The Relation between Tax Avoidance and Voluntary Disclosures of Taxation─An Empirical Analysis of Listed Firms in United Kingdom

Prior literature provides little evidence on the relationship between corporate tax avoidance and voluntary disclosures of taxation. Among various related theories about voluntary disclosure, this study adopts socio-political theories based on the characteristics of tax avoidance. To reduce the noise generated from sources of involuntary disclosure, this study focuses on the tax-related information disclosed in standalone corporate social responsibility reports, applying content analysis to develop the voluntary disclosure index of taxation. Using a sample of listed corporations in United Kingdom during 2010-2014, the empirical results reveal a positive association between corporate tax avoidance and voluntary disclosures of taxation, in support of socio-political theories. The results imply that in order to legitimate tax avoidance or alleviate the increase in the political and reputation cost induced by public concerns, business voluntarily disclose more tax-related information to meet or alter societal expectations. In view of the inference that Governments and shareholders have already relied on the tax-related information provided from annual reports, financial reporting or tax returns data, business could increase more but not unambiguous voluntary disclosures of taxation to prevent regulatory scrutiny.