Decoding the black box of corporate tax risk management – what do tax risk experts think?

Due to increased pressure from a variety of sources, the attention around corporate tax risk management has recently grown. While the relation between tax planning and tax risk is well researched, little is known about tax risk management and how it influences tax outcomes, e.g. cash taxes paid. In a recent study TRR 266 researcher Deborah Schanz and co-author Alissa Brühne help encode the “black box“ of corporate tax risk management. Based on interviews with 42 tax risk experts they provide unique insights into practitioners’ tax risk perception and tax risk management practices.


Managing risk is one of the most important tasks of a firm. Developments, such as regulatory and technological changes, lead to increased information requests from tax authorities, more aggressive enforcements and higher public scrutiny. Hence, these developments contribute to a growing relevance of corporate tax risk and increase firms’ tendency to engage in tax risk management practices. We shed light on how practitioners involved in corporate tax risk management perceive tax risk and how firms manage tax risk. Our findings show that tax risk is understood differently by firm insiders and firm outsiders. They also illustrate that tax risk communication is essential.

The difference in tax risk perception: firm insiders vs. firm outsiders

Tax risk is a multi-faceted, highly context-dependent construct, that various stakeholders tend to define differently. While the existing literature mainly focuses on either financial or compliance risk, our interviewees differentiate between six tax risk components: financial risk, compliance risk, reputational risk, tax process risk, political risk and personal liability risk. Our results also indicate that most firm insiders have a one-sided understanding of tax risk: They define tax risk solely in terms of its downside potential. In contrast, firm outsiders (e.g. tax consultants, regulators, tax authority representatives) perceive tax risk as being two-sided and see both the upside and downside potential.

Tax communication

In regards to communicating tax risk, our study shows that communication has not purely a supportive role (as generic risk management frameworks assign to communication), but is actually crucial, not only for reporting tax risk but also for managing tax risk. External communication, e.g. an information exchange with tax authorities, is one important tax risk management practice. It helps creating a more certain and predictable environment.

Tax communication is also addressee-specific and depends on the pressure type. Firms can be exposed to different types of pressure. In our interviews, we identify the following types: public pressure, peer pressure and regulatory pressure. As the CFO represents the corporate actor directly exposed to all three types of pressure, an important objective of tax risk communication is CFO protection.


These findings provide valuable insights for decision-makers to better understand and manage firms’ tax risk. It also indicates improvements for further research in this area. In future studies the variable choice can be improved. Based on interview insights, we suggest that future empirical studies focusing on a firm insider perspective should employ a one-sided tax risk measure (e.g. UTBs), whereas studies adopting a firm outsider perspective should rather opt for a two-sided proxy, such as tax rate volatility.


To cite this blog:

Brühne, A., Schanz, D. (2022, August 23). Decoding the black box of corporate tax risk management – what do tax risk experts think?, TRR 266 Accounting for Transparency Blog.


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