Corporate In-house Tax Departments

Posted: 11 Dec 2020

See all articles by Xia Chen

Xia Chen

Singapore Management University - School of Accountancy

Qiang Cheng

Singapore Management University - School of Accountancy

Travis Chow

The University of Hong Kong

Yanju Liu

Hong Kong Baptist University – Department of Accountancy and Law

Multiple version iconThere are 2 versions of this paper

Date Written: August 6, 2020

Abstract

In-house human capital tax investment is a significant input to a firm’s tax decisions. Yet, due to the lack of data on corporate in-house tax departments, there is little empirical evidence on how tax departments are associated with tax planning and compliance outcomes. We expect the size of tax departments to be positively associated with the effectiveness of tax planning and compliance. Using hand-collected data on the number of corporate tax employees in S&P1500 firms over the 2009-2014 period, we find that firms with larger tax departments are associated with lower and less volatile cash effective tax rates. Furthermore, using tax employees’ specialization, we identify tax departments’ relative focus on planning or compliance and document a trade-off between tax avoidance and tax risk. Specifically, tax departments with more of a tax planning focus have incrementally greater tax avoidance but higher tax risk, whereas tax departments with more of a tax compliance focus have incrementally lower tax risk but higher tax rates. Overall, this paper contributes to the literature by looking inside the “black box” of corporate tax departments and shedding light on the importance of human capital tax investment for tax outcomes.

Keywords: Tax Department, Tax Planning, Tax Compliance, Tax Avoidance, Tax Risk

JEL Classification: J24, H25, H26

Suggested Citation

Chen, Xia and Cheng, Qiang and Chow, Travis and Liu, Yanju, Corporate In-house Tax Departments (August 6, 2020). Contemporary Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3735847

Xia Chen (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Rd.
Singapore 178900
Singapore

Qiang Cheng

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore

Travis Chow

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

Yanju Liu

Hong Kong Baptist University – Department of Accountancy and Law ( email )

Hong Kong

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