Cooperative Compliance, Tax Control Frameworks and Perceived Certainty About the Tax Position in Large Organisations
Keywords:
Tax Compliance, Cooperative Compliance, Tax Certainty, Tax Control FrameworkAbstract
In recent years, a growing number of tax authorities have shifted their strategies towards large organisations to include forms of so-called cooperative compliance programmes (OECD, 2013). These programmes require large organisations to have internal (or tax) control frameworks in place that assure that they can comply with their tax obligations and can also detect uncertain tax positions and disclose these to the tax authority. In exchange, the tax authority sees to it that tax matters are resolved quickly, quietly, fairly and with finality (OECD, 2007). Cooperative compliance programmes have therefore been characterised as “transparency in exchange for certainty” (OECD, 2013, p. 28).
In this paper, we discuss two studies which examine whether the need for certainty about tax matters is indeed an important driver behind large organisations developing and implementing tax control frameworks, and whether having a tax control framework of higher quality in place increases perceived certainty about the tax position. Both Study I (n=669) and Study II (n=271) use data from a (web) survey of representatives of large organisations in the Netherlands. The results show that the need for certainty and the importance attached to tax compliance have positive effects on the quality of an internal tax control framework. Moreover, both studies find the quality of a tax control framework has a positive effect on perceived certainty about the tax position. These positive associations indicate that large organisations’ need for certainty about their tax positions stimulates them to improve their tax control frameworks in order to acquire such certainty.
References
Alm, J., Sanchez, I., & De Juan, A. (1995). Economic and noneconomic factors in tax compliance. Kyklos, 48(1), 1–18.
Bauer, A. M. (2009). Tax avoidance and the implications of weak internal controls. Contemporary Accounting Research, 33(2), 449–486.
Beck, P. J., Davis, J. S., & Jung, W. (2000). Taxpayer disclosure and penalty laws. Journal of Public Economic Theory, 2(2), 243-272.
Beck, P. J., & Jung, W. (1989a). Taxpayer compliance under uncertainty. Journal of Accounting and Public Policy, 8(1), 1-27.
Beck, P. J., & Jung, W. (1989b). Taxpayers' reporting decisions and auditing under information asymmetry. The Accounting Review, 64(3), 468-487.
Beck, P. J., & Lisowsky, P. (2014). Tax uncertainty and voluntary real-time tax audits. The Accounting Review, 89(3), 867-901.
Bennear, L.S. (2007). Are management-based regulations effective? Evidence from state pollution prevention programs. Journal of Policy Analysis and Management, 26(2), 327-348.
Braithwaite, V. (2003). A new approach to tax compliance. In V. Braithwaite (Ed.), Taxing democracy. Understanding tax avoidance and tax evasion (pp. 1–11). Aldershot: Ashgate.
Braithwaite, V., Murphy, K., & Reinhart, M. (2007). Taxation threat, motivational postures and responsive regulation. Law & Policy, 29(1), 137-158.
Colon, D. W., & Swagerman, D.M. (2015). Enhanced relationship preparedness in a Dutch multinational context: A tax control framework. Journal of Accounting and Taxation, 7(1), 13-18.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (1992). Internal control – Integrated framework. Retrieved from www.coso.org.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2004). Enterprise risk management – Integrated framework. Retrieved from https://www.coso.org/Pages/erm-integratedframework.aspx.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2006a). Internal Control Over Financial Reporting – Guidance for Smaller Public Companies. Retrieved from www.coso.org.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2006b). Internal Control over Financial Reporting – Guidance for Smaller Public Companies Frequently Asked Questions. Retrieved from www.coso.org.
Committee of Sponsoring Organizations of the Treadway Commission (COSO). (2013). Internal Control – Integrated Framework. Retrieved from https://www.coso.org/Pages/ic.aspx.
De Simone, L., Sansing, R. C., & Seidman, J. K. (2013). When are enhanced relationship tax compliance programs mutually beneficial? The Accounting Review, 88(6), 1971-1991.
Devereux, M. (2016). Measuring corporation tax uncertainty across countries: Evidence from a cross-country survey. Working Paper 16/13. Oxford: Oxford University for Business Taxation. Retrieved from http://eureka.sbs.ox.ac.uk/6292/1/WP1613.pdf.
Ford, C., & Condon, M. (2011). Introduction to “New Governance and the Business Organization”. Law & Policy, 33(4), 449-458.
Freedman, J., Loomer, L., & Vella, J. (2009). Corporate tax risk and tax avoidance: New approaches. British Tax Review, 1, 74-116.
Friedland, N. (1982). A note on tax evasion as a function of the quality of information about the magnitude and credibility of threatened fines: Some preliminary research. Journal of Applied Social Psychology, 12(1), 54-59.
Gallemore, J., & Labro, E. (2015). The importance of the internal information environment for tax avoidance. Journal of Accounting and Economics, 60(1), 149-167.
Gangl, K., Muehlbacher, S., de Groot, M., Goslinga, S., Hofmann, E., Kogler, C., Antonides, G., & Kirchler, E. (2013). “How can I help you?” Perceived service orientation of tax authorities and tax compliance. FinanzArchiv, 69(4), 487-510.
Gemmell, N., & Ratto, M. (2012). Behavioral responses to taxpayer audits: evidence from random taxpayer inquiries. National Tax Journal, 65(1), 33-57.
Gunningham, N., & Sinclair, D. (2009). Organizational trust and the limits of management-based regulation. Law & Society Review, 43(4), 865-900.
Happé, R. H. (2008). Multinationals, enforcement covenants, and fair share. In J. Friedman (Ed.), Beyond boundaries: Developing approaches to tax avoidance and tax risks management (pp. 157-176). Oxford: Oxford Centre for Business Taxation.
Hayes, A. F., Preacher, K. J., & Myers, T. A. (2011). Mediation and the estimation of indirect effects in political communication research. In E.P. Bucy & R.L. Holbert (Eds.), Sourcebook for political communication research: Methods, measures, and analytical techniques (pp. 434-465). New York: Routledge.
Heeren-Bogers, J. J., Kaptein, M., & Soeters, J. M. M. I. (2013). De harde noodzaak van soft-controls: een onderzoek naar zorgvuldig financieel en materieel beheer bij Defensie. Maandblad voor Accountancy en Bedrijfseconomie, 87, 185-197.
Holmes, Y. R. (2010). Forcing cooperation: a strategy for improving tax compliance. University of Cincinnati Law Review, 79(4), 1415-1459.
Huisman, W., & Beukelman, A. M. (2007). Invloeden op regelnaleving door bedrijven: Inzichten uit wetenschappelijk onderzoek. The Hague: Boom Juridische Uitgevers.
Internal Revenue Service (IRS) (2005). Compliance Assurance Process, 2005-50 I.R.B. Announcement 2005-87. Washington, DC: IRS.
International Monetary Fund (IMF)/Organisation for Economic Co-operation and Development (OECD). (2017). Tax Certainty: IMF/OECD Report for the G20 Finance Ministers. Retrieved from https://www.oecd.org/tax/tax-policy/tax-certainty-report-oecd-imf-report-g20-finance-ministers-march-2017.pdf.
Jacob, M., Wentland, K., & Wentland, S. (2016). Real effects of tax uncertainty: Evidence from firm capital investments. Working Paper. Retrieved from https://ssrn.com/abstract=2518243.
Jokipii, A. (2010). Determinants and consequences of internal control in firms: a contingency theory based analysis. Journal of Management & Governance, 14(2), 115-144.
Kirchler, E., Kogler, C., & Muehlbacher, S. (2014). Cooperative tax compliance: From deterrence to deference. Current Directions in Psychological Science, 23(2), 87-92.
Krawiec, K. D. (2003). Cosmetic compliance and the failure of negotiated governance. Washington University Law Quarterly, 81(2), 487-544.
Lavermicocca, C., & McKerchar, M. (2013). The impact of managing tax risk on the tax compliance behaviour of large Australian companies. Australian Tax Forum, 28(4), 707-723.
McBarnet, D. (2002). When compliance is not the solution but the problem: From changes in law to changes in attitude. In V. Braithwaite (Ed.), Taxing democracy. Understanding tax avoidance and tax evasion (pp. 229-243). Aldershot: Ashgate.
Mills, L. F., & Sansing, R. C. (2000). Strategic tax and financial reporting decisions: Theory and evidence. Contemporary Accounting Research, 17(1), 85–106.
Netherlands Tax and Customs Administration (NTCA) (2013). Supervision Large Businesses in the Netherlands. Retrieved from http://download.belastingdienst.nl/belastingdienst/docs/supervision_large_business_in_netherlands_dv4231z1fdeng.pdf.
Nielsen, V. L., & Parker, C. (2012). Mixed motives: Economic, social, and normative motivations in business compliance. Law & Policy, 34(4), 428-462.
Nolan, D., & Ng, F. (2011). Tax dispute resolution: a new chapter emerges. Tax Notes International, 62, 733-743.
Organisation for Economic Co-operation and Development (OECD). (1999). Transfer pricing guidelines for multinational enterprises and tax administrations guidelines for conducting advance pricing arrangements under the mutual agreement procedure. Paris: OECD. Retrieved from www.oecd.org.
Organisation for Economic Co-operation and Development (OECD). (2007). OECD Tax Intermediaries Study. Working paper 6 – The Enhanced Relationship. Paris: OECD. Retrieved from https://www.oecd.org/tax/administration/39003880.pdf.
Organisation for Economic Co-operation and Development (OECD). (2008). Study into the Role of Tax Intermediaries. Information note. Paris: OECD. Retrieved from www.oecd.org.
Organisation for Economic Co-operation and Development (OECD), Centre for Tax Policy and Administration. (2009). Forum on Tax Administration: Compliance Management of Large Business Task Group. Guidance note. Experiences and practices of eight OECD countries. Paris: OECD. Retrieved from http://www.oecd.org/ctp/administration/43241144.pdf.
Organisation for Economic Co-operation and Development (OECD). (2013). Co-operative compliance: A framework. Information note. Paris: OECD. Retrieved from www.oecd.org.
Parker, C., & Gilad, S. (2011). Internal corporate compliance management systems: structure, culture and agency. In C.
Parker. & V. L. Nielsen (Eds.), Explaining Compliance: Business Responses to Regulation (pp. 170-195). Cheltenham, UK: Edward Elgar Publishing Ltd.
Power, M. (2007). Organized Uncertainty: Designing a world of risk management. New York: Oxford University Press.
Reinganum, J. F., & Wilde, L. L. (1988). A note on enforcement uncertainty and taxpayer compliance. The Quarterly Journal of Economics, 103(4), 793-798.
Scotchmer, S. (1989). Who profits from taxpayer confusion? Economics Letters, 29(1), 49-55.
Scotchmer, S., & Slemrod, J. (1989). Randomness in tax enforcement. Journal of Public Economics, 38(1), 17-32.
Slemrod, J., Blumenthal, M., & Christian, C. (2001). Taxpayer response to an increased probability of audit: Evidence from a controlled experiment in Minnesota. Journal of Public Economics, 79(3), 455-483.
Stevens, L. G., Pheijffer, M., Van den Broek, J. G., Keijzer, Th. J., & Van der Hel-Van Dijk, E. C. (Eds.) (2012). Tax supervision – Made to measure: flexible when possible, strict where necessary. The Hague: Committee Horizontal Monitoring Tax and Customs Administration.
Ventry, D. J. (2008). Cooperative tax regulation. Connecticut Law Review, 41(2), 431-491.
Wunder, H. F. (2009). Tax risk management and the multinational enterprise. Journal of International Accounting, Auditing and Taxation, 18(1), 14-28.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2019 Sjoerd Goslinga, Maarten Siglé, Robbert Veldhuizen
This work is licensed under a Creative Commons Attribution 4.0 International License.
Our open access status means that authors retain the copyright of their work. However, all papers published in JOTA are done so under a Creative Commons Attribution 4.0 International license (CC BY). This means that others can share and/or adapt your work without your permission as long as they follow certain rules, including attributing your work correctly.
You can learn more about this on our Open Access, Licensing, and Copyright Policies page.
