An examination of FIN 48 disclosures: The case of Korean companies

Abstract

FIN 48, Accounting for Uncertainty in Income Taxes, requires firms to evaluate uncertain tax positions and disclose information on their liabilities for these positions, unrecognized tax benefits. I analyze the FIN 48 disclosures for calendar-year-end Korean companies listed on NYSE and NASDAQ. In addition, I examine the Korean firms tax aggressiveness utilizing the unrecognized tax benefits. The results suggest that stock exchange and firm size do not play a role in the Korean firms tax aggressiveness and that the Korean firm in the miscellaneous retail industry is more tax aggressive than the firms in the communications, depository institutions and business services. Moreover, I find evidence that the Korean firms are less tax aggressive than the matched U.S. firms. I also examine the Korean firms tax avoidance tendencies using other measures of avoidance, leading to mixed results. Finally, I examine the association between the unrecognized tax benefits and other measures of tax avoidance and find a significant and negative association between the unrecognized tax benefits and the long-run cash effective tax rate.