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The Costs of Tax Compliance of Large Enterprises: Exploratory Analysis of Large Enterprises in New Zealand

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The Costs of Tax Compliance of Large Enterprises: Exploratory Analysis of Large Enterprises in New Zealand The Costs of Tax Compliance of Large Enterprises: Exploratory Analysis of Large Enterprises in New Zealand A Thesis submitted in fulfilment of the Degree of Doctor of Philosophy in the University of Canterbury By Nikolay Shekhovtsev University of Canterbury February 2019 Table of Contents List of Tables ...................................................................................................... vi Acknowledgments .............................................................................................vii Conference Presentations from this Dissertation ........................................ viii List of Abbreviations ......................................................................................... ix Disclaimer ........................................................................................................... xi Abstract ..............................................................................................................xii Chapter 1: Introduction ................................................................................................................... 1 1.1 Background to the Study ................................................................................................................... 1 1.1.1 Tax Compliance Costs: Rationale behind Research and Measurement ................................. 1 1.1.2 Tax Compliance Costs: Conceptual and Measurement Issues ............................................... 5 1.1.3 Methods Used to Measure Tax Compliance Costs ................................................................ 5 1.1.4 Overview of Empirical Findings on Tax Compliance Costs ................................................. 7 1.2 Research Gap .................................................................................................................................... 8 1.2.1 Lack of Studies on Tax Compliance Costs in Large Enterprises ........................................... 8 1.2.2 Issues with the Definition of Large Enterprises ................................................................... 10 1.2.3 Cost Efficient Tax Compliance Administration and Tax Compliance Costs ....................... 12 1.3 Identification of the Objectives of the Study and Research Questions ........................................... 13 1.4 Significance of the Study ................................................................................................................ 14 1.5 Structure of the Thesis .................................................................................................................... 15 Chapter 2: Literature Review ...................................................................................................... 17 2.1 Historical Context of Tax Compliance Costs Studies ..................................................................... 17 2.2 Scope of Prior Studies ..................................................................................................................... 19 2.3 Tax Compliance Costs of Small and Medium Enterprises ............................................................. 21 2.4 Tax Compliance Costs of Large Enterprises ................................................................................... 23 2.4.1 Studies Conducted in the 1990s ........................................................................................... 24 2.4.1.1 US Large Enterprises .................................................................................................... 24 2.4.1.2 Canadian Large Enterprises .......................................................................................... 26 2.4.1.3 Hong Kong Public Enterprises ...................................................................................... 28 2.4.2 Studies conducted in the 2000s ............................................................................................ 30 2.4.2.1 Indonesian Large Enterprises ........................................................................................ 30 2.4.2.2 Australian Large Enterprises ......................................................................................... 32 ii 2.5 Summary of Findings from Studies on Large Enterprises .............................................................. 35 2.5.1 Main Findings ...................................................................................................................... 35 2.5.2 Limitations of the Studies .................................................................................................... 39 Chapter 3: Defining Large Enterprises in New Zealand ....................................................... 41 3.1 Introduction ..................................................................................................................................... 41 3.2 Review of the Literature on the Definition of Large Enterprises .................................................... 43 3.3 Common Criteria Used to Define Large Enterprises ...................................................................... 46 3.3.1 Criteria Based on Numerical Values .................................................................................... 47 3.3.2 Criteria Based on Qualitative Features ................................................................................ 51 3.3.2.1. Organisational Structure .............................................................................................. 51 3.3.2.2 Capital Structure ........................................................................................................... 53 3.3.2.3 Geographical Span of Operations ................................................................................. 55 3.4. Conclusion ..................................................................................................................................... 58 Chapter 4: Tax Compliance of Large Enterprises in New Zealand .................................... 60 4.1 Introduction ..................................................................................................................................... 60 4.2 Overview of Tax Compliance of Large Enterprises in New Zealand ............................................. 62 4.2.1 Business Income Tax ........................................................................................................... 64 4.2.2 Pay as You Earn Tax and Resident Withholding Tax .......................................................... 70 4.2.3 Goods and Services Tax ....................................................................................................... 72 4.2.4 Fringe Benefit Tax ............................................................................................................... 77 4.2.5 Cross-Border Taxation ......................................................................................................... 80 4.2.5.1 Controlled Foreign Companies ..................................................................................... 81 4.2.5.2 Thin Capitalisation ........................................................................................................ 84 4.2.5.3 Transfer Pricing............................................................................................................. 87 4.3 Further Aspects of Tax Obligations of Large Multinational Enterprises in New Zealand ............. 90 4.3.1 Large Multinational Enterprises and BEPS Initiatives in New Zealand .............................. 90 4.3.2 Large Multinationals’ Tax Compliance ............................................................................... 92 4.3.3 Large Multinational Groups and Their Tax Obligations in New Zealand ........................... 94 4.4 Conclusion ...................................................................................................................................... 97 Chapter 5: Conceptual Framework and Methodology .......................................................... 99 5.1 Introduction ..................................................................................................................................... 99 5.2 Conceptual Framework for Measuring Tax Compliance Costs ...................................................... 99 5.3 Unobservable Costs of Tax Compliance ....................................................................................... 103 iii 5.3.1 What are the Unobservable Costs of Tax Compliance? ..................................................... 103 5.3.3 Model of Tax Compliance Costs Strategy under the Assumption of the Rational Choice Theory ............................................................................................................................... 107 5.4 Methodology ................................................................................................................................. 108 5.4.1 Methodological Approach.................................................................................................. 108 5.4.2 Interviews ........................................................................................................................... 112 5.4.2.1 Why interviews and not a case study or a survey? ...................................................... 112 5.4.2.2 Overview ..................................................................................................................... 114 5.4.2.3 Sample Selection ........................................................................................................
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