Information Asymmetry and the Demand for Cross-Border Accounting Expertise

Economic Principle: Information Economics & Credence Goods

As more people travel, buy foreign real estate, move for work, purchase foreign financial assets, etc., they enter the complicated landscape of international taxation. For millions, there’s not only a matter of filing taxes but alsounderstanding dozens of duplicative rules around residency, withholding taxes, property gains, reporting foreign income, treaty benefits, etc. This rising complexity has caused explosive demand for cross-border accountants with expertise. However, underneath this rise is an even deeper economic explanation of international tax compliance being a credence good: a good that, even after purchase, consumers are unable to fully verify the quality of.

International Tax Compliance as a Credence Good

In information economics, we often classify goods as search goods (qualities can be assessed before purchasing), experience goods (qualities can be assessed after consuming the product), or credence goods when their qualities cannot be assessed by anybody, even after consumption. International tax advice is classified as a credence good.

A client cannot know whether their accountant has properly interpreted the UK–Spain tax treaty or whether a withholding tax paid in the USA can be assessed as a credit in the Australian tax return. To no surprise, the end result (no audit and no penalties) reflects nothing more than luck, not necessarily quality advice. In the same way, if an audit does take place, you will never know whether it is the fault of the client, the accountant, or just the nature of how tax authorities decide to exercise their discretion in enforcing their legislation.

This makes the service opaque by the nature of the service itself. Clients seek people with reputational signals, invest in their brand or their institutional credentials (or all three) to gauge expertise and safety.

Branding, Reputation, and Signaling in an Opaque Market

In situations of information asymmetry, consumers will often seek credible signals that reduce uncertainty. This is why major global accounting networks, including Deloitte, EY, PwC, and KPMG, remain the dominant providers of cross-border tax advisory services. Their brand value proposition is not simply technical skill or know-how—they signal “competence, care, and reliability.”

When a client hires a reputable accountant, they are not only paying for their technical or advisory work but also for a package of risk mitigation devices or mechanisms:

• Professional indemnity insurance
• Internal quality control
• Standardized training
• Global knowledge databases
• Dedicated access to specialists located in multiple jurisdictions

These risk mitigation mechanisms may act as decentralized or distributed enforcement mechanisms; they signal trust and reduce perceived risk in the client–accountant relationship. This is akin to Michael Spence’s signaling theory: certification, scale, and brand are costly signals of trustworthiness that low-quality service providers cannot easily replicate or copy, regardless of their service or practice context.

The proliferation of boutique or small cross-border tax firms also suggests that reputation does not have to emanate from large or global networks. Smaller firms often at least partially rely on their own or their team members’ specific specialized expertise—such as U.S.–Canada dual taxation expertise or U.K. non-domicile rules—to embed credibility in a narrow niche market corridor.

Moral Hazard and the Risk Spectrum from Conservative to Aggressive Planning

In the market for credence goods, moral hazard is a critical issue, for it is the service provider, and not the client, who decides how aggressive or conservative the tax strategy will be. Clients very rarely have the knowledge to understand if their tax advisor is directing them toward:

• Safe treaty-based optimization
• Structurally aggressive avoidance
• Or even illegal evasion disguised as planning

A 2022 OECD report found that 27% of audited cross-border tax filings had errors stemming from an incorrect interpretation of treaty rules. In a few markets, or large overseas investor communities, aggressive schemes have developed notoriety. Consumers may potentially understand the risk only after the fact, when adjustments or additional assessments arise several years later.

While this inherent asymmetry provides a foundation for a call for more fully credentialed and more professional (transparent) consultants and taxpayers, it also creates an opportunity for increased regulation by the agency position.

Regulatory Responses: Disclosures and Promoter Regimes

To address information asymmetry and constrain abusive schemes, governments have implemented increasingly strict reporting requirements:

• Mandatory Disclosure Rules (MDR) in the EU require advisors to disclose potentially aggressive cross-border arrangements.
• Promoter regimes in the UK and Australia provide for penalties or sanctions to firms that market high-risk tax schemes.
• The Common Reporting Standard (CRS) facilitates the automatic exchange of financial account data on individuals and entities between over 110 countries.

These measures convert private information into regulatory knowledge and increase transparency about taxpayers’ forms of hidden arbitrage.

Conclusion

The increase in cross-border tax exposure across the world—driven by remote work, investing in international real estate, and the movement of capital globally—has created one of the world’s most complicated credence-good markets in international tax compliance. Information asymmetry on the part of the taxpayer creates information asymmetry and reputational reliance, on the one hand, while governments seek increased standardization and transparency.

As cross-border mobility grows, structural demand for expertise will increase too—as such, information economics is not just theoretical—it is essential to demonstrating the importance of global accounting services to contemporary financial life.