ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

A Study on the Relation between Book－Tax Differences before and after Tax Investigation and Tax Audit

  • Jung, Sungjin Myongji College
  • Sang-Lyul Ryu Dankook University

Asian Tax Journal Vol. 12 No. 4 (2011), pp. 307-338

Abstract

The purpose of this study is to test whether the book－tax earnings difference(BTD) before and after tax investigation increases the probability of tax audit and the tax amount collected in addition. Specifically, this study examines whether the higher BTD before tax investigation produces the higher probability of tax audit and therefore pays the higher additional tax. As a result of analysis, the following findings are obtained：First, the BTD before tax investigation had the high association with the tax amount collected in addition. That is the higher BTD before tax investigation causes the higher additional tax after tax investigation. Second, the higher BTD before tax investigation causes the higher probability of tax audit. Actually the BTD of tax－audited firms is more higher than the non tax－audited firms'. Third, the BTD of just before year of the tax audit is significantly associated with the probability be subject to a tax investigation. According to the results, we can guess that the National Tax Service considers the BTD of just before year of the tax audit. In light of these findings, it is judged that tax－audited firms do attempt tax avoidance by reducing taxable income in the tax－adjustment process. So the tax authorities should take into consideration the BTD before tax investigation to judge the compliance of the tax payment obligor and the company must weigh the degree of own BTD.

Keywords

  • Book－tax difference
  • tax audit
  • tax amount collected in tax audit

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