How do tax technology and controversy expertise affect tax disputes?

55 Pages Posted: 12 Sep 2022 Last revised: 6 Dec 2022

See all articles by Daniel Dyck

Daniel Dyck

Paderborn University; TRR 266 Accounting for Transparency

Johannes Lorenz

Carl von Ossietzky University of Oldenburg; TRR 266 Accounting for Transparency

Caren Sureth-Sloane

Paderborn University; Vienna University of Economics and Business; TRR 266 Accounting for Transparency

Date Written: December 1, 2022

Abstract

Given the rising number, magnitude, and harshness of tax disputes between firms and tax authorities, firms increasingly call on tax technology and controversy expertise to try to resolve these disputes. This study investigates how tax technology embedded in the firm’s Tax Risk Management System (TRMS) and the expertise of tax controversy managers affect dispute outcomes and compliance incentives. Using a game-theoretic model, we derive equilibrium strategies for a tax manager’s compliance effort, a controversy manager’s dispute resolution effort, and a tax authority’s litigation decision. Absent a controversy manager, we find that improving a firm’s TRMS quality unambiguously decreases the litigation probability. However, in the presence of a controversy manager, we surprisingly find that improving TRMS quality crowds out compliance efforts and can increase litigation probability. Overall, we find that a high-quality TRMS is essential to take advantage of the dispute resolution function of a controversy manager.

Keywords: tax dispute resolution, tax risk management, tax technology, controversy expertise, litigation

JEL Classification: H25, H26, C72, K34

Suggested Citation

Dyck, Daniel and Lorenz, Johannes and Sureth-Sloane, Caren, How do tax technology and controversy expertise affect tax disputes? (December 1, 2022). TRR 266 Accounting for Transparency Working Paper Series No. 101, WU International Taxation Research Paper Series No. 2022-11, Available at SSRN: https://ssrn.com/abstract=4214449 or http://dx.doi.org/10.2139/ssrn.4214449

Daniel Dyck (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Johannes Lorenz

Carl von Ossietzky University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, 26129
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Caren Sureth-Sloane

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

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