The Tax Compliance Costs of Large Corporations: An Empirical Inquiry and Comparative Analysis

This article considers the tax compliance costs incurred in recent years by the large corporate sector, based on a survey of large and very large business and international groups in Australia. It compares and contrasts the current burden with the burden that was encountered by such businesses, in Australia and elsewhere in recent years, and identifies key trends in the compliance cost profile of the large corporate sector and possible explanations for those trends. The article also discusses the factors that are perceived by respondents to give rise to high compliance costs. Finally, it provides insights into the relationship between the tax risk positions taken by Australian firms in the large corporate sector and their compliance cost profiles. The research outcomes are both confirmatory and insightful. They confirm key findings from the literature that tax compliance costs are significant, regressive and are not reducing over time, but also provide new insights into the little-known compliance costs profile of the large corporate sector. The research suggests that, apart from business size, the number of taxes that the entity has to comply with is a significant predictor of the level of tax compliance costs. It also finds that, after controlling for size, entities which have been identified as a significant compliance risk by the tax authority had higher compliance costs than those with “lower” risk classifications. Besides these statistically measurable determinants, the study suggests that three broad drivers of tax compliance costs are perceived by taxpayers: the complexity and uncertainty of tax rules; the administrative compliance requirements imposed by tax authorities; and international exposure.