TY - JOUR

T1 - Negotiating with the tax auditor

T2 - Determinants of tax auditors' negotiation strategy choice and the effect on firms’ tax adjustments

AU - Blaufus, Kay

AU - Lorenz, Daniela

AU - Milde, Michael

AU - Peuthert, Benjamin

AU - Schwäbe, Alexander N.

N1 - Funding Information: We thank Mark Peecher (editor), two anonymous reviewers, Jonathan Feinstein, Ulfert Gronewold, Jost Heckemeyer, Dirk Kiesewetter, Rainer Niemann, Renate Ortlieb, Deborah Schanz, Georg Schneider, and seminar participants at the Free University of Berlin, Leibniz University Hanover, LMU Munich, the University of Graz, the 2015 Tax Controversy Conference, the 2017 MaTax Conference, and the 2018 German Academic Association for Business Research (VHB) Annual Meeting for helpful comments and suggestions, and the Audit Department of the Senate Department of Finance in Berlin for the permission to conduct the survey among tax auditors.

PY - 2022/2

Y1 - 2022/2

N2 - Using a survey of tax auditors, we investigate which factors determine tax auditors' choice of negotiation strategies during tax audits and analyze the effect of their chosen strategy on audit outcomes. The results show that, compared to a cooperative auditor negotiation strategy, a competitive auditor negotiation strategy is associated with significantly higher additional assessed taxes. However, the competitive strategy is associated with a lower probability that the negotiation partners will reach an agreement. These findings indicate an advantage of combining competitive and cooperative tactics (i.e., using a “mixed strategy”). We find that although this mixed strategy does not lead to significantly fewer additional taxes, it results in a higher agreement probability. Moreover, we show that the probability of using a mixed strategy increases with audit expertise and time pressure, whereas the use of a competitive (cooperative) strategy increases with the availability of higher authority (the quality of the taxpayer's financial accounting system) and a perceived competitive (cooperative or mixed) negotiation strategy of the tax advisor. In sum, our study provides new insights into how firms' tax burden is affected by negotiations between tax auditors and firms' tax advisors. The way these negotiations affect firms' tax burden is relevant for both tax policy and firms.

AB - Using a survey of tax auditors, we investigate which factors determine tax auditors' choice of negotiation strategies during tax audits and analyze the effect of their chosen strategy on audit outcomes. The results show that, compared to a cooperative auditor negotiation strategy, a competitive auditor negotiation strategy is associated with significantly higher additional assessed taxes. However, the competitive strategy is associated with a lower probability that the negotiation partners will reach an agreement. These findings indicate an advantage of combining competitive and cooperative tactics (i.e., using a “mixed strategy”). We find that although this mixed strategy does not lead to significantly fewer additional taxes, it results in a higher agreement probability. Moreover, we show that the probability of using a mixed strategy increases with audit expertise and time pressure, whereas the use of a competitive (cooperative) strategy increases with the availability of higher authority (the quality of the taxpayer's financial accounting system) and a perceived competitive (cooperative or mixed) negotiation strategy of the tax advisor. In sum, our study provides new insights into how firms' tax burden is affected by negotiations between tax auditors and firms' tax advisors. The way these negotiations affect firms' tax burden is relevant for both tax policy and firms.

KW - Negotiation strategies

KW - Tax audit

KW - Tax avoidance

KW - Tax compliance

UR - http://www.scopus.com/inward/record.url?scp=85111969148&partnerID=8YFLogxK

U2 - 10.1016/j.aos.2021.101294

DO - 10.1016/j.aos.2021.101294

M3 - Article

AN - SCOPUS:85111969148

VL - 97

JO - Accounting, Organizations and Society

JF - Accounting, Organizations and Society

SN - 0361-3682

M1 - 101294

ER -