Measuring tax complexity across countries : a survey study on MNCs

This paper introduces an index that comprehensively measures the complexity of countries' corporate income tax systems faced by multinational corporations. It builds on surveys of highly experienced tax consultants of the largest international tax services networks. The index, called Tax Complexity Index (TCI), is composed of a tax code subindex covering tax regulations and a tax framework subindex covering tax processes and features. For a sample of 100 countries, we find that the level of tax complexity varies considerably across countries, while tax code and framework complexity also vary within countries. Overall, tax complexity is strongly driven by the complexity of transfer pricing regulations in the tax code and tax audits in the tax framework. When analyzing the associations with other country characteristics, we identify different patterns. For example, tax framework complexity is negatively associated with countries' governance, suggesting that strongly governed countries tend to have less complex tax frameworks, while tax code complexity is positively associated with the statutory tax rate, indicating that high-tax countries tend to have more complex tax codes. However, none of the observed associations are very strong. We conclude that tax complexity represents a distinct characteristic and propose our (sub)indices be used in future research