Perceptions of trust, power and tax compliance motivations among large businesses and their tax auditors

Abstract

This study investigates psychological determinants of tax compliance, particularly the predictions of the Slippery Slope Framework (SSF; Kirchler et al., 2008), among large businesses and their tax auditors. The SSF predicts that trust in tax authorities determines voluntary tax compliance and that the perceived power of tax authorities to detect and penalize tax evasion determines enforced tax compliance. While the predictions of the SSF have consistently been found in studies focusing on individual taxpayers, few studies have tested the SSF in the context of large businesses or focused on tax auditors and their perceptions of businesses’ tax compliance. Nevertheless, trust-based approaches to tax collection have gained popularity, with cooperative tax auditing programs directly targeting large businesses. Using questionnaire data from 366 representatives of large businesses operating in Austria and 208 Austrian tax auditors, I conduct structural equation models testing the applicability of the SSF among these groups. In the group of businesses, the predictions of the SSF appear to hold. However, significant associations between trust and voluntary compliance and power and enforced compliance are mainly driven by the female subsample. Among tax auditors, there is no significant association between trust and voluntary compliance when power is introduced as a control variable. Overall, results suggest limited applicability of the SSF in a large business context and a stark mismatch between businesses’ and tax auditors’ perceptions on tax compliance. More research is needed to investigate the difference in results between female and male business representatives and non-economic determinants of tax compliance in a large business context.