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How do tax technology and controversy expertise affect tax disputes?

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  • Dyck, Daniel
  • Lorenz, Johannes
  • Sureth, Caren

Abstract

Given the rising number, magnitude, and harshness of tax disputes between firms and tax authorities, firms increasingly call on tax technology and controversy expertise to try to resolve these disputes. This study investigates how tax technology embedded in the firm's Tax Risk Management System (TRMS) and the expertise of tax controversy managers affect dispute outcomes and compliance incentives. Using a game-theoretic model, we derive equilibrium strategies for a tax manager's compliance effort, a controversy manager's dispute resolution effort, and a tax authority's litigation decision. Absent a controversy manager, we find that improving a firm's TRMS quality unambiguously decreases the litigation probability. However, in the presence of a controversy manager, we surprisingly find that improving TRMS quality crowds out compliance efforts and can increase litigation probability. Overall we find that a high-quality TRMS is essential to take advantage of the dispute resolution function of a controversy manager.

Suggested Citation

  • Dyck, Daniel & Lorenz, Johannes & Sureth, Caren, 2022. "How do tax technology and controversy expertise affect tax disputes?," arqus Discussion Papers in Quantitative Tax Research 274, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:274
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    References listed on IDEAS

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    More about this item

    Keywords

    tax dispute resolution; tax risk management; tax technology; controversy expertise; litigation;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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