Taxpayers’ and Tax Auditors’ Acceptance of Cooperative Automated Tax Audits

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This study investigates the acceptance of “cooperative automated tax audits” (CATA) by taxpayers and tax auditors, and specifically the impact of the four features Data Privacy, Algorithm Transparency, Tax Certainty, and Independence from Tax Advisers. CATA allows taxpayers to upload detailed accounting data and receive a timely automatic assessment of the tax due. Following theories on the adoption of e-government services, algorithm aversion, and cooperative tax compliance, we hypothesize that the four features will increase taxpayers’ acceptance of CATA. Using an experimental survey among 331 taxpayers and 530 tax auditors, we analyze the impact of the four features on the acceptance of CATA and their effects on trust in and perceived power of tax authorities. Results indicate that taxpayers’ acceptance depends particularly on Tax Certainty, i.e., the automatic tax assessment cannot be overturned in a follow-up tax audit, but also on data privacy and transparency of the algorithm. Taxpayers perceive CATA as increasing tax authority’s power, and reducing its trustworthiness. In contrast, CATA, particularly when connected to the waiver of possible future tax audits, causes concerns for tax auditors, who react with lower acceptance and expect a loss in power to detect tax evasion. Overall, results suggest a stark mismatch between taxpayers’ and tax auditors’ perceptions about benefits and risks of CATA. Our study is among the first to investigate acceptance of digitalization in tax administration, and to include tax auditors’ views. Results are relevant to policymakers, suggesting that tax authorities should increase their digitalization efforts, incorporate safeguards, and educate about the importance of a trusting relationship between taxpayers and tax authorities.

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SeriesWU International Taxation Research Paper Series

WU Working Paper Series

  • WU International Taxation Research Paper Series

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