Corporate In-House Human Capital Tax Investments

• Main Authors: CHEN, Xia, CHENG, Qiang, CHOW, Travis, LIU, Yanju
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2017
• Subjects: Human Capital; Tax Planning; Tax Avoidance; Tax Risk; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1417; https://ink.library.smu.edu.sg/context/soa_research/article/2416/viewcontent/CorporateInhouseHumanCapitalTaxInvestments_2017May_wp.pdf
• Institution: Singapore Management University

In-house human capital investment in the tax function is a significant input to a firm’s tax planning. Yet, due to lack of data, there is little empirical evidence on whether corporate in-house tax departments are associated with effective tax planning. We examine this issue using hand-collected data on corporate tax employees in S&P1500 firms. We find that firms with larger in-house tax departments 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.