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Corporate In‐house Tax Departments

Author

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  • Xia Chen
  • Qiang Cheng
  • Travis Chow
  • Yanju Liu

Abstract

In‐house human capital tax investment is a significant input to a firm's tax decisions. Yet, due to the lack of data on corporate in‐house tax departments, there is little empirical evidence on how tax departments are associated with tax planning and compliance outcomes. We expect the size of tax departments to be positively associated with the effectiveness of tax planning and compliance. Using hand‐collected data on the number of corporate tax employees in S&P 1500 firms over the 2009–2014 period, we find that firms with larger tax departments are associated with lower and less volatile cash effective tax rates. Furthermore, using tax employees' specialization, we identify tax departments' relative focus on planning or compliance and document a trade‐off between tax avoidance and tax risk. Specifically, tax departments with more of a tax planning focus have incrementally greater tax avoidance but higher tax risk, whereas tax departments with more of a tax compliance focus have incrementally lower tax risk but higher tax rates. Overall, this paper contributes to the literature by looking inside the “black box” of corporate tax departments and shedding light on the importance of human capital tax investment for tax outcomes. Services de fiscalité internes des sociétés L'investissement en entreprise dans le capital humain en fiscalité est un élément important des décisions des sociétés en matière de fiscalité. Pourtant, en raison de l'absence de données sur les services de fiscalité en entreprise, les données empiriques sont peu nombreuses sur la nature de l'association entre ces services de fiscalité et les résultats de la planification fiscale et de l'observation fiscale. Les auteurs formulent l'hypothèse selon laquelle la taille des services fiscaux afficherait un lien positif avec l'efficacité de la planification fiscale et de la conformité fiscale. En utilisant des données recueillies manuellement sur l'effectif des services de fiscalité internes des sociétés du S&P 1500 au cours de la période 2009‑2014, ils constatent que les sociétés possédant des services de fiscalité de plus grande envergure sont associées à des taux d'imposition effectifs en trésorerie plus faibles et moins volatils. En outre, les auteurs utilisent la spécialisation des employés des services de fiscalité pour déterminer l'intérêt relatif que portent les services de fiscalité à la planification et à l'observation, et ils recueillent de l'information sur le compromis entre évitement fiscal et risque fiscal. Ils notent en particulier que, dans les services de fiscalité qui se concentrent davantage sur la planification fiscale, l’évitement fiscal est progressivement plus important mais le risque fiscal est plus élevé, alors que dans les services de fiscalité qui se concentrent davantage sur l'observation fiscale, le risque fiscal est progressivement plus faible mais les taux d'imposition sont plus élevés. Dans l'ensemble, l’étude vient enrichir les connaissances grâce à une incursion dans la « boîte noire » des services de fiscalité d'entreprise et à un nouvel éclairage sur l'importance que revêt pour les résultats fiscaux l'investissement dans le capital humain en fiscalité.

Suggested Citation

  • Xia Chen & Qiang Cheng & Travis Chow & Yanju Liu, 2021. "Corporate In‐house Tax Departments," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 443-482, March.
  • Handle: RePEc:wly:coacre:v:38:y:2021:i:1:p:443-482
    DOI: 10.1111/1911-3846.12637
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    2. 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.
    3. Li, John, 2022. "The effect of employee satisfaction on effective corporate tax planning: Evidence from Glassdoor," Advances in accounting, Elsevier, vol. 57(C).
    4. van der Geest, Jesse, 2024. "Economic effects of tax avoidance and compliance," Other publications TiSEM aaca33bf-975d-4e21-9b5f-5, Tilburg University, School of Economics and Management.

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