Where to Locate Tax Employees? The Role of Tax Complexity and Tax Risk Implications

56 Pages Posted: 8 Jul 2024

See all articles by Henning Giese

Henning Giese

Paderborn University; TRR 266 Accounting for Transparency

Reinald Koch

Catholic University of Eichstaett-Ingolstadt

Caren Sureth-Sloane

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

Date Written: July 05, 2024

Abstract

This study analyzes the impact of tax complexity on the location of tax employees and tax risk. Using a hand-collected dataset of more than 7,500 tax employees from 348 European-listed multinationals, we identify two types of firm-level costs associated with tax complexity—tax employees, and tax risk. We find that firms locate more tax employees in countries with greater tax complexity. This association is particularly pronounced for complexity in tax procedures. We also find that multinationals operating in countries with high tax complexity are associated with higher tax risk. The incremental tax risk vanishes for firms that locate more tax employees in countries with highly complex tax procedures, while we find no risk reduction from additional tax employees in countries with complex tax rules. Our results reveal that multinationals eliminate 25 percent of overall tax complexity-related tax risk through targeted location of tax employees.

Keywords: tax complexity, tax complexity cost, tax department, tax employees, tax risk

JEL Classification: H25, H26, M12

Suggested Citation

Giese, Henning and Koch, Reinald and Sureth-Sloane, Caren, Where to Locate Tax Employees? The Role of Tax Complexity and Tax Risk Implications (July 05, 2024). TRR 266 Accounting for Transparency Working Paper Series No. 149, WU International Taxation Research Paper Series No. 2024-04, Available at SSRN: https://ssrn.com/abstract=4888151 or http://dx.doi.org/10.2139/ssrn.4888151

Henning Giese (Contact Author)

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098
Germany

Reinald Koch

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
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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