Impact of Increased Tax Disclosure Requirements on Corporate Tax Avoidance: Evidence from Australian Firms

Abstract

The Australian Accounting Standards Board (AASB) Interpretation 23 requires companies to recognise and disclose liabilities for uncertain income tax positions based on the most likely amount and the expected value methods, and to assume tax authorities have full knowledge of reported information. This study investigates the impact of AASB Interpretation 23 on corporate tax avoidance in Australia. It also examines how this interpretation affects the tax avoidance of firms that engage in aggressive transfer pricing and use tax havens. The final sample consists of 200 publicly listed Australian firms over the 2014–2020 period (i.e. 1,400 firm-years). AASB Interpretation 23 is expected to limit firms’ discretion through the prescribed methods and consequently enhance tax transparency. Therefore, this study hypothesises that corporate tax avoidance has reduced after the adoption of AASB Interpretation 23, and that, in particular, the use of uncertain tax positions (e.g. through high tax haven use and aggressive transfer pricing) has decreased. However, the study’s regression results do not show that (i) AASB Interpretation 23 has reduced the tax avoidance behaviour of Australian companies or that (ii) companies using aggressive transfer pricing and tax havens have decreased their tax avoidance behaviour after adopting this interpretation. Show more