Research Survey - Credit Rating Tax Advisory by Tax Advisors

An empirical proof of the implementation by the tax advisory branch in Germany


Research Paper (postgraduate), 2011

47 Pages


Excerpt

CONTENTS

List of Tables

List of Graphs

1 Introduction
1.1 Basics on Market Trends in the Tax Advisory Branch
1.2 Competitive Pressures upon Tax Consultants by Other Service Providers
1.3 Extension of the Scope of Operations in Response to Market Trends

2 Objectives and Methodology
2.1 Main Objectives of the Theses
2.2 Basic Thesis Breakdown into Partial Theses
2.3 Transforming the Partial Theses into Hypotheses
2.3.1 Generally on the Hypotheses
2.3.2 Hypothesis from Partial Thesis 1
2.3.3 Hypothesis from Partial Thesis 2
2.3.4 Hypothesis from Partial Thesis 3
2.3.5 Hypothesis from Partial Thesis 4
2.4 Method for Verifying the Partial Theses
2.4.1 Method for Hypotheses 1 and 2
2.4.2 Method for Hypothesis 3
2.4.3 Method for Hypothesis 4
2.5 Methodology of the Empirical Surveys

3 Survey of Literature und Research
3.1 Literature on Credit Rating Consultancy
3.2 Current Research Status
3.2.1 Research Status in Credit Rating Consultancy
3.2.2 Research Status in the Implementation of Credit Rating Advisory Services

4 Results
4.1 Result for Hypothesis 1
4.1.1 Restrictions on Credit Rating Advisory Services for Tax Advisors
4.1.2 Verification of Hypothesis 1
4.2 Result for Hypothesis 2
4.2.1 Qualifications for Tax Advisors
4.2.2 Verification of Hypothesis 2
4.3 Result for Hypothesis 3
4.3.1 Return Rate in the Survey
4.3.2 Evaluation of the Online Survey - Rating Practices by Banks
4.3.3 Evaluation of the Online Survey - Bank Internal Measures
4.3.4 Evaluation of the Online Survey - Impact on Rating
4.3.5 Verification of Hypothesis 3
4.4 Result for Hypothesis 4
4.4.1 Evaluation of the Online Survey - Current Credit Rating Advisory Services
4.4.2 Evaluation of the Online Survey - Future Potential
4.4.3 Verification of Hypothesis 4

5 Discussion
5.1 General on Analysis of the Survey
5.2 Market Challenges for Tax Consultants
5.2.1 Market Challenges for Tax Consultancies
5.3 The Implementation of Credit Rating Advisory Services by Tax Advisors
5.3.1 Credit Rating as an Area of Operations for Tax Consultants
5.4 Assessment of Market Chances of Credit Rating Consultancy
5.5 The Potential for Credit Rating Consultancy

6 Conclusion
6.1 Summary and Results of the Empirical Survey for Banks
6.2 Summary and Results of the Empirical Survey for Tax Consultants
6.3 Summary and Results
6.4 Contribution of the Effort Herein

7 References
7.1 General References
7.2 Dedicated Studies
7.3 List of Legal Sources and Current Law Drafts
7.4 List of Relevant Court Rulings and Acts of Law

published papers

List of Tables

Tab. 1: Branch statistics for tax consultants in Germany

Tab. 2: Survey results for banks - effect of tax consultant involvement on soft factors

Tab. 3: Survey results for banks - direct contact

Tab. 4: Survey results for banks - soft factors preferred

Tab. 5: Survey results for banks - effect of external rating reports

Tab. 6: Survey results for tax consultants - practical applications

Tab. 7: Survey results for tax consultants - practical promotion of the services

Tab. 8: Survey results for tax consultants - future marketing

Tab. 9: Survey results for tax consultants - invoicing and settlement practices

Tab. 10: Survey results for tax consultants - hourly rates for settlement purposes

Tab. 11: The risks due to takeover of tasks by clients

Tab. 12: Potential in fees for credit rating consultancy

List of Graphs

Fig. 1: Outlook by tax consultancies in 2005

Fig. 2: Market chances with business economic consultancy

1 Introduction

1.1 Basics on Market Trends in the Tax Advisory Branch

According to a study by Sutter1, 56% of tax consultancies in 2005 viewed their position in a twoyear outlook as "rather good“, with 11% even finding the outlook "very good“. On the other end of the scale, the pessimists comprised merely 11% of the respondents, judging their perspective as "rather bad“. 30% had neutral expectations and 2% made no indication.

illustration not visible in this excerpt

Fig. 1: Outlook by tax consultancies in 2005

rather poor no indication

(Source: Sutter study)

The optimism in the meantime has been rather restrained. The general economic crisis soured the mood of 2005. The 2008 branch report by Sparkassen Finanzgruppe for the branches of auditors and tax consultancies2 draws a conclusion that turnovers of tax consultancies saw a negative development already in the fourth quarter of 2007. The income of tax consultancies in fees mainly depends on turnover and profits of commercial enterprises, which means that the negative market trends for tax consultancies follow with a delay the general developments.

Also for follow-up periods as of the first half of 20093, economic projections for the tax advisory branch look rather bleak.

1.2 Competitive Pressures upon Tax Consultants by Other Service Providers

The competitive pressure on tax consultants has been on the rise not only as a result of competition within the branch itself but also compounded by allowable service offers of third parties not sanctioned as professional tax consultants4. Examples include:

- Accountancies and independent account advisors;
- Payroll accountancies including payroll accounting centers, and
- Business consultancies in economic branches.

Solicitors not working to full capacity in their legal line of work also have been encroaching on the tax consultancy market. Auditors not having participated in or passed the required quality checks (peer review schemes)5 have been increasing their activities within the classical scope of services of tax consultants6 as well.

Market dynamics have been accelerating mainly through the activities of accountancies and independent account advisors. Further also independent providers working to lower hourly rates seek market shares in those parts of the consultancy market they are allowed to operate in. In addition, a number of clients are trying to push down the rates of tax consultants and to chalk up savings in economic and/or personnel consultancy.7

1.3 Extension of the Scope of Operations in Response to Market Trends

The branch has been called to order given the changing competitive pressures in the market. The scope of operations of authorised tax consultants in Germany has been extended by means of update to the German Legal Services Act8 as of 2008.

The updated act of law opens up new additional areas of operations for tax consultants. Credit rating advisory services rank as one among the new areas.

The first key aim of the thesis is to analyse whether

- Credit rating advisory services are allowable for tax consultants, and
- What qualification options are there in credit rating advisory activities.

Yet simultaneously, also a shift has occurred in the demand for advisory skills and competences. Clients of tax advisors need and expect additional consultancy in order to weather the current general economic environment. The rating grades awarded by banks have become ever since the Basel II accounting regulations to a key variable in credit decisions. The need of consultancy in this particular area has been ignored by the market.

Given the changes in what up to recently has been a rather static tax consultancy market, the particular area of credit rating advisory services and specifically the implementation of the services by the tax advisory branch shall be analysed herein.

2 Objectives and Methodology

2.1 Main Objectives of the Theses

As held in the introduction, the tax consultancy market has been in the process of change. By means of the Legal Services Act, as of 2008 the allowable areas of operations have been extended for tax consultants. The following visualisation exemplifies the market chances that can be potentially explored by competent and targeted consultancy as additional areas of operation.

illustration not visible in this excerpt

Fig. 2: Market chances with business economic consultancy

But also a shift in the demand has occurred for consultancy skills and competences. The clients of tax consultants need and expect additional consultancy in order to withstand the current general economic environment. The rating grades given by banks have become ever since the Basel II accounting regulations a key variable in credit decisions. The need of consultancy in this particular area is being ignored by the market.

Given the changes in what up to recently has been a rather static tax consultancy market, the particular area of credit rating advisory services and specifically the implementation of the services by the tax advisory branch shall be analysed herein.

So the aim of this paper - as far as the stated below thesis holds true - the following topics and objectives shall be explored:

Main objectives

- Is there demand for the new service?
- Is there a potential for credit rating advisory services by tax consultants?
- Elaborating the current situation in rating advisory by tax advisors;
- Eleborating the potential of turnover for credit rating advisory services;
- How to implement the potential?
- How does credit rating consultancy affect the structure of the consultancies?
- What happens if a tax consultant were not to offer credit rating advisory services?

Secondary objectives

- Possibilities of rating education;
- Usable marketing instruments to provide the new service;
- Recommendations for tax advisors in terms of the new service.

The dissertation thesis is postulated as follows:

"Credit rating advisory services amount to an additional and rewarding area of operations for tax consultants in Germany. There is still a potential to develop this particular type of services. This part of consultancy market still entails a significant potential for tax advisors."

2.2 Basic Thesis Breakdown into Partial Theses

In order to be able to verify the dissertation thesis, it is split into a total of four partial theses9. The first two partial theses address the tax advisory branch.

Partial thesis1:

"There are regulations governing the provision of credit rating advisory services by tax advisors in Germany."

Partial thesis 2:

"For due implementation of credit rating advisory services, sanctioned education is needed."

The other two partial theses explore the existence of a potential for credit rating advisory services by tax consultants. The partial theses are worded as follows:

Partial thesis 3:

"There is a demand for credit rating advisory services in Germany that can be satisfied by tax advisors."

Partial thesis 4:

"The implementation of credit rating advisory services by tax advisors in Germany by now has been patchy only. This particular consultancy market still entails a significant potential for tax consultants."

2.3 Transforming the Partial Theses into Hypotheses

2.3.1 Generally on the Hypotheses

In order to be able to verify the above partial theses, they need to be converted into hypotheses. That means that criteria have to be provided for falsifiability of the theses with verification or falsification as a result.

In scientific terms, the hypotheses amount to assumptions that typically are verified by means of deductive and nomological models.

2.3.2 Hypothesis from Partial Thesis 1

The regulations need to be examined applicable to the profession of tax consultants. Partial thesis 1 is true if there are actual restrictions on credit rating advisory services by tax consultants. If there are no regulations governing the services, the partial thesis does not apply.

2.3.3 Hypothesis from Partial Thesis 2

In order to be able to verify partial thesis 2, a verification is needed of the actual possibility to gain qualification in credit rating advisory activities. Providing such qualification has become established and needed as a prerequisite for the implementation of credit rating advisory services, then partial thesis 2 is true.

If credit rating advisory services can be offered and practiced even without sanctioned education, then partial thesis 2 is false.

2.3.4 Hypothesis from Partial Thesis 3

In order to verify partial thesis 3, proof needs to be supplied of a positive demand for credit rating advisory services. If there is such a demand, then partial thesis 3 is true providing the demand can be satisfied by tax consultants.

That means the actual gist of the hypothesis from partial thesis 3 is to provide evidence of the need for credit rating advisory services in order to be able to conclude on the respective income in fees and related turnover boost potential for tax consultants. This shall be examined separately from the general need of consultancy to clients in order to determine the actual potential and need for the rating services by tax consultants in an impartial approach.

Partial thesis 3 advances the previous partial theses 1 and 2. Partial thesis 3 would be untrue if there is no demand for credit rating advisory services or the demand not satisfiable by tax consultants.

2.3.5 Hypothesis from Partial Thesis 4

Assuming that partial thesis 3 is true, implementation by now of credit rating advisory services by tax consultants shall be examined. Partial thesis 4 would be true if to date, tax consultants were not offering and practicing the services, or to insufficient extent only. As an additional prerequisite for partial thesis 4 to be true, there must be still an unexplored potential for the services in case of insufficient implementation by tax consultants.

Partial thesis 4 would be untrue if tax consultants already provide credit rating advisory services to an ideal extent or no exploitable potential exists in the market for the services.

2.4 Method for Verifying the Partial Theses

2.4.1 Method for Hypotheses 1 and 2

In order to enhance the income of self-employed tax consultants, the option is examined of extending the scope of consultancy services with credit rating advisory services and practical implementation thereof by tax consultants.

Through desk research and by exploring applicable professional guidelines and the law of tax advisors, existing provisions and restrictions are extracted applicable to credit rating advisory services and verification is implemented of hypothesis 1.

In the follow-up, the training and education options for credit rating advisory services are identified via market studies and desk research. For verifying hypothesis 2, the relevant qualification proofs specifically with regard to tax consultants and compatibility thereof with the law of tax advisors are explored.

2.4.2 Method for Hypothesis 3

In order for tax consultants to explore the particular area of credit rating advisory services and the additional potential the services entail and draw related benefits, evidence is needed of actual existence the potential.

The proof takes the form of an empirical survey among corporate customer consultants with banks in Germany. Surveys among clients of tax consultants have been consciously refrained from due to potential bias of the clients given the additional cost on their part of credit rating advisory services. The aim of this effort is to verify the need for the advisory services.

2.4.3 Method for Hypothesis 4

The extent of the implementation to date of credit rating advisory services in the market by tax consultants is explored by means of the second empirical survey.

For the purpose, self-employed tax consultants have been queried whether and to what extent they had been already offering and practicing credit rating advisory services. In this case also, the actual survey was preceded by an initial pretest in order to obtain relevant results.

2.5 Methodology of the Empirical Surveys

Verification of hypotheses 3 and 4 takes the form of surveys with banks and tax advisors respectively. In order not to compromise their relevance, both of the surveys make use of identical data collection method. The research design needed for the purpose is defined through the following criteria:

Data collection method;

Temporal aspects of the survey; Verification method.

As temporal aspect of the surveys, the number of distinct phases in a survey10 is meant. As the survey as a whole is implemented as a single continuous effort within a relatively short timeframe (up to 4 weeks11 ), the temporal aspect of the survey translates into a cross-sectional design.

The total number of officially sanctioned tax consultants amounts to quantitative selection range in the geographic sense. Based on branch-specific statistics by the German Federal Chamber of Tax Consultants12, the trends in member numbers have been as follows:

Tab. 1: Branch statistics for tax consultants in Germany

illustration not visible in this excerpt

The selection proceeds from the numbers of registered tax advisors according to regional chambers of tax consultants13. Because there are 21 regional chambers, but 16 Federal states weighting is needed according to the numbers of registered tax advisors per Federal state to verify the survey results.

Banks also need to be selected on an a priori14 basis. The significance of banks is measured by the amounts of credits provided to firms and enterprises as opposed to the bank balance sheet total. This allows to refine the selection criteria in a focused way.

In order to implement a meaningful and scientifically relevant survey, the results of the random sample-based inquiries with banks and tax consultants need to be weighted according to the insights gained. As the key respective criterion, the ratio has been chosen between the number of tax consultants per Federal state and the share of corporate loans per bank with split according to the three-pillar classification.

3 Survey of Literature und Research

3.1 Literature on Credit Rating Consultancy

Sources on credit rating consultancy have grown in numbers and volumes over the past years. This has been precipitated by the Basel Committee regulations on credit provision by banks under Basel II.

For effectively exploring the topic subject of this paper, sources are particularly useful that are generally recognised by the tax advisory branch or point out the current standard forms of training and education in credit rating consultancy in the market.

The basic sources include:

- Achleitner, A./Everling, O. (Ed.) (2003). Rating Advisory. Mit professioneller Beratung zum optimalen Bonitätsurteil. Wiesbaden: Betriebswirtschaftlicher Th. Gabler/ GWV Fachverlage GmbH. 396 p. ISBN 3-409-15010-2;
- Franke, G./ von Schimmelmann W. (Ed.) (2003). Interne und externe Ratings. Das optimale Informationssystem für die Finanzwirtschaft. Frankfurt a.M.: FAZ-Institut für Management-, Markt- und Medieninformationen. 235 p. ISBN 978-3-89981-145-2;
- Everling, O. (Ed.) (2008). Certified Rating Analyst. Munich: Oldenbourg Wissenschaftsverlag. 529 p. ISBN 978-3-486-58287-1.

A more detailed analysis of the soft factors of relevance in the rating process can be found in the master thesis by Mamerow, M. at the Heinrich Heine University of Düsseldorf15.

With its detailed examination of the context with the operations of tax consultants, a helpful source is the paper by

- Schnakenberg, T. (2005): Steuerberater in der Rating-Beratung. Grundlagen, Praxis, Perspektiven. Berlin: VDM Verlag Dr. Müller. 113 p. ISBN 3-86550-102-8.

For examining the demand for credit rating advisory services by tax consultants, the only useful study is the thesis by

- Zobel, K. (2006) Die Nachfrage nach Credit Rating Advisory: Eine empirische Analyse. Berlin: Dissertation.de - Verlag im Internet. 283 p. ISBN 978-3-86624-205-0.

[...]


1 Cf. Sutter, P. (study). (2005). Agenda 2011. Mehr Effizienz für Steuerberater. Eine Gemeinschaftsstudie von Maisberger Whiteoaks und Agenda Informationssysteme GmbH. Veröffentlichung Dezember 2005. Internet: http://www.agenda2011.de. p. 177. [quot. 10-01-05]

2 Cf. Deutscher Sparkassen- und Giroverband e.V. (Ed.). (2008). Finanzgruppe Branchendienst. Wirtschaftsprüfung und Steuerberatung. Branchenreport 2008, WZ-Code 74.12. p. 3.

3 Cf. Effner, E. (2009). Erfolgsstrategien. Pläne für die Zukunft schmieden. In: SteuerConsultant, Vol. 11. Issue 3. p. 40.

4 Cf. Mayerhöfer, A. (2005). Fibu zu Tiefstpreisen. In: SteuerConsultant. Vol. 7. Issue 5. p. 12.

5 Cf. Engelken, E. (2005). Peer Review fesselt den Berufsstand. In: SteuerConsultant, Vol. 7. Issue 11. p. 12.

6 Cf. Sutter, P. (2005). As above. p. 32.

7 Cf. Bundesverband der Deutschen Volksbanken und Raiffeisenbanken, (Ed.) (2008a). Branchen Spezial, Branchenreport des Bundesverbandes der Deutschen Volksbanken und Raiffeisenbanken, Bericht 81. Issue March 2008. p. 9.

8 Cf. RDG. Gesetz über außergerichtliche Rechtsdienstleistungen from December 12, 2007. BGBl I 2007. p. 2840. Last amended by article 6, act. from June 12, 2008. BGBl I 2008. p. 1000.

9 Cf. Diekmann, A.(2005). Empirische Forschung. Grundlagen, Methoden. p. 107.

10 Cf. Raithel, J. (2008). Quantitative Forschung - ein Praxiskurs. 2nd Edition. p. 50.

11 Cf. Abel. J./ Möller, R./Treumann, K. (1998). Einführung in die empirische Pädagogik. p. 34.

12 Cf. Bundessteuerberaterkammer. (Ed.). (2010a). Jahresbericht 2009. p. 49.

13 Cf. As above. p. 51.

14 Cf. Raithel, J. (2008). As above. p. 51.

15 Cf. Mamerow, M. (2010). Wissensbilanz in KMU - Relevanz „weicher“ Unternehmensfaktoren für den Rating-Prozess im deutschen Finanzmarkt. Master thesis at the Heinrich Heine University of Düsseldorf.

Excerpt out of 47 pages

Details

Title
Research Survey - Credit Rating Tax Advisory by Tax Advisors
Subtitle
An empirical proof of the implementation by the tax advisory branch in Germany
Author
Year
2011
Pages
47
Catalog Number
V189264
ISBN (eBook)
9783656160137
ISBN (Book)
9783656160342
File size
511 KB
Language
English
Notes
Es handelt sich um die Veröffentlichung der Forschungsergebnisse zur universitäten Lehrbefähigung im Bereich der Ratingberatung für Steuerberater.
Tags
Credit Rating Advisory, Rating, Tax Advisory, Ratingberatung, Steuerberater
Quote paper
Dr. Thomas Laufer (Author), 2011, Research Survey - Credit Rating Tax Advisory by Tax Advisors, Munich, GRIN Verlag, https://www.grin.com/document/189264

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