• The Concept of "Tax Compliance Cost"
    A brief literature review

    By Dr. Mihaela Göndör



    Administrative obligations for tax purposes are a time and cost consuming burden for companies. High compliance costs diminish the attractiveness of the business climate and can determine tax avoidance and fraud. According to our research, there is no standardized method to determine the tax compliance cost.

    The complexity and variety of national fiscal systems make tax compliance even more expensive for companies doing business abroad. Although a minimum degree of harmonization has been achieved in European Union, national tax systems widely differ, different European countries having different tax regimes for different reasons. As I pointed out in other paper works, different national tax systems have a negative effect on EU market integration and on business environment for European companies, remaining obstacles should be lifted to take full advantage of the single market[1].

    The tax compliance issues is particularly important for the SMEs which often have only limited resources and insufficient expertise to comply with complex and different national rules and procedures as demonstrated in previous research.[2]

    The purpose of this article is to present the concept of "Tax Compliance Cost" - based on the literature in the research field.

    The concept of "Tax Compliance Cost"

    According to Price Waterhouse Coopers, tax levels and the accompanying administration are the biggest obstacles for a company to invest in a particular country. Price Waterhouse Coopers argues that multinationals often base their investment decision on the fiscal policies of the different countries[3].

    Eichfelder and Schorn consider three different types of tax compliance costs: personnel costs CP result from personnel resources including the working effort for bookkeeping, tax-filing, tax planning or other tax-related activities. Alternatively, a business may substitute personnel resources by capital for tax administration hardware or software, with the costs CC (RC), or by an external fiscal consultant with the costs ER [4].

    According to some researchers, a complex tax system generates new compliance costs for acquiring and updating the knowledge, named learning costs LC [5].

    According to Reekmans and Simoens, compliance costs consist of time spent, cash expenses and psychological costs[6].The total time spent contains employee costs CP, entrepreneur costs RP and/or fees paid to external accountants and fiscal consultant ER. The psychological costs refer to the effects upon a taxpayer having to deal with tax affairs, e.g. mental stress MS, which is a difficult to measure component, but sometimes represents an important burden for personnel and entrepreneur.

    Reekmans and Simoens consider three categories of compliance costs i.e. pre-filling PreF, filling F and post-filling PostF costs [6].

    • PreF include the follow-up of new fiscal legislation and the consultancy needed to comply with it at the lowest costs and the gathering of the necessary information and documents to complete the tax application forms.
    • F are mostly considered as the biggest costs and include: the costs of reporting R on paper or by internet the fiscal authorities and towards the social security; the costs of calculating the amounts of corporate income tax, VAT, excises, custom duties, local taxes and social security contributions due and of executing the necessary payments, the so called payment-time PT.
    • Most of PostF consist of control CS and auditing AS services [6].


    Most of Tax Compliance Cost (TCC) includes costs that are beyond the control of the companies. This is the reason for the national and European responsible authorities to simplify the fiscal system and to find a solution for a common consolidated European tax rules in order to reduce the compliance costs. This is very important especially for SMEs, disproportionately affected by regulatory and administrative obligations.


    1. Göndör, Mihaela, A Common Consolidated Corporate Tax Base in order to improve the European SMEs Business Environment, “Curentul juridic” Journal, Year IX, No. 1 (44), 2011, pp. 151-158
    2. Göndör Mihaela, SME’s Fiscal Compliance Costs as a Matter of Common Concern, EMT ‘11, Angers, France, WSEAS Press, 2011, pp.163-167
    3. Price Water House Coopers, Paying Taxes, http://www.pwc.com/be/nl/press/2008-11-11-paying-taxes-2009.jhtm, 2009
    4. Eichfelder, Sebastian and Schorn, Michael, Tax compliance costs: A business administration perspective, Diskussionsbeiträge des Fachbereichs Wirtschaftswissenschaft der Freien Universität Berlin, 2009, pp.1-33
    5. Holtzman, Y., Challenges in achieving transparency, simplicity and administering of the united states tax code, Journal of Management Development, 26(5), 2007, pp.418-427
    6. Reekmans, Catherine, Gudrun Simoens, How high are the tax compliance costs for Belgian SMEs, Ghent University Journal, 2010, pp. 1-72
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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Dr. Mihaela Göndör

Dr. Mihaela Göndör is an Associate Professor PhD at “Petru Maior” University of Tîrgu Mures, Romania. Her educational background includes Bachelor of Economics, Master Degree in Local Public Administration Management, PhD in Economics/Financial Management and a Postdoctoral degree in EU fiscal policies. Mihaela is consultant and Judicial Tax Expert, member of the Chamber of Tax Consultants, Romania. She is awarded with a postdoctoral scholarship from the Romanian Academy with the theme “Discretionary and Nondiscretionary Fiscal Policy of European Union Member States”. She is author and co-author of 10 books, 47 university courses, 29 professional research papers published in international journals indexed in international research bases, 70 publications in international conferences volumes and proceedings. She is in charge of the following academic courses: Public Finance, Public Budget, Comparative Taxes and Fiscal Policies, Financial Policies, International Finance. Her research interests are public finance, taxation, fiscal policy in EU.
She is regularly quoted in local and international research papers, scientific articles, books, and publications.

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