Publication Type

Journal Article

Version

submittedVersion

Publication Date

3-2021

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.

Keywords

tax department, tax planning, tax compliance, tax avoidance, tax risk

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Contemporary Accounting Research

Volume

38

Issue

1

First Page

443

Last Page

482

ISSN

0823-9150

Identifier

10.1111/1911-3846.12637

Publisher

Canadian Academic Accounting Association

Embargo Period

6-27-2021

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/1911-3846.12637

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