Do managers increase tax disclosure when corporate tax avoidance is high?

Abstract

This paper aims to assess whether firms tend to increase tax disclosure when the level of tax avoidance is higher. The paper proposes a new index based on hand-collected data from annual reports of firms listed on eight European stock exchanges, which made it possible to distinguish between mandatory and voluntary tax disclosures. The empirical results show that firms engaged in greater tax avoidance disclose more mandatory information regarding income tax, while they do not disclose voluntary tax-related information when corporate tax avoidance increases. Our results also highlight that IAS 12 does not inhibit firms from following different disclosure practices, as significant variability among countries was found. Stricter lookup tables may shape the variability in tax disclosures and may also limit tax avoidance practices to influence disclosure of mandatory information regarding income tax.