Corporate profiling of tax-malfeasance: a theoretical and empirical assessment of tax-audited Australian firms

Abstract

Tax avoidance and tax evasion represent serious breaches of corporate social responsibility which threaten a country’s revenue base. This study gathers these related issues under the umbrella term tax malfeasance. Using the annual reports of 203 firms over the 2006–2009 period, we find that firms that were audited by the Australian Taxation Office tend to exhibit values that significantly differed from those of non-audited firms, and those differences were linked to tax malfeasance via notions in Cressey’s (1950) fraud triangle. Our results show that firms who are prone to engage in tax malfeasance can be profiled and that such a profile may be a useful means to fairly and cost-effectively target tax audits.