Implementing problematic tax regulation: Hysteresis and bureaucratic revolutionaries within tax administrations

• Published in: The British accounting review Vol. 55; no. 3; p. 101147
• Main Authors: Ormeño-Pérez, Rodrigo, Oats, Lynne
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.05.2023
• Subjects: Bureaucratic revolutionaries; Complexity; Hysteresis; Interest; Regulation; Tax administration; Interest; Tax administration; Regulation; Bureaucratic revolutionaries; Hysteresis; Complexity
• ISSN: 0890-8389; 1095-8347
• DOI: 10.1016/j.bar.2022.101147

Worldwide emerging demands for additional and more sophisticated regulation are triggering regulatory changes at the national level that not all tax authorities are prepared to implement effectively. We examine this phenomenon through a single case study concerned with the implementation of the problematic transfer pricing rule by the Chilean tax authority. Drawing on semi-structured interviews, other qualitative sources, and inspired by the lesser used Bourdieusian constructs of hysteresis and bureaucratic revolutionaries, we unravel the emergence, persistence and resolution of hysteresis, i.e., a misalignment between tax administration practices and the expectations imposed on that organisation within the broader tax field. The paper finds that attempts to internationalise the tax system when regulators were inexperienced gave rise to hysteresis. It also explores how the standard of the rule, in conjunction with other structural conditions, influenced the decisions of senior tax officials, thus contributing to the persistence of hysteresis within the tax authority. Finally, it illustrates how one very senior tax official, with an interest in the regulation, acted as a bureaucratic revolutionary to resolve hysteresis and make the rule work in practice. •The implementation of tax regulation is not solely a legal, but also an organisational phenomenon.•The enactment of international tax rules may cause disruptions that tax administrations may not be able to respond effectively.•These disruptions cause tax administrations' habitus to be mismatched (hysteresis) with the expectations from the tax field.•Middle-management may contribute to the persistence of hysteresis during the implementation of international tax rules.•Very senior tax administrators can revolutionise the tax administration to put in place a radical implementation strategy to strengthen its position.