Subsequent Tax Research Articles

Toward an understanding of tax amnesty take-up: Evidence from a natural field experiment

Governments often use partial forgiveness policy to induce debt repayments and increase the disclosure of hidden debts. While ubiquitous, much remains unknown about how well these amnesties work, for whom, and why. We partnered with the Dominican Republic Tax Authority to design a natural field experiment to understand whether, and what types of, nudges can increase amnesty take-up and repayment. Our field experiment, which covers 125,452 taxpayers collectively owing 5.5% of GDP in known debt, tests the impact of messages from the tax authority during an amnesty that highlight deterrence laws, beliefs about future amnesties, and tax morale messages for debt payment and disclosure. Importantly, we find large short-run effects—our most effective treatment increased payments of known debt by 25% and hidden debt by 48%—that are only slightly undone by reductions in subsequent tax payments.

New Legal Basis for International Risk Assessment Procedures in Germany: ICAP, ETACA

The new section 89b of the German Fiscal Code finally introduces a legal basis for international risk assessment procedures. Under these procedures, which are designed for cooperation and transparency, the tax administrations of two or more jurisdictions must at the request of the taxpayer provide an assessment of any tax default risks for facts already realized. If the risk is assessed as low, a formal review of these facts in a subsequent tax audit may be redundant.

Shareholder perceptions of external tax advisors in corporate tax planning

AbstractWe examine shareholders' perceptions about how external tax advisors contribute to corporate tax planning. As residual claimants of corporate tax planning, shareholders benefit from lower corporate taxes, but also bear the financial and reputational costs of subsequent tax enforcement. Despite the influential advisory role of external tax advisors in corporate tax planning, existing research on how shareholders perceive this role is limited. Using event study methods and exploiting the heightened regulation of tax advice through the covered opinion rules as a setting, we observe average and cross‐sectional stock returns consistent with shareholders perceiving external tax advisors as contributing unfavorably to tax planning by promoting excessively risky strategies. We further find that risky and overall tax planning declined across firms after the enactment of the rules, consistent with shareholders' perceptions about tax advisors' contributions to firms' tax planning. Overall, our findings contribute to research on shareholder perceptions and valuation of tax planning, and have important implications for practice, where regulatory oversight of external tax advisors remains a significant concern.

When the agency wants too much: Experimental evidence on unfair audits and tax compliance

This research investigates how unfairness in tax enforcement affects tax compliance. We study how unfair audits that overestimate a taxpayer's true income affect the aggregate compliance level and the post-audit tax compliance of audited taxpayers. Using an online experiment with a representative sample of UK taxpayers, we find that introducing unfair audits has a positive effect on the aggregate compliance level. However, increasing the amount by which audits overestimate true income has no effect. Moreover, we find that the experience of unfairness in tax enforcement reduces post-audit tax compliance in the subsequent tax declaration by at least 7 percentage points. Our findings suggest that threatening taxpayers with unfair audits increases compliance in the aggregate, but behavioral responses to experiencing unfair audits undermine this effect.

Conceptual conformity of deferred tax accruals: evidence from Germany and the United Kingdom

ABSTRACT This article argues that it is more appropriate to model the relation between deferred tax accruals and subsequent tax payments using a first-difference model rather than the levels model employed in the extant literature. We then use the difference model to assess the conceptual conformity of deferred tax accruals by testing if changes therein predict changes in tax payments. Using a combined sample of British and German firms we report conceptual conformity for deferred tax liabilities but not for deferred tax assets. By allowing UK and German firms to have different relations between deferred tax accruals and tax payments, we investigate the impact of country-specific factors, including the taxation system, on this predictive ability. We find conceptual conformity for deferred tax liabilities in both countries but report conceptual conformity for deferred tax assets only for German firms. Finally, we find that the introduction of the Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz (BilMoG)) in Germany in 2010 has brought the relation between changes in deferred tax accruals and changes in future tax payments of German and UK firms much closer together. Currently, the only notable difference between UK and German firms related to deferred tax liabilities pertains to the lag between changes in deferred tax liabilities and changes in tax payments that we attribute to differences in the tax depreciation rates of each country.

Required Minimum Distribution Spreadsheet Calculators Based on the SECURE Act of 2019

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 made significant changes to the required minimum distribution (RMD) schedule for individual retirement accounts and defined contribution retirement plans. Microsoft Excel spreadsheet calculators are developed to calculate annual RMD cash flows throughout retirement for those who are retired and for those who are planning to retire. Unlike internet calculators, the spreadsheet calculators allow savings to earn monthly interest throughout retirement. Further, the calculators are easy to use and allow individuals to forecast long horizon RMD distributions for subsequent tax or reinvestment planning purposes.

Tax regulation of enterprise R&D expenditures: special aspects and problems of regulation

The subject of the research is a corporate income tax regime of tax accounting of intangible assets and R&D spending. The working hypothesis is that realization of the regulative potential of tax policy in relation to stimulating R&D activity and creation of intangibles assets shall be streamlined and adapted to increase the effectiveness of innovations. Authors suggest that the key tax policy goal of the mechanism is the widening of the volumes of commercialized R&D results and intangibles, lowering the tax risks, and increasing the legal certainty. The aim of this research is formulation of tax policy proposals for subsequent reforming this mechanism of direct taxation of transactions related with R&D.To achieve the aim of the research the following research approach was employed by the authors. As a first step authors present a literature review on the issue. As a second step authors are performing the analysis of current rules related to tax accounting of R&D costs and intangibles in accordance with Tax Code of Russian Federation. As a third step authors delineate the barriers and legal obstacles in the performance of tax incentives for R&D by reviewing the judicial cases and analytical reports on the issue. Finally, authors formulate their tax policy proposals for the subsequent tax reforms in relation to tax accounting of R&D.The results and the scope of the study. Author’s working hypothesis is based on the idea that the effective application of tax policy instruments can contribute to success of the jurisdiction in winning in global tax competition game. This is particularly important in context of digitalization and for attracting investments and parts of activities of multinational enterprises to the territory of the state. Intangible assets and key people which coordinate the processes of the creation of intangibles can be regarded as the crucial value-added factors in the modern economy where technological MNEs are increasingly dominating. Countries compete internationally for these talented people and favorable and certain tax regime can positively impact on MNE decisions to make a profit center in any jurisdiction, while tax uncertainty can negatively impact this decision.Conclusions. One of the key results of this research is that R&D tax incentives in Russia remain rather unpopular instrument in corporate practice. Authors explain this with the existing legal barriers and legal uncertainty. This uncertainty leads to tax risks for taxpayers which impacts their decisions for using the incentives. Review of judicial cases related to tax accounting of R&D costs when calculating corporate income tax base showed that there are many different areas of disputes between taxpayers and tax authorities. It is important to note that some of this uncertainty is already addressed in recent amendments to Article 262 of Tax Code. Authors propose to reduce uncertainty by extending the scope of R&D tax incentives to all types of R&D activity. The goal of the research is therefore can be considered as achieved.

Decline-induced displacement: the case of Detroit

ABSTRACT Research on residential displacement typically takes up the topic when it is an expected or possible outcome of gentrification. Drawing on a case study of Detroit, we find evidence of displacement pressures driven by the collapse of home prices, not their escalation. These pressures stem from the intersection of forces operating at multiple scales, including the financialization of housing, austerity regimes of the local state, and the expansion of predatory real estate investment. Our study examines displacement pressures in Detroit since the subprime lending crisis, which triggered a wave of mortgage foreclosures. We then examine the causes and effects of the subsequent tax foreclosure crisis in Detroit and the implications of increased real estate speculation fueled by growing foreclosure inventories. We argue a focus on these varieties of displacement offers a more complete understanding of the ongoing and highly racialized restructuring of US cities following the financial crisis.

The deterrence effect of real-world operational tax audits on self-employed taxpayers: evidence from Italy

We use a large administrative tax-returns panel dataset merged with a tax audit database to estimate the effect of real-world operational tax audits on subsequent tax behavior of a large sample of Italian self-employed taxpayers. Results from operational audits do not suffer from the fact that taxpayers are aware that they have been randomly selected for research purposes and, then, such audits are viewed as more of a signal about true audit rates by the taxpayer. Our empirical approach relies on fixed-effects difference-in-difference comparisons with an ex-ante matched sample of non-audited taxpayers. To address concerns about the endogenous selection into audit, we provide evidence for the common trends assumption. We find a positive and lasting effect of audits on subsequent reported income. However, in line with theoretical predictions, taxpayers do not increase tax compliance when the tax authority does not assess a positive additional income. Our results are robust to a variety of specifications and samples.

Stirrings of Revolt: Regressive Levies, the Pocketbook Squeeze, and the 1960s Roots of the 1970s Tax Revolt

Abstract:In most accounts, the modern American “tax revolt” begins with Proposition 13, passed by California voters in June 1978. In this telling, the revolt represents an antigovernment, antiliberal shift among white homeowners instrumental in the “rise of the right” and the fall of the “New Deal order” that culminated in Ronald Reagan’s election in 1980 and his subsequent tax cuts. This article challenges that account by demonstrating that the revolt began more than a decade before Prop 13 as approval rates for local levies and bonds reached all-time lows. This local revolt was not limited to whites, nor did it portend rising conservatism. Instead, it was rooted in lower- and middle-income Americans’ frustrations with steep rises in unfair, regressive taxes during the post–World War II decades. The Kennedy-Johnson “Growth Liberals,” who were busy cutting progressive federal taxes at the same time that regressive state and local taxes were soaring, missed this pocketbook squeeze, thereby setting the stage for later events like Prop 13.

Opinion Statement ECJ-TF 3/2019 on the CJEU Decision of 22 November 2018 in Case C-575/17, Sofina, on Withholding Taxes, Losses and Territoriality

This article deals with the decision taken by the Court of Justice of the European Union in Sofina. In the authors' view, it may have extended the standard of comparability, requiring (foreign) non-dividend income of the recipient to be taken into consideration in comparing the tax treatment of domestic and outbound dividends. This comparator, however, upsets the principle of territoriality, as accepted by the Court in Futura (Case C-250/95) and Centro Equestre (Case C-345/04), by requiring the source state to take into account losses that the non-resident taxpayer has in the residence state. Taken at face value, Sofina's impact may extend well beyond withholding taxes, specifically, and dividend taxation, more generally, by attaching a no-loss condition to all source state taxing rights. It may arguably even bar the permanent establishment (PE) state from taxing profits attributable to that PE if the foreign head office is in a loss position. Moreover, applying Sofina to everyday international tax law might also not be an easy task and push administrative feasibility to its limits. The Court effectively seems to propose a non-discriminatory deferral of taxation, combined with a domestic regime, that leads to a subsequent recapture if (and only if) the non-resident taxpayer becomes profitable during a subsequent tax year.

INFORMATION SEARCH BEHAVIOR AND TAX CONSULTANTS’ RECOMMENDATION: EXPERIMENTAL EXAMINATION ON THE ROLE OF SOCIAL NORMS

This study examines the influence of client preference with respect to information search behavior and subsequent tax recommendation. Prior studies have identified that tax consultants exhibit confirmation bias in their information search processes, which is explained by the theory of motivated reasoning (Kunda, 1990). However, that theory does not take into consideration responses of tax consultant that are attributable to the way clients present their preferences. This study fills the gap by proposing a social norm activation model which can help to foster a better understanding of the nature of the confirmatory behavior. To accomplish this purpose, study participants role-played as advisors on a tax compliance task. The experiment used aweb-based instrument that involved 82 tax professionals. Results showed that tax consultants engaged inlower confirmation bias when they received an explicitly preference statement from their client than those who received an implicit statement. Furthermore, the former tax consultants recommended a more conservative tax position than the latter. These findings underscore the importance of social norm in a professional tax work environment. As a practical contribution, these findings suggest that the beliefs and norms of tax professionals influence the way they do their work.

Face-to-face vs. virtual assistance to entrepreneurs: Evidence from a field experiment in Brazil

We conduct a field experiment on formalization and subsequent tax compliance of informal entrepreneurs in Rio de Janeiro favelas. Providing in-person one-on-one training with the offer of one-on-one assistance with the formalization process increased information levels about the program, intention to formalize, formalization, and subsequent tax compliance. Providing essentially the same information and assistance via instant messaging produced similar effects on knowledge and intention to formalize, but no effects on formalization itself.

ACCOUNTABILITY PRESSURE AS DEBIASER FOR CONFIRMATION BIAS IN INFORMATION SEARCH AND TAX CONSULTANT’S RECOMMENDATIONS

Introduction: This study examines the influence of accountability pressure toward information search behavior and the subsequent tax recommendation. Background Problem: Prior research has shown that tax consultants are subject to confirmation bias during their information search when providing recommendations to their clients. Nevertheless, less attention has been given to identifying boundary condition or mitigating factors. This study proposes accountability pressure to mitigate such bias. Novelty: This study broadens the understanding of the effect of different accountability pressures on an individual’s effort and judgement making. Research Method: The research was conducted by an experimental approach using a 1x2 between-subjects design using an Internet-based instrument. Accountability pressure is manipulated into 2 levels (strong or weak). The experiment involved 82 tax professionals. Findings: The results show that accountability pressures influence the depth of the consultant information search. That is, a tax consultant those faced a high accountability pressure performed a deep search, while those who faced a weak accountability pressure conducted a shallow search. Then, a deep search leads to more conservative recommendations, while a shallow search leads to an aggressive recommendation. Furthermore, the results of interaction and simple effect tests show that the information search depth can mitigate confirmation bias occurred during information search processes. Conclusion: These findings imply that accountability within the organization needs to get more attention from tax consultants. While any prior research found that confirmation bias was proofed to have pervasive character and hard to be eliminated, this study pointed out that the accountability pressure could mitigate such bias.

El alojamiento privado turístico en España y Portugal: Comparativa regulatoria e influencia de su fiscalidad

Tourist accommodation, like any facility that regularly or occasionally offers a place for tourists to spend the night, is difficult to categorise in terms of the types or units of accommodation that can be offered in different countries, and consequently in the comparison of its regulation. Starting from this difficulty, the purpose of this paper is to analyse the legal, sectoral and tax regimes of Portugal and Spain in the field of temporary private tourist accommodation, to identify their similarities and differences, and to attempt to reach a homologous concept that permits a subsequent tax comparison in order to reach appropriate conclusions.

Illustrating the Difference Between a Pigovian Tax and Emissions Fee Using Isoquant and Isocost Geometry

The study of environmental economics is motivated by the idea that pollution constitutes a negative externality. When production costs do not include the harm to human health and the environment, the market price is too low and output levels are too high, relative to the efficient levels. The initial solution to this problem is usually the “the Pigovian tax” on production. However, all subsequent tax analysis focuses directly on emissions. This tends to leave students wondering (a) why discuss Pigou in the first place and (b) why is it better to focus on pollution emissions rather than production. I provide a graphical analysis, using isoquant and isocost geometry, to illustrate that a direct fee on the externality-generating input is more efficient than a tax on output. This analysis is something teachers might consider utilizing to clarify why there is a transition from output taxation to input taxation. JEL Classifications: A22, A23, Q50

Trust and Compliance Effects of Taxpayer Identity Theft: A Moderated Mediation Analysis

ABSTRACTWe experimentally investigate how tax authority responsibility for preventing identity theft and tax authority responsiveness following identity theft influence taxpayers' trust in the tax authority and subsequent tax compliance intentions. We find evidence that trust mediates the positive relation between tax authority responsiveness and compliance, but that this mediation effect is conditional upon levels of tax authority responsibility for the identity theft. Specifically, when taxpayers perceive that the tax authority is to blame for the identity theft, higher responsiveness by the tax authority does not significantly influence compliance through trust. However, when the tax authority is not to blame for identity theft, higher responsiveness by the tax authority significantly influences compliance through trust. These findings suggest that when the tax authority is to blame for identity theft, there may be little it can do to increase taxpayers' trust and subsequent compliance.

Стан і перспективи розвитку інформаційних технологій в Україні

Розглянуто актуальність інформаційних технологій, як одного з найважливіших чинників стимулювання економічного зростання та розвитку громадянського суспільства, зайнятості населення, соціального та політичного розвитку нашої країни. Встановлено, що на сучасному етапі переходу світового співтовариства до інформаційного суспільства ступінь розвитку інформаційних технологій стає безпосереднім чинником становлення активного та свідомого громадянина, національної конкурентоспроможності. Проаналізовано динаміку внутрішнього ринку інформаційних технологій та розглянуто вплив IT-сектору на економіку України в питаннях зростання валютних надходжень, експорту ІТ-послуг, збільшення відрахувань у бюджет. З'ясовано, що саме рівень технологічного розвитку визначає не лише економічний потенціал країни та якість життя її громадян, а також роль і місце цієї країни в глобальному суспільстві, масштаби та перспективи її економічної та політичної інтеграції з усім світом. За результатами дослідження оцінено внутрішні перешкоди, з якими стикається український сектор інформаційних технологій, виявлено проблеми щодо попиту на ІТ серед населення України. Запропоновано напрями подолання цифрової нерівності способом впровадження міжнародних стандартів і кращих практик, зокрема з питань розроблення, впровадження та використання інформаційних технологій, продуктів і послуг, за умови належного наукового, технічного і правового забезпечення реформування галузі інформаційних технологій.

Correction to: The impact of large tax settlement favorability on firms’ subsequent tax avoidance

The author has to move Table 7 “Sample selection for large tax settlement favorability measure” as Table 1 and mention it at “This procedure, presented in Table 1, yields a sample of 1912 observations for which I can measure the favorability of a large tax settlement.” under Section 3.2.

The impact of large tax settlement favorability on firms’ subsequent tax avoidance

I consider how large tax settlements compare to management expectations and then test how the favorability of a resolution (from the firm’s perspective) affects subsequent tax avoidance. Using unrecognized tax benefit information disclosed in firms’ tax footnotes, pursuant to FIN 48, I develop and validate a measure of large tax settlement favorability. I find that firms with relatively favorable settlements subsequently increase their tax avoidance but that firms with relatively unfavorable settlements do not change their behavior. The implication is that favorable settlements inform management of weak tax monitoring or opportunities to avoid additional taxes. In additional analysis, I find that increasingly unfavorable settlements are positively associated with the likelihood of a tax-related restatement announcement. Overall, these findings illustrate how tax settlement favorability has reporting consequences for both subsequent tax returns and the financial statements.