 621 181 1718 (Phone)
+49 621 181 1716 (Fax)

Centre for European Economic Research (ZEW)

D-68161 Mannheim
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
458
Abstract Views
1,677
rank
61,909
PlumX Metrics