How Does Technological and Human Controversy Expertise Affect Tax Disputes?

53 Pages Posted: 12 Sep 2022

See all articles by Daniel Dyck

Daniel Dyck

Paderborn University

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: September 8, 2022

Abstract

Given the rising number, magnitude and harshness of tax disputes between firms and tax authorities, firms increasingly use controversy expertise as a remedy. This study investigates how two types of tax controversy expertise affect the resolution of tax disputes and compliance incentives. We distinguish between technological expertise provided by the firm’s Tax Risk Management System (TRMS) and human expertise of internal tax controversy managers or external experts. 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 of 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 the TRMS quality crowds out compliance efforts and thereby can increase the litigation probability. Overall, we identify conditions under which additional human expertise and higher levels of technological expertise are detrimental to dispute resolution.

Suggested Citation

Dyck, Daniel and Lorenz, Johannes and Sureth-Sloane, Caren, How Does Technological and Human Controversy Expertise Affect Tax Disputes? (September 8, 2022). TRR 266 Accounting for Transparency Working Paper Series No. 101, 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

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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