Measuring Tax Complexity Across Countries: A Survey Study on MNCs
TRR 266 Accounting for Transparency Working Paper Series No. 5 (2019)
80 Pages Posted: 14 Oct 2019 Last revised: 12 Nov 2019
Date Written: October 14, 2019
This paper introduces an index that captures the complexity of countries’ corporate income tax systems faced by multinational corporations. It is based on surveys of highly experienced tax consultants of the largest international tax services networks. The index, called the Tax Complexity Index (TCI), is composed of a tax code subindex covering tax regulations and a tax framework subindex covering tax processes and features. For a sample of 100 countries for the year 2016, we find that the level of tax complexity varies considerably across countries, while tax code and framework complexity also vary within countries. From a global perspective, tax complexity is strongly driven by the complexity of both transfer pricing regulations in the tax code and tax audits in the tax framework. When analyzing the associations with other country characteristics, we identify different correlation patterns. For example, tax framework complexity is negatively associated with countries’ governance, suggesting that strongly governed countries tend to have less complex tax frameworks, while tax code complexity is positively associated with the statutory tax rate, indicating that high tax countries tend to have more complex tax codes. However, none of the observed associations are very strong. We conclude that tax complexity represents a distinct country characteristic and propose the use of our TCI and its subindices in future research.
Keywords: Tax Complexity, Tax Index, Tax System, Multinational Corporations, Tax Consultants
JEL Classification: H20, H25, C83, O57
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