The cooperative approach to corporate tax compliance: An empirical assessment

Abstract

Tax authorities increasingly rely on a cooperative approach to support corporate tax compliance. This approach, however, lacks empirical substantiation, and it is unclear whether it delivers on its expected benefits. We identify the underlying principles of this approach using reports and policy recommendations of the Organization of Economic Cooperation and Development (OECD) and formalize these in a working theory. We test this working theory in a sample of large businesses, using a unique combination of survey data and tax audit results from the Netherlands. We find that corporate taxpayers’ perceived procedural justice and transparency from these taxpayers in their dealings with the tax authority are positively associated with the quality of the relationship between taxpayer and tax authority. The increased quality of this relationship affects corporate income tax compliance but not value added tax (VAT) compliance. Furthermore, our results suggest that the quality of internal tax control contributes to taxpayer transparency and compliance, the latter via the prevention of unintentional errors. Overall, our results suggest that the cooperative approach can help improve the way taxpayer and tax authority interact, but that its ultimate contribution to tax compliance can differ between various taxes and various types of non-compliance.