Book-tax differences and tax noncompliance : evidence from a transitional economy

Document Type


Source Publication

American Accounting Association 2007 Annual Meeting

Publication Date



In this study, we demonstrate that as the level of book-tax conformity decreases, tax noncompliance increases and the association between book-tax differences and tax noncompliance loosens. The context of our study is the recent change in a major transitional economy from a tax-based accounting system towards the adoption of international accounting standards. Prior to the change, corporate incentives to commit tax noncompliance are constrained by financial reporting costs, and any excess of book income over taxable income can be treated by tax authorities as a potential indicator of a firm’s aggressive tax behavior. After the change, book-tax differences can indicate both the legitimate difference in regulations and opportunistic behavior in financial and tax reporting. Our results contribute to the current policy debate in the U.S. about the linkage between book-tax differences and tax noncompliance.



Recommended Citation

Chan, K. H., Lin, K. Z., & Mo, P. L. (2007, Aug). Book-tax differences and tax noncompliance: Evidence from a transitional economy. Paper at American Accounting Association 2007 Annual Meeting, Chicago.

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