Tax Rate Divergence

Calculate the tax rate divergence, which measures the difference between the cash tax rate and the accrual-based effective tax rate.

A persistently positive divergence indicates the company is paying more in cash taxes than it is recognizing as tax expense (e.g. due to the reversal of deferred tax liabilities), while a persistently negative divergence indicates the opposite and can be a quality-of-earnings red flag if it stems from aggressive tax deferral rather than timing differences.

The formula is as follows:

Also known as: cash-accrual tax gap.

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Calculate the Tax Rate Divergence in Python

The Tax Rate Divergence is available in the Ratios module of the open-source Finance Toolkit. Install it with:

pip install financetoolkit -U

Then call get_tax_rate_divergence as shown below.

from financetoolkit import Toolkit

toolkit = Toolkit(["AAPL", "TSLA"], api_key="FINANCIAL_MODELING_PREP_KEY")

tax_rate_divergences = toolkit.ratios.get_tax_rate_divergence()

Which returns:

Parameters

get_tax_rate_divergence accepts the following parameters:

• rounding (int, optional): The number of decimals to round the results to. Defaults to 4.
• growth (bool, optional): Whether to calculate the growth of the ratios. Defaults to False.
• lag (int | str, optional): The lag to use for the growth calculation. Defaults to 1.
• standardize (bool, optional): Whether to standardize (Z-Score) the result. When combined with growth=True, standardizes the growth values instead of the raw values. Defaults to False.
• trailing (int): Defines whether to select a trailing period. E.g. when selecting 4 with quarterly data, the TTM is calculated.

Related Profitability Ratios

The Ratios module page introduces the module, and the sidebar lists all of its functions.