Disclosure of tax risk in financial statements: The case of banks in the Republic of Serbia

Abstract

An increasing number of companies has been paying attention to tax risk in the last decade. Tax risk may arise as a result of unintentional employee mistakes when calculating tax burden, but also as a result of implementation of risky tax avoidance strategies. Research in this paper is conducted in order to study the determinants of disclosure of tax risk in banks in the Republic of Serbia. Therefore, the research captured twenty-six banks in the period between 2018 and 2020. Results show that most banks disclose information on tax risk, though they are only formal and generalized. In addition, there is identified a significant number of banks that disclose the information on tax risk in a similar manner. Logit and probit regression models showed that less profitable banks and those with lower corporate income tax burden disclose more information on tax risk. Banks that are majority domestically owned also disclose more information on tax risk. In addition, research results are robust to important changes of the research model. Research results may be of interest to many interest groups, in particular to banks' management and employees in the financial reporting sector, national tax authorities, auditors of financial statements and national bodies for accountants' certification.