Corporate In-house Human Capital Investment in Tax Planning

• In Event: Tax and Financial Reporting

Abstract

In-house human capital investment in the tax function is a significant input of tax planning to many firms. Yet, there is little empirical evidence on whether corporate in-house tax departments are associated with effective tax planning due to the lack of data. We examine this question using hand-collected data on corporate tax employees for S&P1500 firms. We find that firms with a larger in-house tax department are more effective in tax planning: they have lower tax rates, report lower uncertain tax benefits, and exhibit less volatile tax rates. The results are stronger for firms with in-house tax departments that have a higher proportion of senior or longer-tenured tax professionals. Overall, this paper contributes to the literature by looking inside the “black box” of corporate tax departments.

Authors

• Xia Chen, Singapore Management University

• Qiang Cheng, Singapore Management University

• Travis K Chow, Singapore Management University

• Yanju Liu, Singapore Management University