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Corporate tax planning and enforcement

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  • Dyck, Daniel

Abstract

This study investigates how strategic interactions between corporate tax planning and tax enforcement are affected by two policy instruments: strengthening tax enforcement by increasing the number of specialized enforcement staff and improving tax audit technologies. I employ an economic model with a board of director's investment in a Tax Control Framework (TCF) and a tax manager's tax planning effort jointly shaping corporate tax planning and a tax auditor's technology-based audit decision. I show that the board only invests in the TCF when the enforcement environment is sufficiently strict, because it trades-off the costs and benefits of tax planning. Since strengthening tax enforcement decreases tax planning effort, the result can be less investment in a TCF in a strict enforcement environment, implying that TCF investment and enforcement can be strategic substitutes. Strikingly, I identify conditions under which improvements in tax audit technology increase corporate tax planning and impair tax audit efficiency, due to a crowding out of audit incentives. This result contradicts the view that improving audit technologies is universally effective, particularly in tax authorities with adequate staffing.

Suggested Citation

  • Dyck, Daniel, 2025. "Corporate tax planning and enforcement," arqus Discussion Papers in Quantitative Tax Research 290, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:314430
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    References listed on IDEAS

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    More about this item

    Keywords

    tax control framework; tax planning; tax risk management; tax audit technology; tax enforcement;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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