This paper investigates the extent to which expirations of a temporary tax law reduce the ability of market participants to predict and understand corporate earnings. Examining evidence from eight separate expirations of the R&D tax credit, I find that analysts’ forecast errors, abnormal bid-ask spreads and abnormal volume increase surrounding quarterly earnings announcements for firms that are affected by the R&D tax credit. These increases suggest difficulties in interpreting earnings that are affected by the expired R&D tax credit. Further, I find that analyst revisions just following extensions of the R&D tax credit are relatively less accurate than other revisions. The results of this study call attention to previously unexplored costs of temporary tax laws, namely, capital market confusion related to corporate earnings affected by expired tax laws.
{"title":"The Effect of Temporary Tax Laws on Understanding and Predicting Corporate Earnings","authors":"Jeffrey L. Hoopes","doi":"10.2139/ssrn.2671935","DOIUrl":"https://doi.org/10.2139/ssrn.2671935","url":null,"abstract":"This paper investigates the extent to which expirations of a temporary tax law reduce the ability of market participants to predict and understand corporate earnings. Examining evidence from eight separate expirations of the R&D tax credit, I find that analysts’ forecast errors, abnormal bid-ask spreads and abnormal volume increase surrounding quarterly earnings announcements for firms that are affected by the R&D tax credit. These increases suggest difficulties in interpreting earnings that are affected by the expired R&D tax credit. Further, I find that analyst revisions just following extensions of the R&D tax credit are relatively less accurate than other revisions. The results of this study call attention to previously unexplored costs of temporary tax laws, namely, capital market confusion related to corporate earnings affected by expired tax laws.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"48 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-02-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76368644","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
M. Bérgolo, R. Ceni, G. Cruces, Matias Giaccobasso, Ricardo Perez-Truglia
For some entities, the utility-maximizing evasion rate depends substantially on tax audit features, such as audit probabilities and penalty rates. Bergolo et al. (2017) document large misperceptions about these features. In this paper, we expand the analysis of survey data to explore potential sources of these misperceptions. Of all the channels that we explore, recent contact with audits best explains differences in misperceptions.
{"title":"Misperceptions About Tax Audits","authors":"M. Bérgolo, R. Ceni, G. Cruces, Matias Giaccobasso, Ricardo Perez-Truglia","doi":"10.2139/ssrn.3109034","DOIUrl":"https://doi.org/10.2139/ssrn.3109034","url":null,"abstract":"For some entities, the utility-maximizing evasion rate depends substantially on tax audit features, such as audit probabilities and penalty rates. Bergolo et al. (2017) document large misperceptions about these features. In this paper, we expand the analysis of survey data to explore potential sources of these misperceptions. Of all the channels that we explore, recent contact with audits best explains differences in misperceptions.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"67 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"83291617","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dyreng et al. (2017) find that the effective tax rates for both foreign and domestic corporations have steadily declined over the past quarter century. However, contrary to conventional wisdom, the authors also find that U.S. multinational corporations do not have a tax-based cost advantage relative to their domestic counterparts. We investigate this unexpected finding by reexamining corporate income taxes over the past quarter century employing an alternative tax avoidance measure developed by Henry and Sansing (2014). The authors measure addresses both sample selection bias and measurement error that exists when using income as the denominator when calculating effective tax rates. Using the Henry and Sansing (2014) measure of tax avoidance, we find that U.S. multinational corporations do have a tax-based cost advantage relative to their domestic counterparts. Thus, sample selection bias is a plausible explanation for the unexpected tax-based cost advantage of US domestic firms reported in prior research.
{"title":"Estimating Corporate Tax Avoidance With Accounting-Based Measures","authors":"Noel P. Brock, R. Clemons, Adam D. Nowak","doi":"10.2139/ssrn.3035592","DOIUrl":"https://doi.org/10.2139/ssrn.3035592","url":null,"abstract":"Dyreng et al. (2017) find that the effective tax rates for both foreign and domestic corporations have steadily declined over the past quarter century. However, contrary to conventional wisdom, the authors also find that U.S. multinational corporations do not have a tax-based cost advantage relative to their domestic counterparts. We investigate this unexpected finding by reexamining corporate income taxes over the past quarter century employing an alternative tax avoidance measure developed by Henry and Sansing (2014). The authors measure addresses both sample selection bias and measurement error that exists when using income as the denominator when calculating effective tax rates. Using the Henry and Sansing (2014) measure of tax avoidance, we find that U.S. multinational corporations do have a tax-based cost advantage relative to their domestic counterparts. Thus, sample selection bias is a plausible explanation for the unexpected tax-based cost advantage of US domestic firms reported in prior research.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"239 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73630480","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
For decades the Swiss banking secrecy has made it a criminal act for banks in Switzerland to reveal information about their customers' identities. As of 2018, Switzerland will exchange banking information on foreign bank customers with the respective home countries on an automatic basis. This event study estimates the abnormal returns in the stock prices of Swiss banks around important milestones toward the automatic exchange of information. There is no evidence of significant or sizeable decreases in the market value of Swiss banks due to the new tax transparency. The minimum detectable e¤ect sizes are moderate and suggest a high statistical power. The null results stand in reasonable contrast to a significant increase in the level of tax compliance among the owners of Swiss bank accounts.
{"title":"A Step Change in Tax Transparency? An Event Study on How the Automatic Exchange of Information Did Not Affect Swiss Banks","authors":"T. Stolper","doi":"10.2139/ssrn.3086617","DOIUrl":"https://doi.org/10.2139/ssrn.3086617","url":null,"abstract":"For decades the Swiss banking secrecy has made it a criminal act for banks in Switzerland to reveal information about their customers' identities. As of 2018, Switzerland will exchange banking information on foreign bank customers with the respective home countries on an automatic basis. This event study estimates the abnormal returns in the stock prices of Swiss banks around important milestones toward the automatic exchange of information. There is no evidence of significant or sizeable decreases in the market value of Swiss banks due to the new tax transparency. The minimum detectable e¤ect sizes are moderate and suggest a high statistical power. The null results stand in reasonable contrast to a significant increase in the level of tax compliance among the owners of Swiss bank accounts.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"22 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-12-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82984397","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this invited note, we provide a historical context and a brief review of tax research published in the Journal of Accounting Research over the past decade. We also describe five areas within tax research that are relatively poorly understood or sparsely researched, but have potential for significant advancement in the future.
{"title":"Virtual Issue on Tax Research Published in the Journal of Accounting Research","authors":"Scott D. Dyreng, Edward L. Maydew","doi":"10.2139/ssrn.3068168","DOIUrl":"https://doi.org/10.2139/ssrn.3068168","url":null,"abstract":"In this invited note, we provide a historical context and a brief review of tax research published in the Journal of Accounting Research over the past decade. We also describe five areas within tax research that are relatively poorly understood or sparsely researched, but have potential for significant advancement in the future.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"17 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-11-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86106452","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
C. Armstrong, Stephen Glaeser, Sterling Huang, Daniel J. Taylor
We examine the relation between managers' personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers' personal tax rates and their corporate risk-taking. Moreover—and consistent with our theoretical predictions—we find that this relation is stronger among firms with investment opportunities that have a relatively high rate of return per unit of risk, and stronger among CEOs who have a relatively low marginal disutility of risk. Importantly, our results are unique to senior managers' tax rates––we do not find similar relations for middle-income tax rates. Collectively, our findings provide evidence that managers' personal income taxes influence their corporate risk-taking decisions. JEL Classifications: G30; G32; G38; H24; H32. Data Availability: Data are available from the sources cited in the text. Data on manager tax rates used in this paper are available at: http://acct.wharton.upenn.edu/∼dtayl/.
{"title":"The Economics of Managerial Taxes and Corporate Risk-Taking","authors":"C. Armstrong, Stephen Glaeser, Sterling Huang, Daniel J. Taylor","doi":"10.2139/ssrn.3057464","DOIUrl":"https://doi.org/10.2139/ssrn.3057464","url":null,"abstract":"\u0000 We examine the relation between managers' personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers' personal tax rates and their corporate risk-taking. Moreover—and consistent with our theoretical predictions—we find that this relation is stronger among firms with investment opportunities that have a relatively high rate of return per unit of risk, and stronger among CEOs who have a relatively low marginal disutility of risk. Importantly, our results are unique to senior managers' tax rates––we do not find similar relations for middle-income tax rates. Collectively, our findings provide evidence that managers' personal income taxes influence their corporate risk-taking decisions.\u0000 JEL Classifications: G30; G32; G38; H24; H32.\u0000 Data Availability: Data are available from the sources cited in the text. Data on manager tax rates used in this paper are available at: http://acct.wharton.upenn.edu/∼dtayl/.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90588573","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
John (Xuefeng) Jiang, John R. Robinson, Maobin Wang
We investigate the financial and tax considerations associated with hiring former IRS employees and whether these hires are associated with subsequent tax payments or settlements. Utilizing professional profiles on LinkedIn between 1980 and 2012, we identify 1,697 episodes where 1,252 full-time IRS employees were hired by 784 unique public corporations. We find that firms tend to hire IRS employees prior to significant economic downturns and that firms hiring IRS personnel are associated with higher GAAP effective tax rates, tax penalties and tax shelter probabilities. Using a propensity matched sample, we find that after making an IRS hire, firms exhibit reduced effective tax rates, reduced tax rate volatility but continue to be associated with higher book-tax differences, tax settlements, and penalties.
{"title":"Sleeping with the Enemy: Taxes and Former IRS Employees","authors":"John (Xuefeng) Jiang, John R. Robinson, Maobin Wang","doi":"10.2139/ssrn.2597292","DOIUrl":"https://doi.org/10.2139/ssrn.2597292","url":null,"abstract":"We investigate the financial and tax considerations associated with hiring former IRS employees and whether these hires are associated with subsequent tax payments or settlements. Utilizing professional profiles on LinkedIn between 1980 and 2012, we identify 1,697 episodes where 1,252 full-time IRS employees were hired by 784 unique public corporations. We find that firms tend to hire IRS employees prior to significant economic downturns and that firms hiring IRS personnel are associated with higher GAAP effective tax rates, tax penalties and tax shelter probabilities. Using a propensity matched sample, we find that after making an IRS hire, firms exhibit reduced effective tax rates, reduced tax rate volatility but continue to be associated with higher book-tax differences, tax settlements, and penalties.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74681771","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Agents are required to provide the principal with a standardised receipt from all economic transactions. Taxation of the agents is based on the information on these receipts. To give the agents an incentive to comply with the procedure, the principal imposes a 'transaction tax' on all transactions where money changes possessor. The agent receiving money collects the tax from the agent supplying money. The principal subsequently claims the transaction tax and offers the agent that paid it a complete refund in return for a transaction receipt from the transaction. Together this generates an information structure and incentive mechanism that gives the principal sufficient information to perform simple but extensive bookkeeping that substantially reduces the possibilities for tax evasion and maybe also other forms of criminal economic activity.
{"title":"Mugging Tax Evaders: Using Transfers to Diminish Tax Evasion. An Information Processing Approach","authors":"Hieronymus Christopher Heyerdahl","doi":"10.2139/ssrn.2968052","DOIUrl":"https://doi.org/10.2139/ssrn.2968052","url":null,"abstract":"Agents are required to provide the principal with a standardised receipt from all economic transactions. Taxation of the agents is based on the information on these receipts. To give the agents an incentive to comply with the procedure, the principal imposes a 'transaction tax' on all transactions where money changes possessor. The agent receiving money collects the tax from the agent supplying money. The principal subsequently claims the transaction tax and offers the agent that paid it a complete refund in return for a transaction receipt from the transaction. Together this generates an information structure and incentive mechanism that gives the principal sufficient information to perform simple but extensive bookkeeping that substantially reduces the possibilities for tax evasion and maybe also other forms of criminal economic activity.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"5 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85105871","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we characterize the optimal linear and piecewise linear EITC schedule. In the linear framework we demonstrate that in the presence of unemployment, an increase of social inequality aversion and a decrease in labor aversion both derive in a lower optimal EITC. For the piecewise linear schedule, we show that in most cases the optimal schedule is a triangle, which is at odds with actual policy, that is based on a trapezoid. According to our simulation, the use of a trapezoid instead of a triangle implies a substantial loss in terms of Social Welfare. We show that a trapezoid is optimal only when the wage distribution among the working poor is even, with a discrete jump for higher wage groups. After mimicking the wage distribution in different countries, we show that changes in the share of the "very rich" have a lower impact on the optimal EITC compared to changes in the wage variance. Finally, we show that the main impact of an increased minimum wage on the optimal EITC schedule is a more pronounced phasing out.
{"title":"The Optimal Earned Income Tax Credit","authors":"E. Regev, M. Strawczynski","doi":"10.2139/ssrn.2967551","DOIUrl":"https://doi.org/10.2139/ssrn.2967551","url":null,"abstract":"In this paper we characterize the optimal linear and piecewise linear EITC schedule. In the linear framework we demonstrate that in the presence of unemployment, an increase of social inequality aversion and a decrease in labor aversion both derive in a lower optimal EITC. For the piecewise linear schedule, we show that in most cases the optimal schedule is a triangle, which is at odds with actual policy, that is based on a trapezoid. According to our simulation, the use of a trapezoid instead of a triangle implies a substantial loss in terms of Social Welfare. We show that a trapezoid is optimal only when the wage distribution among the working poor is even, with a discrete jump for higher wage groups. After mimicking the wage distribution in different countries, we show that changes in the share of the \"very rich\" have a lower impact on the optimal EITC compared to changes in the wage variance. Finally, we show that the main impact of an increased minimum wage on the optimal EITC schedule is a more pronounced phasing out.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"4 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-05-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"75452162","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The present study aimed to measuring the conformity level of income tax accounting in Jordan with the requirements of ISA (12), and because of increasing to apply the international standards by local and foreign companies in Jordan and Jordanian legislations it’s appear gap between the accounting profit and the tax profit caused Taxable temporary and permanent differences. The study seeks to achieve set of goals represented by studying and analyzing the compatibility level of income tax accounting by a questionnaire was distributed to 100 income and sales auditors working in the senior and moderate Taxpayers, directorates 85 questionnaires were retrieved and eighty were valid for the study’s purposes, the major results that is the study found the income tax accounting in Jordan does not adhere to the requirements of most of the international accounting standards as there were no presentation to the financial statements, and There was no recognition of Taxable temporary differences and deductible temporary differences (the differences between accounting profit and taxable profit) in the income tax accounting in Jordan.
{"title":"The Conformity Level of Income Tax Accounting in Jordan with the Requirements of the International Accounting Standard IAS (12) in Terms of Taxable Temporary Differences’ Recognition","authors":"A. Abdallah","doi":"10.2139/ssrn.3221069","DOIUrl":"https://doi.org/10.2139/ssrn.3221069","url":null,"abstract":"The present study aimed to measuring the conformity level of income tax accounting in Jordan with the requirements of ISA (12), and because of increasing to apply the international standards by local and foreign companies in Jordan and Jordanian legislations it’s appear gap between the accounting profit and the tax profit caused Taxable temporary and permanent differences. The study seeks to achieve set of goals represented by studying and analyzing the compatibility level of income tax accounting by a questionnaire was distributed to 100 income and sales auditors working in the senior and moderate Taxpayers, directorates 85 questionnaires were retrieved and eighty were valid for the study’s purposes, the major results that is the study found the income tax accounting in Jordan does not adhere to the requirements of most of the international accounting standards as there were no presentation to the financial statements, and There was no recognition of Taxable temporary differences and deductible temporary differences (the differences between accounting profit and taxable profit) in the income tax accounting in Jordan.","PeriodicalId":22313,"journal":{"name":"Tax eJournal","volume":"19 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-04-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"81509835","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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