Accounting for Tax Complexity

Schanz, Sureth-Sloane, and Voget study the determinants and variation of global tax complexity. They construct a country-level measure that covers the complexity of the tax code (tax regulations) and the tax framework (tax processes and features such as audits). They collect detailed data on facts and perceptions on tax complexity to compare and benchmark tax complexity and its determinants within and across countries as well as over time. The project investigates the effects of tax complexity on firm’s tax compliance behavior and their investment decisions. Moreover, A05 exploits exogenous shocks to tax complexity in individual countries to identify causal effects.

  • Research Question

    How does tax complexity affect the transparency of tax effects, and how does this transparency affect tax compliance as well as investment behavior?

  • Motivation

    Tax complexity has long been a concern in several countries and recent surveys provide evidence that it has increased considerably over the past few years on a global scale. Several measurement approaches and constructs exist, however, none of them allow for cross-country comparisons. Those studies that do compare different countries, are limited with regard to the number of dimensions of tax complexity. Furthermore, in most studies MNCs have been neglected and the focus is instead on small and medium-sized enterprises. This is surprising since MNCs are the focus of several reform ideas such as Base Erosion and Profit Shifting (BEPS).

  • Research Program

    We study the determinants and variation of global tax complexity. We are constructing a country-level tax complexity measure that covers the complexity of the tax code (tax regulations) and the tax framework (tax processes and features, such as audits). Furthermore, we will also investigate the effects of tax complexity on firm’s tax compliance behavior and their investment decisions by conducting cross-country studies. Finally, we will exploit exogenous shocks to tax complexity in individual countries to identify the causal effects of regulation on behavior with less rigid assumptions than traditional approaches.

  • Contribution

    By collecting detailed data on facts and perceptions on tax complexity we are able to:
    • compare and benchmark tax complexity and its determinants within and across countries, as well as over time.
    • help policy-makers and regulatory bodies to develop approaches to tax simplification.

Result

We developed the Tax Complexity Index: it measures the complexity of a country’s corporate income tax system as faced by multinational corporations. You can find the index and more information about the project at www.taxcomplexity.org.  

 

We recently conducted two surveys and presented:

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Participating Institutions

TRR 266‘s main locations are Paderborn University (Coordinating University), HU Berlin, and University of Mannheim. All three locations have been centers for accounting and tax research for many years. They are joined by researchers from LMU Munich, Frankfurt School of Finance and Management, WHU – Otto Beisheim School of Management, European School of Management and Technology in Berlin and Goethe University Frankfurt who share the same research agenda.