Quotation Reineke, Rebecca, Weiskirchner-Merten, Katrin, Wielenberg, Stefan. 2022. When do Firms Use One Set of Books in an International Tax Compliance Game? Review of Accounting Studies.




This study examines how a strategic tax auditor affects a multinational firm’s transfer pricing in a tax compliance game. Our model uses a divisionalized firm, in both a low-tax and a high-tax country, that decides to implement a transfer-pricing regime with either one or two sets of books. After observing its unit costs, the firm reports a compliant or noncompliant tax transfer price. In a regime with one set of books, the single transfer price coordinates the quantity decision and determines the tax payments. In a regime with two sets, different transfer prices serve those tasks. In contrast to previous studies, our analysis incorporates a strategic tax auditor, who observes the tax transfer price and decides whether to audit the firm. Real-world regulations suggest larger penalties for detected noncompliance under a two-sets-of-books transfer-pricing regime. Our analysis identifies the mixed strategy equilibria and examines how variations in the tax regulation—the tax rate difference and the penalty difference—affect the firm’s tax aggressiveness. We show that a firm acts less tax aggressively with a higher tax rate difference. Additionally, the model predicts that the firm either increases or decreases the probability of keeping one set of books for a smaller penalty difference.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Review of Accounting Studies
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-A, VW-B, WH-A
Language English
Title When do Firms Use One Set of Books in an International Tax Compliance Game?
Year 2022
Reviewed? Y
URL https://link.springer.com/article/10.1007/s11142-021-09667-9
DOI https://doi.org/10.1007/s11142-021-09667-9
Open Access Y
Open Access Link https://link.springer.com/article/10.1007/s11142-021-09667-9


Weiskirchner-Merten, Katrin (Details)
Reineke, Rebecca (Leibniz Universität Hannover, Germany)
Wielenberg, Stefan (Leibniz Universität Hannover, Germany)
Management Accounting and Control Group AB (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5307 Business and management economics (Details)
5327 Accounting (Details)
5359 Controlling (Details)
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