Public Disclosure of Corporate Tax Return Information: Accounting, Economics, and Legal Perspectives

Abstract

This paper offers an overview of the issues raised by disclosure of corporate tax return information by providing cur- rent and historical perspectives from the fields of accounting, eco- nomics, and law. It reaches a number of conclusions. First, we are concerned that disclosure of the entire corporate tax return could cause companies to dilute the information content of these returns, hampering tax enforcement, and might, even in diluted form, re- veal proprietary information that could provide a competitive ad- vantage to those companies that are not required to make such a disclosure. For this reason we do not support full disclosure. The case for considering limited public disclosure of corporate tax return information—revealing a small number of bottom-line items or an expanded reconciliation between tax and book concepts of income—rests on the fact that it would contribute to the trans- parency of the tax system by clarifying the tax payments of corpora- tions in and of themselves, relative to other corporations, and rela- tive to the income they report on their financial statements. The greater transparency could have several beneficial effects. First, it could put pressure on legislators to improve the tax system. Second, it could induce corporations to resist aggressive tax reduction strat- egies if they fear that disclosure of their low tax payments would trigger a negative consumer response; whether it would provoke negative investor response is less clear, as more transparency could conceivably induce a race to the bottom of low tax liability. Finally, it could contribute to better functioning of financial markets if it sheds new light on the information presented in financial statements. We find the case for limited disclosure to be compelling enough that we look forward to the next step of considering the best form of disclosure and the details of its implementation.