From Tax Avoidance to Tax Compliance - Realities and Trends in Financial Reporting in Romania

Most of the financial and accounting empirical studies on Romanian companies analyse populations or samples of companies listed on the Bucharest Stock Exchange, either on the regulated market or on the alternative AeRo market. This study aims to analyse accounting data provided by unlisted companies and available on a portal of the Ministry of Public Finance (https://data.gov.ro/). These companies apply Romanian accounting standards (RAS). The authors calculated the effective tax rate (ETR) as the ratio of current income tax expense to profit before tax and used this indicator (following models already found in the literature) as a proxy for measuring the level of the corporate income tax avoidance. The main results show that, if the average ETR is used, there are almost no differences between the statutory rate and the effective one. However, intuitively, this result does not seem to characterize the Romanian economic environment very well, so in the present study was used the ETR-STR differential. The latter indicator shows a completely different situation, with significant differences between ETR and STR. This result confirms, to a certain extent that, at an individual level, the accounting income is very often far from the tax income, 2/3 of the observations being in situations characteristic for the application of tax avoidance techniques, with effective rates significantly lower than the statutory ones.