Public Tax-Return Disclosure
by Jeffrey Hoopes, Leslie Robinson and Joel Slemrod, 18 April 2018
Our study provides the most comprehensive empirical analysis to date of the multiple effects of publicly disclosing business tax-return information, which continues to be an active policy issue around the world.
The findings suggest that there can be private costs to disclosure even for firms that are obeying the tax law. For instance, we find that disclosure of a zero tax liability without any context in which to interpret and understand the reason likely leaves some firms who are not evading taxes in a situation where they experience negative consumer, investor, or policy attention.
However, while we find negative responses to the tax disclosures we examine, the magnitude of the responses is relatively small. These findings are important for policymakers to consider in the design of disclosure rules.
There is currently widespread public and political pressure for action to limit perceived harmful tax practices by businesses. One response to this pressure has been to increase the amount of information available to taxing authorities for enforcement, while another is to improve accountability and compliance via mandatory tax disclosure to the public.
The latter response is of particular concern to firm managers, fearing that the private costs of tax-related public disclosure will outweigh the benefits. For instance, it can potentially create compliance burdens, divulge sensitive information, generate confusion about company behavior, and impose unwarranted reputational damage on firms. Although more transparency results in potential costs that must be weighed against the perceived benefits, policy discussions generally proceed in a near-absence of evidence about its potential impacts.
Our study seeks to fill this void by considering the recent case wherein the Australian Taxation Office (ATO) disclosed firm-level data from Australian company tax returns, including income and taxes payable, for many listed and private firms. Due to the late nature of a private-company amendment, the first report (December 2015) included 1,538 Australian listed and foreign-owned private companies, while the second (March 2016) included 321 Australian-owned private companies. We analyze a variety of potential effects, focusing on changes in firm behavior, consumer sentiment, and investor responses.
Read the full article at Austaxpolicy blog.