The Effects of Cooperative Compliance on Firms’ Tax Risk, Tax Risk Management and Compliance Costs

Abstract

In cooperative compliance programs, firms and tax administrations agree on cooperation instead of confrontation. Firms provide full transparency and advanced tax control frameworks. Tax administrations, in turn, offer certainty as to the tax treatment of complex transactions. In this study, we test how firms’ perceptions of tax risk, the quality of tax risk management, and compliance costs are related to cooperative compliance. To our knowledge, this is the first study that attempts to analyze both reasons for and consequences of participation in cooperative compliance programs. We examine the Austrian cooperative compliance pilot project known as horizontal monitoring that was aimed at large businesses and launched in 2011. We use survey data from representatives of firms participating in the pilot project and a sample of comparable firms under a traditional ex-post audit regime. We conduct group comparisons to test differences between these groups, as well as mediation analyses to shed light on more complex relationships between variables. Results show that horizontal monitoring firms perceive a significantly higher increase in tax certainty, which is associated with significant relative decreases in tax risk and compliance costs. Furthermore, while the quality of tax risk management upon entering the pilot project appears significantly higher for horizontal monitoring firms, they do not report greater improvement in tax risk management compared to the control group. These results are relevant for the development of cooperative compliance programs and the decision to participate in them.

The impact of managerial ability on corporate tax risk and long-run tax avoidance: empirical evidence from a developing country

“…Thirdly, tax authorities should view taxpayers as collaborators rather than enemies. In Austria, for example, Eberhartinger and Zieser (2021) demonstrate that cooperative compliance programmes, in which tax administrations and firms agree to cooperate rather than compete, lead to good corporate tax outcomes. Fourthly, policymakers in developing countries can follow in the footsteps of policymakers in developed countries.…”

“…In addition, concerning the external determinants of such behaviour, they involve the complexity and uncertainty of the tax laws, the institutional environment and tax regulator’s supervision (Chen, 2020) and the information technology used by the tax regulators. Eberhartinger and Zieser (2021) document that cooperative compliance programmes contribute to reducing corporate tax risk in Austria. Notably, corporate tax risk has its consequences, such as slowing the rate of firm investment (Chen, 2021), being more closely related to the bankruptcy risk (Dhawan et al , 2020), as well as audit report lag and audit fees (Abernathy et al , 2018) and a higher cost of debt (Kovermann, 2018).…”

Quality Assurance and the Contributions of Indirect Tax Revenues in Ghana: Tax Management Maturity Model as a Referent Approach

“…T3M delivers a common communication platform on tax controls for internal and external stakeholders and permits an organisation to appreciate and analyse the tax control framework and current tax risk and opportunity management level within a tax function (PwC, 2019). Thus, T3M is modelled to enable a current state review of tax management in a tax organisation and the documentation of the detailed desire state with a roadmap to bring change (Eberhartinger & Zieser, 2021;Colon & Swagerman, 2015;Jacobs et al, 2015). Strengthened by state-of-the-art online tooling, this approach is stirred by the long-recognised principles of good governance.…”

Trust in Institutions and Tax Compliance. A Multilevel Analysis of the Regions of Spain

“…Thus, when designing and undertaking new programs and mechanisms seeking to tackle fraud and improve tax compliance, it is necessary to have a more systemic vision of tax behavior and to take into account the contributions of research into the phenomenon (OECD, 2014b). Eberhartinger and Zieser (2021) find parallels between the concept and groundings of "Co-operative Compliance" and various theoretical models and developments, such as those described by Ford and Condon (2011) or Widt (2017), focused on the paradigm of "new public governance" and which underline the need to recognize that citizens demand quality from services provided by the public administration, in the same way as they do with market-provided services. The authors also report similarities with the work by Braithwaite (2002) on "responsive regulation", which posits that deterrent efforts should be adapted to the characteristics and motivations of the taxpayers they target, in order to ensure more effective results.…”