Following Dyreng et al.'s (2010) pioneering study, researchers have investigated how executives' personal characteristics drive corporate tax aggressiveness. This matters particularly for SMEs given their typically narrow upper echelons (Hambrick & Mason, 1984). One unexamined characteristic is the executives' perception of non-income tax (NIT) ownership. Based on Muehlbacher & Kirchler's (2013) findings that self-employed taxpayers differ in mentally claiming income tax ownership, affecting tax attitudes, we argue that this extends to SMEs' NIT contributions and SME tax aggressiveness as well.
Tax authorities worldwide have externalised much of the tax administration to businesses, requiring them to collect and remit various NIT contributions like VAT, payroll withholdings, and social security contributions on behalf of customers or employees (Christensen et al., 2001). Since all these contributions pass through business accounts, SME entrepreneurs' behavioural responses may foster perceptions of ownership, for reasons such as tax law misperceptions, mental accounting or personal beliefs.
As a first research objective we explore whether SME tax aggressiveness directly relates to SME entrepreneurs' perceived NIT ownership. Drawing on Reactance Theory (Brehm, 1966) and Prospect Theory (Kahneman & Tversky, 1979), we suggest that stronger ownership perceptions intensify feelings of lost freedom or financial loss, fostering tax aggressiveness. Our second research objective examines whether NIT ownership perceptions indirectly influence tax behaviour through exchange equity—the perceived balance between tax payments and public goods received (Mason & Calvin, 1978). Stronger NIT ownership perceptions may elevate subjective tax contributions, lowering exchange equity and promoting tax aggressiveness.
By extending tax ownership perceptions of corporate tax decision makers to NIT contributions, this study contributes to understanding psychological mechanisms underlying SME tax behaviour. Outsourcing tax administration to businesses may carry hidden costs, by triggering behavioural responses that increase tax aggressiveness. The potential consequences for tax revenue might be substantial, offsetting gains of externalising administrative costs.