Qualitative Disclosure as a Tax Enforcement Mechanism: Evidence from the U.K. Tax Strategy Disclosure Requirement

ABSTRACT In 2016, the U.K. passed a regulation that requires large businesses to publicly disclose their tax strategy. The U.K. regulator expects these qualitative disclosures to attract public scrutiny of firms’ tax practices, thereby pressuring firms to reduce tax avoidance. This study examines whether the U.K. tax strategy disclosure requirement has achieved this objective. Using a difference-in-differences design and a sample of U.K. publicly traded firms, I find evidence that is most compatible with the regulation not having a significant impact on firms’ tax avoidance. Inferences are similar when I focus on subsamples that are most likely to exhibit the intended behavioral changes using a series of cross-sectional tests within treated firms. Thus, the collective evidence is largely inconsistent with the regulation successfully curbing tax avoidance, which should inform regulators worldwide as they consider implementing similar disclosure regulations to combat corporate tax avoidance. Data Availability: Data in this study are obtained from public sources as identified in the paper. JEL Classifications: H20; H26; M41.