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

57 Pages Posted: 3 Jun 2020 Last revised: 19 Jan 2021

See all articles by Eva Eberhartinger

Eva Eberhartinger

Vienna University of Economics and Business

Maximilian Zieser

Vienna University of Economics and Business

Date Written: January 1, 2021

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.

Keywords: Tax Risk, Tax Certainty, Risk Management, Cooperative Compliance, Compliance Costs, Horizontal Monitoring

JEL Classification: G32, H21, H25, H83

Suggested Citation

Eberhartinger, Eva and Zieser, Maximilian, The Effects of Cooperative Compliance on Firms’ Tax Risk, Tax Risk Management and Compliance Costs (January 1, 2021). WU International Taxation Research Paper Series No. 2020-07, Available at SSRN: https://ssrn.com/abstract=3612959 or http://dx.doi.org/10.2139/ssrn.3612959

Eva Eberhartinger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

HOME PAGE: http://www.wu.ac.at

Maximilian Zieser (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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