Johannes Voget, Professor of Taxation and Finance at the University of Mannheim, is Principle Investigator of three TRR 266 projects. In B07, he examines how mandatory and voluntary tax reports affect tax transparency and companies. In project A05, he investigates the influence of tax complexity on tax compliance and on the investment behavior of companies. He is also one of the leading researchers of the German Business Panel, the long-term survey panel of TRR 266.
Empirical tax research: Interpreting patterns correctly
I am particularly passionate about empirical tax research. I find it incredibly exciting to review empirical patterns for a better understanding of how the world works. To work with other researchers to figure out how to interpret these patterns. Whether there are causal effects. To discuss exactly what speaks for one or the other perspective. I simply enjoy that. I also appreciate the friendly style of communication in our discipline. A colleague from another research area actually mentioned that to me. She had attended one of our conferences and was pleasantly surprised at the cooperative style in which criticism was expressed. In other disciplines, the tone can sometimes be harsher.
In any case, working with young researchers is something I care very much about. It’s one of the best aspects of my work.
Teaching: with heart, without hierarchies
I studied and obtained my doctorate in the Netherlands, in Maastricht and Tilburg. That shaped me, of course, and is probably one of the reasons why empirical research fascinates me. There has always been a strong empirical focus in the Netherlands. The time I spent in the Netherlands has also directly impacted my teaching. The Dutch system of higher education is very egalitarian. There are hardly any hierarchies: everybody can contribute to a project. I try not to let any hierarchies emerge within a research team. But perhaps you should ask my doctoral students about that. In any case, working with young researchers is something I care very much about. It’s one of the best aspects of my work, I think. It is great to see your students grow with every course, with every new research project until eventually they become better than yourself.
Of course, doctoral training also includes preparing students for the scientific system with its requirements and expectations. In Tilburg, I quickly realized that you have to publish in top journals. Of course, that is now much more the case, also in Germany. There are advantages and disadvantages about that. Either way, if you want to get into the top journals, it is very important that you address new kinds of questions in your research. Doing new stuff is always more exciting than same old, same old. Nevertheless, I sometimes wish that we would devote more energy to validation. In other words, to check whether what we or others have found in the data is indeed correct – and valid in other contexts, too. Like the natural sciences do. But our system does not reward that sufficiently yet.
All in all, our data shows that public CbCR significantly increases tax transparency.
More transparency through Country-by-Country Reporting
In our TRR 266 project B07, we investigate how tax reports affect tax transparency and companies. For example, the effects of Country-by-Country Reporting (CbCR). Since 2014, banks have had to break down and disclose tax-relevant information by country. We have investigated how effective that instrument actually is and to what extent it increases transparency about banks’ tax avoidance behavior by showing tax shifts. We have developed a novel database that allows for systematic examination of this behavior. It contains information from the CbCR of more than 100 multinational banking groups based in the EU between 2014 and 2016. Compiling the data was a huge task. These reports are often difficult to find. Some people go to great lengths to hide a needle in the haystack.
We have compared this new dataset with data from previously available sources. Our analysis shows that the information from the CbCR can indeed reveal a large part of the global profits that previously went unnoticed. That applies particularly to countries which are considered tax havens. There is a discrepancy between the reported profits and the actual activities of banks in these countries. Previously, we had a rather distorted picture of where profits are actually generated. All in all, our data shows that public CbCR significantly increases tax transparency. However, the reports are not as revealing as they could be. Some important variables have not been taken into account yet. For example, the distribution of capital used by banks across countries. Regulators should make further improvements here.
How does tax complexity work?
In project A05, we deal with tax complexity. And with the question of how it influences the actions of companies, for example. Complexity is generally difficult to measure. Previous approaches were not always convincing and were subject to some criticism. The Tax Complexity Index which was developed in the project team is an instrument that captures tax complexity very well on a worldwide scale. We issued surveys in 2016 and 2018, and consecutive survey rounds are being planned. That will enable us to examine tax complexity over time and identify even clearer causal relationships. On that basis, we can, for instance, investigate how certain types of complexity affect investment and when complexity has a stimulating or indeed an inhibiting effect.
As a scientific network, we can play a mediating role between politics and companies.
German Business Panel: Mediator between politics and economy
I am one of the Principle Investigators of the German Business Panel (GBP), the central infrastructure project of TRR 266. We provide the individual subprojects with important company data. At the same time, our surveys provide companies the opportunity to tell someone where the shoe pinches. Our Corona survey in particular shows how gratefully this offer is accepted: we have a high number of participants and receive a lot of positive feedback. Many companies welcome the fact that someone simply asks: How is your business developing? By how much have your sales decreased? How helpful do you find the aid measures?
Many companies seem to feel that no-one is listening to their concerns. Sure, there are lobby associations, but they are often suspicious of overstating individual interests. As TRR 266, as a scientific network, we can play a neutral role. A mediating role between politics and companies. We can find out how companies deal with tax complexity or accounting issues. How companies make decisions. How reforms work. We can systematically evaluate these results, compile them in a representative way and subsequently communicate them to the public and to politics. In addition, participating companies also have the opportunity to receive sector-specific reports from us showing them how companies from their own industry usually deal with certain issues. That is valuable feedback for many.
Any company which would like to participate in the survey is welcome to register under www.gbpanel.org
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.