This study investigates the impact of mandatory public country-by-country reporting (CbCR) on European banks’ engagement in tax and regulatory havens characterized by financial secrecy. Employing a difference-in-differences approach, we find that following the introduction of CbCR, European banks reduced their number of tax haven subsidiaries by approximately one-third compared to insurers, which were exempt from the disclosure requirement. Further analysis reveals that this decline is primarily driven by withdrawals from economically insignificant “dot tax havens” and from countries that serve as both tax and regulatory havens. Additionally, we observe that banks with low exposure to reputational risk prior to the reform are more likely to reduce their presence in bank havens. These results reveal that public CbCR prompts withdrawals from low-tax locations but only under specific conditions. Public CbCR curtails tax haven presence when both financial secrecy and reputational concerns are at play, but on its own may not curb tax haven use. These insights contribute to ongoing tax policy debates by highlighting the limitations and conditional effectiveness of transparency-driven regulations.

This study examines the association between state owners’ monitoring incentives and the tax planning activities of state-owned enterprises. We distinguish between state owners that directly benefit from state-owned enterprises’ income tax payments and those that do not. In our empirical tests, we exploit the variation of state ownership in Germany, making our findings generalizable to other market economies. Our results indicate that state ownership is not associated with less tax planning unless the state owner directly benefits from higher tax payments. We also provide evidence that this effect translates to higher tax revenues at the municipality level. Our results are robust to various specifications and suggest that shareholders’ monitoring incentives are a determinant of a firm’s tax planning activities.

ABSTRACT We analyze the implications of including fair value changes in taxable income on banks’ asset allocation and risk taking. Exploiting variation in fair value tax regimes and tax rates across 27 countries from 2010 to 2018, we find that fair value taxation is associated with banks’ investment portfolio choices and risk taking. On average, banks hold fewer fair-value taxed securities when fair value taxes increase. This effect is pronounced for savings and cooperative banks. Further, the effect is pronounced for banks that report under local GAAP for tax purposes. Our results also suggest that banks instead invest more in securities that are not taxed at fair value. Lastly, we provide evidence that the risk taking of savings and cooperative banks is positively associated with the tax rate when subject to fair value taxes. In addition, banks that report under local GAAP increase risk taking when subject to fair value taxes. Data Availability: Data are available from the sources cited in the text. JEL Classifications: G21; G28; H25; M41.

This study investigates biases in tax decisions. In a series of four laboratory experiments with 303 students and 62 tax professionals, we document a systematic tax-rate bias in decisions under time constraints. Specifically, decision-makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information. This behavior leads to suboptimal tax decisions. We also find that decision-making, on average, is unaffected by professional experience: students and tax professionals are similarly prone to tax-rate bias. However, senior tax professionals are more rationally inattentive. These decision-makers are less likely to exhibit a tax-rate bias when exhibiting such bias is relatively costly. Overall, our findings suggest that resource constraints impede the use of complex tax-base information, which results in suboptimal tax decisions. Interviews with senior tax professionals indicate potential for tax-rate biases in real-world tax decisions and thereby provide directions for future research.

Global minimum taxation under Pillar Two establishes a link to financial statements, in particular with regard to the revenue threshold, to the calculation of the effective tax rate (ETR), and to carve-outs. This article discusses in detail these links and possible incentives, adverse effects and opportunities for improvement. It suggests that Pillar Two incentivizes multinational enterprises (MNEs) to prepare their individual and consolidated financial statements for tax purposes by using the discretionary leeway inherent in accounting standards. In particular they may use such discretion to report lower revenues to avoid falling within the scope, to report profits at the lower margin and tax expense at the higher margin to show a sufficiently high ETR and to adapt their financial accounting measurement to keep the top-up tax low by using tangible asset carve-outs based on financial statements. In consequence, the quality of financial reporting and capital allocation may be impaired. In addition, the acceptance of almost all common accounting standards under Pillar Two incentivizes generally accepted accounting principles (GAAP) competition between countries. The authors conclude that connecting Pillar Two to financial statements has adverse effects from both a tax and an accounting perspective. An improvement of existing tax rules to combat tax avoidance, as started with the Base Erosion and Profit Shifting (BEPS) project, seems preferable. Pillar Two, GloBE, Minimum Taxation, Accounting Standards, IFRS, Financial Statements

This study examines the relation between tax audit case selection based on risk profiling and corporate tax avoidance. We exploit the International Survey on Revenue Administration (ISORA) data on risk profiling in tax administrations from 2014 to 2017 to investigate whether the implementation of risk profiling has an incremental effect on firms’ tax avoidance. Controlling for tax enforcement, firm-specific, and country-specific factors, our results suggest that the use of risk profiling is associated with lower tax avoidance. Risk profiling seems to be an effective tool to curb tax avoidance across firms of all sizes, but the effect is more pronounced for large firms. However, risk profiling seems only effective in countries where risk profiling experts support the tax administration, and where tax administrations employ a larger number of tax auditors. Additional tests with country-level data on tax administration performance imply that risk profiling improves tax administrations’ performance. Overall, our findings point towards risk profiling as an audit case selection tool, appropriately staffed, incrementally attenuates firms’ tax avoidance and increases tax revenues. Experts for a thorough design and execution of risk profiling and sufficient staffing of the subsequent audits of high-risk taxpayers are necessary.

In this paper, we investigate the acceptance by taxpayers and tax auditors of voluntary e-audits, i.e., online-based, automated tax audits. Further, we analyze the effects of e-audits on trust in and power of tax authorities. Perceived benefits and shortcomings of e-audits for taxpayers and tax auditors may depend on the specific features of e-audits, which may not only affect adoption and endorsement but also influence the trust-power balance between taxpayers and tax authorities, ultimately affecting tax compliance. In an experimental survey among taxpayers and tax auditors, we focus on four specific features: data privacy, audit certainty, transparency, and independence from tax intermediaries. Results from multilevel models suggest that taxpayers’ acceptance indeed depends on these features, particularly on audit certainty, i.e., that an e-audit cannot be followed by a subsequent conventional tax audit of the same period. While these features appear to increase acceptance and trust by taxpayers, the same features cause concerns of tax auditors, who react with less support for e-audits and a perceived loss in power. These results indicate a mismatch between taxpayers’ and tax auditors’ perceptions about e-audits and tax compliance. Our study is among the first to investigate the effects of digitalization in tax administration and to include tax auditors’ views. Results are relevant to policymakers who wish to promote digitalization to foster tax compliance. Specifically, our study suggests that tax authorities should incorporate safeguards into e-audits and educate about the importance of a trusting relationship between taxpayers and tax auditors.

We conduct a series of four laboratory experiments and interviews with senior tax professionals to study biases in tax decisions. In our experiments with 303 students and 62 experienced tax professionals, we find a systematic tax-rate bias in decisions under time constraints. Specifically, decision-makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information. This behavior leads to suboptimal decision-making. Moreover, we find that decision-making is unaffected by professional experience: students and tax professionals are similarly prone to tax-rate bias. Yet, tax professionals in senior positions are more rationally inattentive. These decision-makers are less likely to exhibit a tax-rate bias when exhibiting such bias is relatively costly. In-depth interviews with senior tax professionals corroborate the external validity of these results. Overall, our findings suggest that resource constraints impede the use of complex information, which results in suboptimal tax decisions.

This study examines the relation between risk-based tax audit strategies and corporate tax avoidance. We exploit OECD data across 54 countries on risk profiling, predictive modeling, and internal intelligence functions in tax administrations from 2014 to 2017 to investigate whether risk-based tax audits have an incremental effect on tax avoidance beyond enforcement. Our results suggest that the use of risk-based tax audits is associated with lower tax avoidance when controlling for tax enforcement, firm-specific, and country-specific factors. Cross-sectional tests indicate that risk-based tax audit strategies are effective tools to curb tax avoidance across firms of all sizes. The results of additional cross-sectional analyses indicate that risk-based tax audits are more effective in countries with low governance quality, high GDP, and low trust in governments. In additional tests, we use country-level data on tax administration performance and find evidence that countries with a risk-based audit strategy have lower costs of tax enforcement and improve the performance of tax authorities. Overall, our findings indicate that risk-based tax audit strategies have an incremental effect on attenuating firms’ tax avoidance and increasing tax revenue.

We study the bargaining behavior between auditor and auditee in a tax setting and scrutinize the effect of interpersonal trust and trust in government on both parties' concessions. We find evidence that both kinds of trust affect the concessionary behavior, albeit in different ways. While trust in government affects concessionary behavior in line with intuitive predictions, we find that interpersonal trust only affects tax auditors. For high interpersonal trust, the alleviating effect of high trust in government on tax auditors' concessions is less pronounced. Our findings help tax authorities to shape programs to enhance compliance in an atmosphere of trust.

We investigate whether the effect on users’ judgment of the dis-/aggregation of line items on the face of financial statements is subject to users’ anchoring heuristics in an experimental setting. A firm’s financial performance, investment attractiveness, and tax position are judged in the absence or presence of disaggregated tax information in the statement of other comprehensive income (OCI). We do not find that such disaggregation affects users’ judgment, as long as the disaggregated amounts do not challenge the users’ anchor; however, when they do, judgments differ significantly. The results are consistent with anchoring effect theory: because financial statement complexity exceeds users’ limited cognitive processing capacity, users adjust their prior beliefs when the information received deviates strongly from anchor values. Our study contributes to the literature on impression management and on the effects of disclosure choices by exploring users’ susceptibility to the disaggregation of specific items in the face of financial statements. Our results are important for financial statement preparers, because they could consider the anchoring effect when choosing whether to disclose disaggregated line item information.

In cooperative compliance programs, firms and tax administrations agree on cooperation instead of confrontation. Firms provide full transparency and advanced tax control frameworks. Tax administrations, in turn, offer certainty as to the tax treatment of complex transactions. In this study, we test how firms’ perceptions of tax risk, the quality of tax risk management, and compliance costs are related to cooperative compliance. To our knowledge, this is the first study that attempts to analyze both reasons for and consequences of participation in cooperative compliance programs. We examine the Austrian cooperative compliance pilot project known as horizontal monitoring that was aimed at large businesses and launched in 2011. We use survey data from representatives of firms participating in the pilot project and a sample of comparable firms under a traditional ex-post audit regime. We conduct group comparisons to test differences between these groups, as well as mediation analyses to shed light on more complex relationships between variables. Results show that horizontal monitoring firms perceive a significantly higher increase in tax certainty, which is associated with significant relative decreases in tax risk and compliance costs. Furthermore, while the quality of tax risk management upon entering the pilot project appears significantly higher for horizontal monitoring firms, they do not report greater improvement in tax risk management compared to the control group. These results are relevant for the development of cooperative compliance programs and the decision to participate in them.

We analyze the impact of trust on bargaining behavior between auditor and auditee in a tax setting. We study the effect of interpersonal trust and trust in government on both taxpayer and tax auditor. In an experiment with variation in pairwise trust settings, we find evidence that both kinds of trust affect the bargaining behavior, albeit in different ways. While trust in government increases taxpayers’ tax offers, trust in government may lead to more concessionary behavior of tax auditors moderated by interpersonal trust. Our findings help tax authorities to shape programs to enhance compliance in an atmosphere of trust.

European regulation mandates public country-by-country reporting for banks and is expected to increase reputational costs in case of tax haven activities. We test whether the availability of additional public information on the locations of banks' subsidiaries reduces their tax haven presence. In a preliminary difference-in-difference analysis we find that indeed, tax haven presence in “Dot-Havens” has declined significantly after the introduction of mandatory public country-by-country reporting for European banks, as compared to the insurance industry which is not subject to this regulation.

Purpose Accounting practices vary not only across firms, but also across countries, reflecting the respective legal and cultural background. Attempts at harmonization therefore continue to be rebuffed. The purpose of this paper is to argue that different wordings in national laws, and different interpretations of similar wordings in national laws, can be explained by taking recourse to the philosophy of language, referring particularly to Searle and Wittgenstein. Design/methodology/approach The example of the substance over form principle, investigated in seven countries, is particularly suitable for this analysis. It is known in all accounting jurisdictions, but still has very different roots in different European countries, with European and international influences conflicting, which is reflected in the different wording of the principle from one country to the next, and the different socially constructed realities associated with those wordings. Findings This paper shows that, beyond accounting practices, the legal and cultural background of a country affects the wording of national law itself. The broad conclusion is that different socially constructed realities might tend to resist any attempt at harmonized socially constructed words. Originality/value The paper contributes to the debate surrounding the possible homogenization of accounting regulations, illustrating the theory of the social construction of both “reality” and “language” on the specific application of one common principle to various Member State environments.

The draft for a CCCTB Directive in the EU includes the suggestion for an apportionment formula which allocates taxable profits to group member corporations and to the respective Member States. The draft directive delegates the right to define one apportionment factor, the term ‘Employee’ to the Member States, which can choose a narrow or a broad definition, the latter including also atypical employment schemes. Using a game-theoretic approach we show that defining ‘Employee’ broadly so as to maximize the Member State’s share in the apportionment factor is only optimal when tax rate differences and different sizes of atypical employment schemes are disregarded. If such differentials and the multinational corporation’s reactions to different domestic definitions are included a narrow definition of ‘Employee’ yields the highest individual pay-offs to the countries involved. Our paper differs from previous research on the economic effects of the CCCTB apportionment formula as it is the first analysing the employment factor and its distortive effects. We discuss possible tax minimizing strategies for multinationals by shifting employment and develop a model to quantify these potential relocations. The results of our paper may be relevant for the European Commission and the Council, when debating the details of formula apportionment. Furthermore we show how Member States could use the ‘Employee’ definition to both minimize factor emigration and maximize factor immigration, if the factor definitions remain unchanged.

Our research investigates the opinions on the OECD BEPS Action Plan of tax experts from practice in BRICS countries vis‑a‑vis developing countries and OECD countries. In an adaptive conjoint analysis, we find that experts from BRICS countries have a substantially different view on the effectiveness of the OECD BEPS Actions and the measures as suggested in the Action Plan. This supports the notion that OECD countries act in their own interests and reach out to non‑OECD countries more to seek support for their own agenda than to truly include their priorities. Also, it can be expected that BRICS countries will increasingly assume the role of a norm maker in future international tax policy. Our results contribute to the current reorganisation of the principles of international taxation, and highlight the OECD BEPS Actions that are perceived as being of the highest importance.

Our research investigates the views and opinions on the OECD BEPS Action Plan of tax experts from practice around the world. We contrast the views of practitioners from BRICS and from developing countries to those from OECD countries. In an adaptive conjoint analysis we find that experts from BRICS countries have a substantially different view on the effectiveness of the Actions and the measures as suggested in the Action Plan. This supports the notion that OECD countries act on their behalf and that reaching out to non-OECD countries rather to seek support for their own agenda than to truly include their priorities. Also it can be expected that BRICS will increasingly assume the role of a norm maker in future international tax policy. Our results contribute to the current reorganization of principles of international taxation, and highlights actions of higher priority.