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The Effects of Cooperative Compliance on Firms’ Tax Risk, Tax Risk Management and Compliance Costs

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  • Eva Eberhartinger

    (Vienna University of Economics and Business)

  • Maximilian Zieser

    (Vienna University of Economics and Business)

Abstract

In cooperative compliance programs, firms and tax administrations agree on cooperation instead of confrontation. Firms provide full transparency and advanced tax control frameworks. Tax administrations, in turn, offer certainty as to the tax treatment of complex transactions. In this study, we test how firms’ perceptions of tax risk, the quality of tax risk management, and compliance costs are related to cooperative compliance. To our knowledge, this is the first study that attempts to analyze both reasons for and consequences of participation in cooperative compliance programs. We examine the Austrian cooperative compliance pilot project known as horizontal monitoring that was aimed at large businesses and launched in 2011. We use survey data from representatives of firms participating in the pilot project and a sample of comparable firms under a traditional ex-post audit regime. We conduct group comparisons to test differences between these groups, as well as mediation analyses to shed light on more complex relationships between variables. Results show that horizontal monitoring firms perceive a significantly higher increase in tax certainty, which is associated with significant relative decreases in tax risk and compliance costs. Furthermore, while the quality of tax risk management upon entering the pilot project appears significantly higher for horizontal monitoring firms, they do not report greater improvement in tax risk management compared to the control group. These results are relevant for the development of cooperative compliance programs and the decision to participate in them.

Suggested Citation

  • Eva Eberhartinger & Maximilian Zieser, 2021. "The Effects of Cooperative Compliance on Firms’ Tax Risk, Tax Risk Management and Compliance Costs," Schmalenbach Journal of Business Research, Springer, vol. 73(1), pages 125-178, March.
    • Handle: RePEc:spr:sjobre:v:73:y:2021:i:1:d:10.1007_s41471-021-00108-6
    DOI: 10.1007/s41471-021-00108-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax risk; Tax certainty; Risk management; Cooperative compliance; Compliance costs; Horizontal monitoring;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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