Deborah Schanz, Professor of Taxation and Accounting at LMU Munich, is Principal Investigator of project A05 “Accounting for Tax Complexity”. Together with Caren Sureth-Sloane and Johannes Voget, she investigates how tax complexity affects the transparency of tax systems, and how it influences tax compliance as well as investment behavior. An intensive exchange between academic and professional practice has always been important to her. For example, together with TRR 266 researchers Simon Harst and Felix Siegel as well as with Prof. Dr. Joachim Englisch and Cedric Döllefeld, she proposed a simplification for the global corporate tax reform of the OECD.
Tax research: dealing with the pressing problems
Tax research is a fascinating and versatile field. It is number-driven, but at the same time it allows for intensive (legal) text work. And above all, it is close to the people. People decide how taxes are shaped and they are the ones who are affected by these decisions and their effects. In the end, tax research is an applied field with great practical relevance and should therefore not remain isolated in an ivory tower. That has always been important to me. Serving the intersection of academic and professional practice plays a crucial role in everything I do. I am in regular contact with politicians, firms, regulators and the judiciary: our research results can help them make informed decisions. At the same time, professional practice provides the relevant questions. Research that makes a difference does not emerge in a vacuum, it deals with the pressing problems.
I consider it important to foster a closer exchange between researchers and practitioners.
TRR 266 Forum 2022: exchange between academic and professional practice
That’s why I consider it important to foster a closer exchange between researchers and practitioners. And that’s exactly what we’re doing at the TRR 266. At our Forum on May 19 at ESMT Berlin, for example, everything revolves around this exchange. Together with the Schmalenbach-Gesellschaft, we are providing a platform for academics, decision-makers of firms, politicians, and regulators to discuss financial reporting, taxation, management accounting, and corporate transparency. Talking about challenges and solutions. A great opportunity for practitioners to point out problems they are confronted with – and to receive evidence-based advice. We, in turn, hope for important impulses for our research. And that our research results will find their way into current political processes, where they can serve as an important basis for decision-making.
Tax Complexity is a topic we derived from
Tax complexity index: the answer to a pressing problem
In my TRR 266 project A05 I am dealing with tax complexity. And this is indeed a topic we derived from professional practice. It all started with an observation we increasingly made at conferences. Practitioners kept talking about an unmanageable tax complexity. The complaints were mounting, but a measure that could examine this subjective perception, that could capture tax complexity and make it measurable was missing at that time. Together with Caren Sureth-Sloane, I decided to develop such a measure. That’s how the Tax Complexity Index (TCI) was born. The index measures the complexity of a country’s corporate income tax system as faced by multinational corporations in 110 countries – and thus allows to compare tax complexity on a global level. It measures both the complexity inherent in the different tax regulations and the complexity that arises from the features and processes of a tax system.
We are getting a lot of feedback from practitioners, who tell us that our results are in line with their own experiences and that our data is very valuable to them.
Data with practical relevance
As for the TCI, we are getting a lot of feedback from practitioners, who tell us that our results are in line with their own experiences and that our data is very valuable to them. Tax accountants report that they use the index values for advisory discussions with their clients, regulators started to tell us that they take our data into account when making decisions. That’s a really nice affirmation of our research. For many users the index values are already of high interest. Beyond that, of course, we are doing more advanced analyses based on this data. For example, we examine the drivers of tax complexity in different countries. Policymakers and regulators can derive concrete improvements from this. For example, by comparing countries: What do other countries do better? Which processes and laws need to be improved? We also investigate the effects of tax complexity. In a new study we are currently working on, we show that tax complexity has an impact on whether firms invest in a country or not.
This clear relevance for different target groups was one of the primary reasons for us to decide to make the data freely accessible to everyone.
New data: tax complexity increases worldwide
This clear relevance for different target groups was one of the primary reasons for us to decide to make the data freely accessible to everyone – in a way that even non-scientists can make use of them. Our interactive website allows to review and compare the tax complexity of and between certain countries at a glance – via a world map and color coding. But it also allows for more details; for instance, different tax regulations or tax complexity over time. Our new data from 2020 is already online. It shows that tax complexity has increased since 2018 for most of the countries and that it has become an increasingly pressing issue. Once again, we identified transfer pricing, which is necessary for cross-border transactions between different parts of an organization, as the most complex tax regulation. Legislative processes are also perceived as a major problem – in about 80 percent of the countries: poorly drafted and overly complicated language make it difficult for multinationals and tax administrations to apply tax law.
We are among the researchers who have been commissioned by the OECD to […] elaborate on concrete concepts [for simplifications of the global corporate tax reform].
OECD’s global tax reform: recommendations for simplifications
A new tax reform that could increase tax complexity tremendously in the future is the OECD’s global tax reform. It does not replace the existing tax systems of the individual countries, but adds another layer on top. While this reform is an important step to combat tax evasion, it has been heavily criticized regarding the high effort and costs it entails. For this reason, the OECD has worked out, together with the participating countries, some basic ideas to facilitate, for example, the implementation of the global minimum tax. We are very proud to be actively involved in this process. We are among the researchers who have been commissioned by the OECD to examine these ideas and elaborate on concrete concepts. We – that is my doctoral students Simon Harst, Felix Siegel and I as well as the tax law researchers Prof. Dr. Joachim Englisch and Cedric Döllefeld from the WWU Münster. We already presented a proposal for a procedure that reduces reporting obligations and compliance costs for multinational companies to the responsible OECD secretariat. Now participating countries have to decide on the implementation of these simplifications.
I think that researchers should dare to venture out into the world and contribute with their know-how and
Science communication: making a difference
It’s great to be able to make such a valuable contribution as a researcher. And it’s an important task that I’m always happy to take on. More recently, I was invited as an expert to the Finance Committee of the Bundestag on the topic of the Tax Haven Defense Act – and submitted a paper on this subject, together with Isabell Euler and Karoline Maier. In general, I think that researchers should dare to venture out into the world and contribute with their know-how and their findings. In political debates and public discourses. In discussions with politicians, decision-makers of firms and the press. Even if this means that we have to leave our comfort zone. Which happens, for example, whenever we have to simplify our research results. Meeting our own high scientific standards of accuracy at the same time is a difficult balancing act, but it’s worth it. It leads to good science communication that can make a difference, since it reaches people.
*The article reflects the opinion of the researcher and not necessarily the views of the TRR 266. As a scientific association, the TRR 266 is committed to both freedom of speech and political neutrality.
Interview with Deborah Schanz: