Measuring Tax Complexity Across Countries: A Survey Study on MNCs

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.Abstract: Despite prior literature emphasizing the increasing role of tax complexity, there is still no comprehensive tax complexity measure. This paper fills this gap and introduces the Tax Complexity Index (TCI), which consists of a tax code subindex and a tax framework subindex. The indices are designed to capture the multidimensional nature of tax complexity from an MNC's perspective and extend previous measures that have so far only focused on selected countries or facets of tax complexity. Based on a survey of highly experienced tax consultants of the largest international tax services networks, the indices are calculated for 100 countries for the year 2016. Our findings indicate that the level of tax complexity varies considerably across countries. From a global perspective, tax complexity is strongly affected by the complexity of transfer pricing regulations in the tax code and by the complexity of tax audits in the tax framework. While we identify countries that turn out to be complex in both their tax code and tax framework, we also observe that many countries differ in their rankings on tax code and tax framework complexity, i.e., they either have a high tax code complexity and a low tax framework complexity or vice versa. When analyzing the associations between tax complexity and other country characteristics, we identify different correlation patterns. For example, we find that tax (framework) complexity is negatively associated with countries' governance, suggesting that strongly governed countries tend to have less complex tax frameworks. In contrast, we find a positive association between tax (code) complexity and the statutory tax rate, indicating that high-tax countries tend to have more complex tax codes. However, none of the observed associations is very strong. We conclude that tax complexity represents a distinct country characteristic and propose to use the TCI and its subindices as new proxies for MNCs' varying exposures to tax complexity in the assessment of countryspecific corporate decisions.

Tax Complexity in Australia – A Survey-Based Comparison to the OECD Average

“…On average, the Australian respondents have a lower level of education, with a relatively high share of respondents owning a bachelor's degree as their highest degree (Australia, 41.67%; remaining OECD countries, 20.09%). However, as shown by Hoppe et al (2019), the responses given within a country are not crucially affected by the respondents' demographic characteristics. The respondents' ages range across the whole spectrum, from under 30 to over 59 years.…”

“…9 It finally yielded a total of 933 responses from 100 countries worldwide. These responses also form the basis for the Tax Complexity Index (TCI), which was developed by Hoppe et al (2019). The TCI is based on the two-pillar concept of tax complexity, according to which tax complexity covers the complexity of the regulations of the tax code (tax code complexity subindex) and the complexity of the administrative and legislative processes and features within the tax framework (tax framework complexity subindex).…”

“…Hence, Lithuania is not considered an OECD member country. Furthermore, Iceland and Latvia are not included in the sample of Hoppe et al (2019). Therefore, the remaining OECD countries subsample consists of 32 countries, namely, Austria (22 responses), Belgium (24 responses), Canada (17 responses), Chile (7 responses), Czech Republic (9 responses), Denmark (9 responses), Estonia (4 responses), Finland (10 responses), France (18 responses), Germany (25 responses), Greece (11 responses), Hungary (14 responses), Ireland (12 responses), Israel (4 responses), Italy (23 responses), Japan (13 responses), Korea (8 responses), Luxembourg (11 responses), Mexico (21 responses), the Netherlands (22 responses), New Zealand (9 responses), Norway (5 responses), Poland (18 responses), Portugal (9 responses), Slovak Republic (7 responses), Slovenia (5 responses), Spain (22 responses), Sweden (10 responses), Switzerland (14 responses), Turkey (7 responses), the United Kingdom (27 responses), and the United States (31 responses).…”

“…So far, there is no other uniform data set available that allows for an in-depth comparison of tax complexity across countries. I follow Hoppe et al (2019) and define tax complexity as a characteristic of the tax system that arises from the difficulty of reading, understanding and complying with the tax code, as well as from various issues within the administrative and legislative processes and features (tax framework) of a tax system. 5 Analyzing their data in the Australian context represents a unique opportunity to enhance the knowledge on tax complexity in Australia.…”

“…complexity of each dimension of the tax framework was evaluated based on complexity drivers that are specific to each dimension. 11 The complexity drivers and dimensions were aggregated by Hoppe et al (2019) to obtain the subindices. In principle, a value of zero represents the lowest possible level of tax complexity, whereas a value of one represents the highest possible level of tax complexity.…”