Research

Abstract: This study examines the effect of a major tax reform on firms’ demand for internal tax department employees. Specifically, we analyze the effects of the Tax Cuts and Jobs Act (TCJA) on the number of job postings and skill profiles for tax department positions. We employ machine learning techniques to identify and classify approximately 13,500 tax-related job postings posted by 1,251 firms from 2016–2019. Using a difference-in-differences research design, we find a 32% increase in the number of tax-related job postings in the two years following TCJA enactment among U.S. treatment firms relative to U.K. control firms. LinkedIn-based employment data show that tax department size increased after the TCJA, confirming actual hiring. We also find that firms increase demand especially for tax compliance employees. Overall, our findings provide evidence that major tax reforms are associated with economically meaningful changes in the scale and composition of internal tax functions.

Abstract: This study examines the drivers of transfer pricing complexity, compliance, and associated costs. Drawing on the literature and expert insights, we conduct a survey of multinational firms focusing on the manufacturing sector and investigate approaches to mitigate transfer pricing complexity. Our findings reveal three key strategies for reducing complexity, compliance costs, and enhancing compliance: standardization of transfer pricing documentation, enhanced cooperation between tax authorities, and increased transparency through extended information exchange among tax authorities and between tax authorities and firms. Our research contributes to the discourse on international tax reform, offering evidence-based insights and practical recommendations for streamlining transfer pricing processes, potentially leading to improved compliance and reduced administrative burdens.

Abstract: Recent regulatory changes and the adoption of the ‘DAC 7’ EU Directive have significantly increased the importance of Tax compliance management systems (Tax CMS) in German tax audits. Our interview-based study, which draws on the insights of experts from various sectors, including industry and commerce on the one hand side and tax advisors on the other hand side, reveals nuanced perspectives on the impact of Tax CMS on tax audits. Our results reveal that the number of Tax CMS in German firms has increased in recent years and that, in particular, the majority of large firms have implemented these control systems. From a firm’s perspective, there has been no discernible impact on the duration, scope, or focus of tax audits, nor the frequency of tax disputes or the number and size of tax refunds. However, tax practitioners in advisory firms report a slight positive change in the audit environment, with fewer tax disputes, and a more efficiency-driven approach to audit procedures, with an increase in process-oriented audits. These findings represent preliminary observations on the use and effectiveness of Tax CMS in tax audits. They provide early insights into the advantages and disadvantages of these systems. These findings are particularly relevant given the expected increasing role of Tax CMS in German tax audits, driven by ongoing regulatory developments.