Did the Adoption of IFRS Affect Corporate Tax Avoidance?

Authors

Oliver Nnamdi Okafor
Akinloye Akindayomi, The University of Texas Rio Grande Valley
Hussein Warsame

Document Type

Article

Publication Date

12-27-2019

Abstract

This article investigates whether the adoption of international financial reporting standards (IFRS) affected corporate tax avoidance in Canada. Based on a 3,200 firm-year data set of 400 publicly listed Canadian firms that adopted IFRS and 400 listed US firms, matched one-to-one using propensity score matching, the authors’ regression results show that IFRS adoption was followed by a decrease in corporate tax avoidance in Canada, at least in the short run. The study finds a significant increase in cash tax paid in the post-adoption period by Canadian firms that adopted IFRS compared to US firms that used US generally accepted accounting principles. Additional regression results based on a small control sample of Canadian firms that did not adopt IFRS present collaborative evidence. The authors further test specific taxpayer attributes and accounting issues identified in Canada Revenue Agency internal memorandums—in particular, concerns that the adoption of IFRS may increase the risk of tax avoidance. While the authors find evidence that the IFRS firms that engaged in accrual management paid more taxes in the post-adoption period, their analysis provides no evidence of statistically significant relationships between IFRS adoption and tax avoidance associated with revenue management, ownership of foreign operations, industry membership, profitability, or impairment losses or writeoffs. Taken together, the authors’ findings present preliminary but strong empirical evidence that IFRS adoption is associated with a decrease in corporate tax avoidance, at least in the short run.

Comments

© 2019 Canadian Tax Foundation. Original published version available at https://doi.org/10.32721/ctj.2019.67.4.okafor

Recommended Citation

Okafor, Oliver Nnamdi, Akinloye Akindayomi, and Hussein Warsame. “Did the Adoption of IFRS Affect Corporate Tax Avoidance?” Canadian Tax Journal/Revue Fiscale Canadienne 67, no. 4 (December 27, 2019): 947–79. https://doi.org/10.32721/ctj.2019.67.4.okafor.

First Page

947

Last Page

979

Publication Title

Canadian Tax Journal

DOI

10.32721/ctj.2019.67.4.okafor