Author: Marco Francesco Paolillo
Date: 21-11-2025

 

How Tax Transparency Can Create Business Value
In today’s complex fiscal environment, uncertainty about taxation can seriously affect a company’s financial stability and reputation. My research explores how cooperative compliance — a regime that promotes open dialogue and trust between companies and tax authorities — can actually increase a firm’s equity value.

The idea is simple: when businesses manage tax risks proactively and transparently, they reduce the chance of disputes and unexpected costs. This not only builds stronger relationships with tax administrations but also enhances investor confidence and long-term value.

In Italy, the Adempimento Collaborativo regime represents a major shift from traditional, adversarial tax controls to a preventive and cooperative approach. Companies that join must implement internal tax risk management systems and disclose potential risks early, in exchange for fewer audits and faster clarifications from the authorities.

Through both data analysis and a survey conducted with STS Deloitte, the research investigates whether such transparency-oriented governance can become a true competitive advantage. The findings suggest that cooperative compliance doesn’t just ensure fiscal conformity, it strengthens corporate reputation, lowers uncertainty, and helps transform tax management from a cost center into a source of sustainable value creation.

Research objectives and statistical method

The research had one main goal: to understand whether and how being part of the Cooperative Compliance regime can influence a company’s equity value. At the same time, we wanted to highlight the benefits of transparent and collaborative tax management, show how reducing tax risk can boost value creation, and underline the strategic advantages that come from adopting this model.

To sum up, the analysis aimed to verify whether firms engaged in cooperative compliance experience lower tax risk, and whether this greater stability is reflected in a higher equity value.

The study combines both qualitative and quantitative approaches. After defining the types of tax risk considered in the analysis — namely those related to tax disputes, internal errors, and provisions — I explored how tax risk interacts with financial valuation models such as the CAPM and DCF, which I later used to estimate the equity value of the companies analyzed.

However, the core of the research lies in the construction of the dataset.
The analysis covered the financial statements of 50 companies obtained from the AIDA database, and, where available, supplemented with financial reports published in the Investor Relations sections of the companies’ official websites: 25 participating in the Cooperative Compliance regime and 25 not participating. Each company was observed over a ten-year period (2015–2024), resulting in a total of 500 observations.

The dataset includes several control variables such as year, industry, and revenue, which had to be €750 million or higher, since this is the current threshold for companies or groups eligible to apply for the Adempimento Collaborativo regime. This threshold will be lowered to €500 million starting in 2026.

The main variables analyzed by the model were:

• a dummy variable indicating participation in the regime.
• Tax risk provisions (funds for potential tax liabilities).
• Expenses related to tax risks.
• The equity value, calculated through discounted cash flows using the cost of equity estimated via the CAPM model.

Key Insights from the Analysis

 

The first charts I would like to focus on show the percentage change in tax risk provisions and tax-related expenses before and after entering the Cooperative Compliance regime. As can be seen, most of the companies analyzed experienced a significant reduction in both indicators.

In the few cases where this did not occur, the reasons are quite straightforward: either the company created or increased a tax risk provision only after joining the regime, or it received tax assessments related to fiscal years prior to its entry.

Interestingly, this finding is consistent with the results of the survey conducted for STS Deloitte, which revealed that all tax disputes faced by companies after joining the regime referred to periods before their participation. In fact, most of the firms that entered the program between 2016 and 2018 have since eliminated their pending disputes with the tax authorities and benefited from reduced penalties.

This happens because the cooperative compliance framework enhances a company’s legal credibility: defending a business that adopts a robust Tax Control Framework and operates under the regime is entirely different from defending one without any structured tax risk management system. The former can easily demonstrate good faith and proactive compliance, while the latter often struggles to prove that it took adequate steps to avoid tax irregularities.

These two charts compare companies participating in the Cooperative Compliance regime with those not participating over the last three years. As we can see, firms within the regime show lower tax-related expenses and more prudent provisions compared to non-participating companies. The t-test performed on these variables confirms these findings: participating firms recorded tax risk expenses roughly €2 million lower and average provisions about €15 million higher than non-participants.

This evidence highlights a more cautious and strategic approach to tax risk management among companies operating under the Cooperative Compliance framework.

A multiple linear regression model was estimated, showing a satisfactory level of statistical significance, R² = 0.40. The results indicate that participation in the Cooperative Compliance regime is positively associated with equity value, while an increase in tax risk provisions tends to reduce it.

In the initial model, tax-related expenses unexpectedly displayed a positive correlation with equity value, contrary to theoretical expectations. To examine this anomaly, tests were conducted to verify multicollinearity and model linearity, both of which confirmed the robustness of the regression and excluded significant multicollinearity issues.

A logarithmic specification was subsequently applied to correct for the scale effect observed in the first model, allowing comparisons among firms of different sizes. The adjusted results confirmed the expected negative relationship between tax-related expenses and equity value, clarifying that the initial positive correlation was primarily driven by firm size, as larger companies tend to incur higher absolute tax-related costs.

Conclusions
The analysis shows that participation in the Cooperative Compliance regime is associated with a higher equity value, driven by reduced fiscal uncertainty and a more prudent approach to tax risk management.
From this research, cooperative compliance emerges not only as a tool that enhances transparency, stability, and trust among shareholders and stakeholders, but also as a genuine lever for value creation.

This study represents the first quantitative attempt to examine the relationship between cooperative compliance and equity value in the Italian context. Future research could expand the sample by including companies that will join the regime in the coming years and by introducing additional variables, such as the Effective Tax Rate (ETR), to explore the long-term effects of tax governance on firm value. An interesting future development would also involve an international comparison, to assess whether the observed effects hold true across different fiscal and regulatory environments.