Anti-Tax Avoidance Rules and Tax Complexity

Abstract

In recent years, many countries have introduced new anti-tax avoidance rules, which are often criticized for increasing tax complexity. Motivated by these concerns, our study investigates how the design of anti-tax avoidance rules and country characteristics are related to this perceived complexity. Based on hand-collected data for 57 countries, we find that most elements of anti-tax avoidance rules that are intended to be taxpayer friendly do not reduce perceived complexity. We show that taxpayer-friendliness is discussed and operationalized in different ways. For example, simplifying elements such as generous de minimis thresholds can limit the complexity of such rules, while adding supplementary taxpayer-specific components, such as the stand-alone entity exception to interest deduction limitations, does not reduce complexity. In a cross-country study, we find that controlled foreign corporation (CFC) rules are perceived as more complex in developing countries than in developed countries. Country case studies suggest that developing countries struggle with the information exchange required for CFC rules, making them more difficult to administer. By contrast, we find that general anti-avoidance rules (GAARs) are perceived as less complex in developing countries, presumably because they are often poorly enforced.