Who Benefits from Multinational Tax Law Ambiguity?
28 Pages Posted: 16 Sep 2003
Date Written: September 9, 2003
This paper uses a strategic tax compliance model to examine taxpayer reporting and tax authority audit strategies in an international setting with two tax authorities. The setting features both information asymmetry between the taxpayer and the tax authorities and tax law ambiguity. The latter creates the possibility of each country trying to tax the same income. We study the effect of the probability of tax law ambiguity on the strategies and payoffs of the taxpayer and the tax authorities. The analysis of the model yields three surprising insights. First, an increase in tax law ambiguity can decrease the taxpayer's expected tax liability. Second, an increase in tax law ambiguity can decrease expected government revenues, net of audit costs. Third, an increase in tax law ambiguity can increase social welfare by decreasing the deadweight loss associated with tax compliance.
Keywords: Tax compliance, multinational taxation, double taxation
JEL Classification: H25, H23, H87
Suggested Citation: Suggested Citation