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Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transition economy

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  • Chan, K. Hung
  • Lin, Kenny Z.
  • Mo, Phyllis L.L.

Abstract

We investigate whether a departure from a tax-based accounting system toward the adoption of International Financial Reporting Standards encourages tax noncompliance. We also examine whether such a departure, which weakens book-tax conformity, affects the informativeness of book-tax differences for tax noncompliance. Our evidence suggests that as book-tax conformity decreases, tax noncompliance increases. Although book-tax differences remain informative of tax noncompliance, the informativeness attenuates as book-tax conformity weakens. Additionally, firms with high incentives to inflate book income are more tax compliant than their counterparts after the departure from a tax-based accounting system.

Suggested Citation

  • Chan, K. Hung & Lin, Kenny Z. & Mo, Phyllis L.L., 2010. "Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transition economy," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 58-73, May.
  • Handle: RePEc:eee:jaecon:v:50:y:2010:i:1:p:58-73
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    References listed on IDEAS

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    Cited by:

    1. De Simone, Lisa, 2016. "Does a common set of accounting standards affect tax-motivated income shifting for multinational firms?," Journal of Accounting and Economics, Elsevier, pages 145-165.

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