Details
| Originalsprache | Englisch |
|---|---|
| Seiten (von - bis) | 1856–1885 |
| Seitenumfang | 30 |
| Fachzeitschrift | Review of Accounting Studies |
| Jahrgang | 28 |
| Publikationsstatus | Veröffentlicht - 8 Feb. 2022 |
Abstract
This study examines how a strategic tax auditor affects a multinational firm’s transfer pricing in a tax compliance game. Our model uses a divisionalized firm, in both a low-tax and a high-tax country, that decides to implement a transfer-pricing regime with either one or two sets of books. After observing its unit costs, the firm reports a compliant or noncompliant tax transfer price. In a regime with one set of books, the single transfer price coordinates the quantity decision and determines the tax payments. In a regime with two sets, different transfer prices serve those tasks. In contrast to previous studies, our analysis incorporates a strategic tax auditor, who observes the tax transfer price and decides whether to audit the firm. Real-world regulations suggest larger penalties for detected noncompliance under a two-sets-of-books transfer-pricing regime. Our analysis identifies the mixed strategy equilibria and examines how variations in the tax regulation—the tax rate difference and the penalty difference—affect the firm’s tax aggressiveness. We show that a firm acts less tax aggressively with a higher tax rate difference. Additionally, the model predicts that the firm either increases or decreases the probability of keeping one set of books for a smaller penalty difference.
ASJC Scopus Sachgebiete
- Betriebswirtschaft, Management und Rechnungswesen (insg.)
- Bilanzierung
- Betriebswirtschaft, Management und Rechnungswesen (insg.)
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in: Review of Accounting Studies, Jahrgang 28, 08.02.2022, S. 1856–1885 .
Publikation: Beitrag in Fachzeitschrift › Artikel › Forschung › Peer-Review
}
TY - JOUR
T1 - When do firms use one set of books in an international tax compliance game?
AU - Reineke, Rebecca
AU - Weiskirchner-Merten, Katrin
AU - Wielenberg, Stefan
N1 - Funding Information: We thank Eva Eberhartinger, Christian Hofmann (discussant), Clemens Löffler, Zoltán Novotny-Farkas, Thomas Pfeiffer, Christian Riegler, Georg Schneider, Caren Sureth-Sloane (discussant), and participants in the annual VHB tax group meeting 2020 and the EAA Virtual Congress 2021 for helpful comments. We are grateful to Harald Amberger, Oliver Dürr (discussant), Michael Ebert, Joachim Gassen, Ulrich Schäfer, Andreas Scholze, Robert Ullmann, and Alfred Wagenhofer, and participants in the ARFA-Workshop 2017, the EAA Annual Congress 2017, the Annual VHB Conference 2017, and the Accounting Research Workshop 2017 for helpful comments on an earlier version of this paper. We are also grateful to Stefan Reichelstein (the editor) and two anonymous reviewers for their constructive suggestions. This paper is a substantially revised version of an earlier draft, which was coauthored by Marcel Haak, whose contribution we gratefully acknowledge.
PY - 2022/2/8
Y1 - 2022/2/8
N2 - This study examines how a strategic tax auditor affects a multinational firm’s transfer pricing in a tax compliance game. Our model uses a divisionalized firm, in both a low-tax and a high-tax country, that decides to implement a transfer-pricing regime with either one or two sets of books. After observing its unit costs, the firm reports a compliant or noncompliant tax transfer price. In a regime with one set of books, the single transfer price coordinates the quantity decision and determines the tax payments. In a regime with two sets, different transfer prices serve those tasks. In contrast to previous studies, our analysis incorporates a strategic tax auditor, who observes the tax transfer price and decides whether to audit the firm. Real-world regulations suggest larger penalties for detected noncompliance under a two-sets-of-books transfer-pricing regime. Our analysis identifies the mixed strategy equilibria and examines how variations in the tax regulation—the tax rate difference and the penalty difference—affect the firm’s tax aggressiveness. We show that a firm acts less tax aggressively with a higher tax rate difference. Additionally, the model predicts that the firm either increases or decreases the probability of keeping one set of books for a smaller penalty difference.
AB - This study examines how a strategic tax auditor affects a multinational firm’s transfer pricing in a tax compliance game. Our model uses a divisionalized firm, in both a low-tax and a high-tax country, that decides to implement a transfer-pricing regime with either one or two sets of books. After observing its unit costs, the firm reports a compliant or noncompliant tax transfer price. In a regime with one set of books, the single transfer price coordinates the quantity decision and determines the tax payments. In a regime with two sets, different transfer prices serve those tasks. In contrast to previous studies, our analysis incorporates a strategic tax auditor, who observes the tax transfer price and decides whether to audit the firm. Real-world regulations suggest larger penalties for detected noncompliance under a two-sets-of-books transfer-pricing regime. Our analysis identifies the mixed strategy equilibria and examines how variations in the tax regulation—the tax rate difference and the penalty difference—affect the firm’s tax aggressiveness. We show that a firm acts less tax aggressively with a higher tax rate difference. Additionally, the model predicts that the firm either increases or decreases the probability of keeping one set of books for a smaller penalty difference.
KW - One set of books
KW - Strategic tax auditor
KW - Transfer pricing
KW - Two sets of books
UR - http://www.scopus.com/inward/record.url?scp=85124337862&partnerID=8YFLogxK
U2 - 10.1007/s11142-021-09667-9
DO - 10.1007/s11142-021-09667-9
M3 - Article
AN - SCOPUS:85124337862
VL - 28
SP - 1856
EP - 1885
JO - Review of Accounting Studies
JF - Review of Accounting Studies
SN - 1380-6653
ER -