Book-tax gap as a tool for the detection of anomalous corporate tax-sheltering behavior: The case of firms in the Philippine Stock Exchange

Date of Publication


Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Accountancy


Ramon V. Del Rosario College of Business




Awarded as best thesis, 2013

Defense Panel Chair

Herminigilda E. Salendrez

Defense Panel Member

Placido M. Menaje, Jr.
Rodiel C. Ferrer


Corporate tax-sheltering behavior has become increasingly important in the realm of auditing and financial reporting because of the possible financial and even legal ramifications of undisclosed tax sheltering behavior. Tax sheltering is normally viewed as value enhancing for corporations because of reduced tax liabilities but this is not always the case if done under questionable where managerial opportunism may be bred. With this in mind, this paper is two-fold.

Firstly, this paper develops a tool detecting anomalous levels of tax sheltering that may be utilized by an average auditor as an impetus for further investigation. This is done by empirically establishing acceptable levels of book-tax gap – a measure of tax sheltering and computed from companies reported financial information, through a non-parametric approach that uses the Wald's test. This is done per industry to account for the varying structures and natures of these industries that may result to inherently different book tax gaps. After detecting anomalous levels of book tax gaps, it is important to be able to advise the client accordingly to prevent future incidents. Therefore, the second part of this paper focuses on identifying explanatory variables for the book-tax gap, specifically those relating to corporate governance structure that can be readily adjusted by the management. A panel data approach using panel OLS with panel-corrected standard errors is used for this purpose.

We establish the aggregate standard threshold of book-tax gap and the different thresholds in each of the eight industries, and that the Financial, Mining and Oil, and Services industries consistently show higher levels of book-tax gap thresholds. As for the second part of the paper, the results of the economic analysis show that (1) independence of board of directors, (2) auditor identity, (3) group-affiliation, (4) family-affiliation, and (5) transparency are the corporate governance structures that affect corporate tax sheltering. These findings are recommended to be used in audit procedures to increase the probability of detecting anomalous tax-sheltering behavior and preventing it in the future.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

viii, 139, 3 unnumbered leaves ; 28 cm.

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