The effect of Accounting Conservative and Tax Income on Tax Avoidance

Conservatism and tax avoidance are among firm's policies that can be considered as tax incentives. Evidence suggests that conservatism is a common and accepted tool for reducing the tax income. By accepting and noticing this matter, some questions arise: which strategies are used by listed companies in Tehran Stock Exchange to reduce their tax income, And under circumstances that companies can reduce their tax income by using conservative accounting would their prefer to use another strategy for tax avoidance or not? This study examines the influence of Tax Income and Conservatism on Tax avoidance. Findings of investigation of 146 firms (1177 firm-years) listed in Tehran Stock Exchange in the 2002 to 2012 by unbalanced Panel model and OLS; suggest by 95% confidence level that relation between Tax Income and the Conservatism is negative and significant. This indicates that tax avoidance and conservatism is mutually exclusive instruments for tax reduction, so that conservatism is reduced by increasing the incentives for tax avoidance and vice versa. In addition, the negative relationship between average tax expression of three years and tax avoidance indicates that firms tend to be conservative and decline the profit for tax savings, rather than reduce their tax by tax avoidance.