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Simplified Tax Accounting and the Choice of Legal Form

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  • Sören M. Bergner
  • Jost H. Heckemeyer

Abstract

This study investigates whether the ability to choose simplified methods of tax accounting is an important consideration in legal form decisions. Most European countries provide simplified, cash-based rules of tax accounting for small firms that considerably deviate from their general accrual tax accounting rules. The small business sector is thereby sought to be protected from disproportionally high compliance burdens. Simplified tax accounting, however, is only available for non-corporate businesses. If simplified tax accounting is indeed associated with a net benefit, its (un-)availability can change the relative gain to incorporation. We test this conjecture using data on corporate shares of business in 27 European countries over the period 2004–2010. Exploiting variation in eligibility thresholds for simplified tax accounting over time, the results suggest that small businesses indeed consider the option to choose simplified tax accounting in their choice of legal form.

Suggested Citation

  • Sören M. Bergner & Jost H. Heckemeyer, 2017. "Simplified Tax Accounting and the Choice of Legal Form," European Accounting Review, Taylor & Francis Journals, vol. 26(3), pages 581-601, July.
    • Handle: RePEc:taf:euract:v:26:y:2017:i:3:p:581-601
    DOI: 10.1080/09638180.2016.1264881
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    References listed on IDEAS

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    1. Miguel Almunia & David Lopez-Rodriguez, 2014. "Heterogeneous Responses to Effective Tax Enforcement: Evidence from Spanish Firms," Working Papers 1412, Oxford University Centre for Business Taxation.
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    Cited by:

    1. Lejour, Arjan & Massenz, Gabriella, 2020. "Income Shifting and Organizational Form Choice : Evidence from Europe," Other publications TiSEM 3138edef-d645-4113-9981-3, Tilburg University, School of Economics and Management.
    2. Kay Blaufus & Franziska Hoffmann, 2020. "The effect of simplified cash accounting on tax and financial accounting compliance costs," Journal of Business Economics, Springer, vol. 90(2), pages 173-205, March.
    3. Tazhitdinova, Alisa, 2020. "Are changes of organizational form costly? Income shifting and business entry responses to taxes," Journal of Public Economics, Elsevier, vol. 186(C).
    4. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    5. Białek-Jaworska Anna & Opolski Krzysztof, 2018. "Provision of Loans as a Strategic Choice of an Enterprise," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 14(1), pages 12-26, March.

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