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The persistence of book-tax differences

Wahab, Nor Shaipah Abdul and Holland, Kevin ORCID: 2015. The persistence of book-tax differences. British Accounting Review 47 (4) , pp. 339-350. 10.1016/

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Academic researchers and policy activists have used the difference between accounting income and estimated taxable income, commonly referred to as the book-tax difference (BTD) as a proxy of the unobservable level of corporate income tax planning. In drawing any policy implications from observed BTDs, an understanding of the sources of BTDs and their properties is important. In particular, identifying the degree of persistence or representativeness of an observed annual BTD is critical. To the authors' knowledge, this paper is the first to examine how BTDs and their components e.g. permanent differences, temporary differences and the effect of differences between UK and overseas statutory tax rate behave over time. The necessary data disclosed under IAS 12 Income Taxes (IASB, 2010) has only been systematically publicly disclosed in the UK since 2005. In summary, the results indicate that the degree of persistence is dependent on the nature of the BTD and that this variation in persistence itself varies by industry group. The most persistence component relates to differences between UK and overseas statutory tax rates with temporary differences being the least persistent, indicative of a non-earnings management motivation. Within industry groupings there is wide variation in the level of persistence. While 59.4% of the sample companies experienced only one change of sign BTD at most in the six year period, the balance of the sample had at least two changes.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > HJ Public Finance
Uncontrolled Keywords: Book-tax differences; Permanent differences; Temporary differences; Statutory tax rates differentials
Publisher: Elsevier
ISSN: 0890-8389
Date of First Compliant Deposit: 30 March 2016
Date of Acceptance: 6 June 2014
Last Modified: 06 Nov 2023 19:40

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