Do investors request advance tax rulings to alleviate tax risk (and do tax authorities provide them)? A joint taxpayers' and tax authorities' view on investment behavior

Markus Diller, Pia Kortebusch, Georg Schneider and Caren Sureth

No 167, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: Tax uncertainty often negatively affects investment. Advance tax rulings (ATRs) are commonly used to provide tax certainty. We analyze ATRs from the taxpayers' and tax authorities' perspectives. Investors request ATRs if the fee does not exceed a certain threshold. We integrate this finding into the tax authorities' decision whether to offer ATRs. We find that ATRs are usually only offered if tax authorities are capable of significantly reducing their tax audit costs or increasing the detection probability. Otherwise, ATRs may be beneficial only if the tax authorities restrict them to classes of investments or use investment-specific fees. These results provide new explanations for why ATRs are currently not as intensively requested by taxpayers as expected against the background of high tax uncertainty. Moreover, the findings help to improve the design of ATRs.

Keywords: Advance Tax Rulings; Fee Design; Investment Effects; Tax Risk; Tax Uncertainty (search for similar items in EconPapers)
JEL-codes: H21 H25 M41 M42 M48 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-acc, nep-pbe, nep-pub and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:167

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