TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, January 6, 2017

Weekly SSRN Tax Article Review And Roundup

This week, Erin Scharff (ASU) reviews a new paper by Jeffrey L. Hoopes (UNC), Leslie A. Robinson (Dartmouth), and Joel B. Slemrod (Michigan), Public Tax-Return Disclosure.

Scharff (2017)Calls for corporations to pay their fair share of taxes assume that corporations aren’t ponying up the way they should. But when it comes to individual companies, it can be hard to know what they are paying at all.

As a step toward reforming the system, reformers have called for increasing the public disclosure of corporate tax-return information. Jeffrey Hoopes, Leslie Robinson, and Joel Slemrod suggest reformers hope disclosure will achieve two goals. First, making this information public might limit tax evasion. Second, such disclosures might also provide information useful to investors.

As a result of reforms enacted in 2013, the Australian Tax Office (ATO) began releasing tax-return data (total income, taxable income, and tax payable) for about two thousand of Australia’s largest firms, as defined by income in 2015. The initial disclosures were all released on two specific dates. For large multinational corporations and Austrialian-owned public corporations, the ATO released tax information on December 17, 2015.

To evaluate consumer responses, the study used survey data from both a private survey of consumer attitudes and their own TurkPrime study on both sides of this disclosure date. The authors conclude that consumers have, at least a short term, negative response to companies subject to disclosure, but that this negative response is not conditioned on the actual taxes paid by the firm.

To evaluate investor responses, the study looks at fluctuations in stock price as a result of both the enactment of the disclosure requirements and the disclosures themselves. Price changes suggest that investors believe disclosure will be costly for firms, though it is unclear whether this cost is as a result of real information being released to competitors or fear of future reforms increasing corporate tax liability.  

Working with data provided to them by the ATO, the authors also try to determine whether disclosure increases taxes paid. Their analysis suggests it is “unlikely that there is any significant effect of disclosure on the amount of tax aid, conditional on firms having a positive tax liability.” The ATO data did support previous research suggesting that those potentially subject to disclosure alter behavior to avoid disclosure requirements. The ATO data suggested that disclosure avoidance was more common among private firms, who may more easily have shuffled income between related entities to ensure that all group members fell below the reporting threshold. As the authors note, such efforts suggest the firms themselves also perceive disclosure as costly.

This evidence rebuts any notion of disclosure as a panacea to corporate income tax evasion, but few supporters of disclosure regimes would suggest that anyway. As the authors acknowledge, the short-term nature of the study does not allow them to observe whether the disclosure law might change long-term trends. And the study also can’t conclude much about another potential goal of reformers. By highlighting corporations paying zero income tax, some reformers hope to push forward other reforms designed to curb aggressive tax planning and evasion, but such efforts take time.  

The authors also don’t evaluate another potential objective of disclosure, the hope that the exchange of information that will allow more effective enforcement by tax authorities themselves. A study of the Australian disclosure regime necessarily tells us relatively little about the potential for multinational disclosure to improve enforcement.

Nevertheless, this study is an important step forward in helping policymakers understand what disclosures can and cannot accomplish.  

Here’s the rest of this week’s SSRN Tax Roundup:

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