The Great Financial Crisis has increased concerns about whether corporations are paying a ‘fair’ amount of tax in different countries. This begs the question of what a ‘fair’ amount of tax is. The question is complicated by the continuing lack of clarity about the economic incidence of corporate income tax. Recently, it has been argued that the location of the sales revenue (turnover) of a corporation is relevant in determining the fair allocation. Of course, in many countries there is already a tax based on sales, value-added tax (VAT), also called goods and services tax (GST). This paper explores an illustration, arising from a series of cases before the European Court of Justice, of how VAT can impose a burden on corporations. The illustration raises issues of principle for VAT, but also offers lessons about how we tax corporations, particularly given proposals such as for digital sales taxes in the EU and the idea of a destination-based cash-flow tax included in legislative proposals in the US in 2016. This article explores the puzzles raised by the illustration and shows how it can throw light not only on the nature of VAT but also on the incidence of corporate income tax.
{"title":"Is VAT Also a Corporate Tax? Untangling Tax Burdens and Benefits for Companies","authors":"Ian Roxan","doi":"10.2139/SSRN.3555142","DOIUrl":"https://doi.org/10.2139/SSRN.3555142","url":null,"abstract":"The Great Financial Crisis has increased concerns about whether corporations are paying a ‘fair’ amount of tax in different countries. This begs the question of what a ‘fair’ amount of tax is. The question is complicated by the continuing lack of clarity about the economic incidence of corporate income tax. Recently, it has been argued that the location of the sales revenue (turnover) of a corporation is relevant in determining the fair allocation. Of course, in many countries there is already a tax based on sales, value-added tax (VAT), also called goods and services tax (GST). This paper explores an illustration, arising from a series of cases before the European Court of Justice, of how VAT can impose a burden on corporations. The illustration raises issues of principle for VAT, but also offers lessons about how we tax corporations, particularly given proposals such as for digital sales taxes in the EU and the idea of a destination-based cash-flow tax included in legislative proposals in the US in 2016. This article explores the puzzles raised by the illustration and shows how it can throw light not only on the nature of VAT but also on the incidence of corporate income tax.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122255562","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}
This paper investigates whether and to what extent state-level differences in business taxes influence the location decisions and labor demand of multi-establishment firms. In the United States each state administers its own unemployment insurance (UI) program, and cross-state variation leads to significant differences in the potential UI tax costs faced by employers in different states. Using US Census data on the locations of multi-state manufacturing firms for identification, I find that high tax plants were more likely to exit during economic downturns, and less likely to hire during the recovery. Moving a given plant's outside option from a high tax state to a low tax state would increase its likelihood of exit by 20% during the Great Recession. These findings suggest that decentralized administration of UI taxes may contribute to jobless recoveries and additional misallocation in the economy.
{"title":"The Effects of Unemployment Insurance Taxation on Multi-Establishment Firms","authors":"Audrey Guo","doi":"10.2139/ssrn.3480268","DOIUrl":"https://doi.org/10.2139/ssrn.3480268","url":null,"abstract":"This paper investigates whether and to what extent state-level differences in business taxes influence the location decisions and labor demand of multi-establishment firms. In the United States each state administers its own unemployment insurance (UI) program, and cross-state variation leads to significant differences in the potential UI tax costs faced by employers in different states. Using US Census data on the locations of multi-state manufacturing firms for identification, I find that high tax plants were more likely to exit during economic downturns, and less likely to hire during the recovery. Moving a given plant's outside option from a high tax state to a low tax state would increase its likelihood of exit by 20% during the Great Recession. These findings suggest that decentralized administration of UI taxes may contribute to jobless recoveries and additional misallocation in the economy.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117073184","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}
We investigate whether technological change predicts tax policy changes in 34 OECD countries from 1996 to 2016. To examine tax policy reactions, we construct two new country-level indexes, one capturing tax-related investment incentives and one capturing anti-tax avoidance rules in a country. We document a decreasing trend in statutory tax rates, stable capital investment incentives, and a trend toward stricter anti-tax avoidance rules across countries over the last two decades. Our main finding is that country-specific exposure to technological change predicts variation in these trends. We find that, following technological changes, countries tighten their anti-tax avoidance rules. Cross-sectional tests show that smaller countries deviate from this general trend and use less stringent anti-tax avoidance rules. In the competition for firms' mobile capital, smaller countries thus appear to create indirect investment incentives by opting for less salient tax policy tools (i.e., anti-tax avoidance rules).
{"title":"Technological Changes and Countries' Tax Policy Design","authors":"Alissa I. Brühne, M. Jacob, H. Schütt","doi":"10.2139/ssrn.3473767","DOIUrl":"https://doi.org/10.2139/ssrn.3473767","url":null,"abstract":"We investigate whether technological change predicts tax policy changes in 34 OECD countries from 1996 to 2016. To examine tax policy reactions, we construct two new country-level indexes, one capturing tax-related investment incentives and one capturing anti-tax avoidance rules in a country. We document a decreasing trend in statutory tax rates, stable capital investment incentives, and a trend toward stricter anti-tax avoidance rules across countries over the last two decades. Our main finding is that country-specific exposure to technological change predicts variation in these trends. We find that, following technological changes, countries tighten their anti-tax avoidance rules. Cross-sectional tests show that smaller countries deviate from this general trend and use less stringent anti-tax avoidance rules. In the competition for firms' mobile capital, smaller countries thus appear to create indirect investment incentives by opting for less salient tax policy tools (i.e., anti-tax avoidance rules).","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-10-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115866915","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 corporate wealth tax is commonly associated with a non-optimal policy in terms of fiscal revenue and efficiency. However, there is no empirical evidence regarding the behavioral response of firms to this tax. By using a bunching" methodology, which takes advantage of the non-linearities introduced by the tax design in Colombia, this paper estimates the elasticity of corporate wealth with respect to the statutory tax rate. Results indicate that, in the years when the tax is in force, we observe between 23.8% and 35.7% more firms at the wealth cuto_s where the tax rate changes. This implies estimated elasticities of 0.250 and 0.296 for firms with wealth around 3 billion pesos, which points out negative and inelastic responses of firms' wealth when facing an increase in the statutory tax rate. Absent _scal externalities, the estimated elasticities are associated with a revenue loss and marginal deadweight loss of around 1% of fiscal revenue on the evaluated taxpayer firms.
{"title":"How Responsive are Firms to the Corporate Wealth Tax?","authors":"C. Gomez","doi":"10.2139/ssrn.3452746","DOIUrl":"https://doi.org/10.2139/ssrn.3452746","url":null,"abstract":"The corporate wealth tax is commonly associated with a non-optimal policy in terms of fiscal revenue and efficiency. However, there is no empirical evidence regarding the behavioral response of firms to this tax. By using a bunching\" methodology, which takes advantage of the non-linearities introduced by the tax design in Colombia, this paper estimates the elasticity of corporate wealth with respect to the statutory tax rate. Results indicate that, in the years when the tax is in force, we observe between 23.8% and 35.7% more firms at the wealth cuto_s where the tax rate changes. This implies estimated elasticities of 0.250 and 0.296 for firms with wealth around 3 billion pesos, which points out negative and inelastic responses of firms' wealth when facing an increase in the statutory tax rate. Absent _scal externalities, the estimated elasticities are associated with a revenue loss and marginal deadweight loss of around 1% of fiscal revenue on the evaluated taxpayer firms.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-09-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129006503","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}
Is the Indian dividend distribution tax an inverse split-rate on corporate profits, thereby limiting the extent to which profits can be distributed to shareholders? Or is it a source-agnostic levy, which could also be paid out of a company's capital if all of the company's profits were distributed to shareholders? This article examines these fundamental questions about the Indian dividend distribution tax.
{"title":"The Curious Case of the Indian Dividend Distribution Tax – Inverse Split-Rates on Corporate Profits? Or Source-Agnostic Levy?","authors":"Dhruv Sanghavi","doi":"10.2139/ssrn.3441661","DOIUrl":"https://doi.org/10.2139/ssrn.3441661","url":null,"abstract":"Is the Indian dividend distribution tax an inverse split-rate on corporate profits, thereby limiting the extent to which profits can be distributed to shareholders? Or is it a source-agnostic levy, which could also be paid out of a company's capital if all of the company's profits were distributed to shareholders? This article examines these fundamental questions about the Indian dividend distribution tax.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131455756","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}
Existing studies find that tax avoidance affects the cost of debt and equity in different ways but does not examine the consequences of these associations. This study examines a direct and important implication of the effect of tax avoidance on the cost of debt and equity: capital structure choices. Using logit regressions, we find that tax avoidance is positively associated with the probability of issuing equity rather than debt. We use mediation (i.e., path) analyses to provide evidence that the effects of overall tax avoidance and risky tax avoidance on pre-corporate tax cost of equity and debt partially explain our main effects. For stronger identification, we exploit a plausibly exogenous 9 th Circuit decision to implement a difference-in-differences design. Finally, we find indirect evidence that managerial focus on GAAP ETR to estimate the after-tax cost of debt (Graham et al. 2017) partially explaining our main results.
现有的研究发现，避税以不同的方式影响债务和股权成本，但没有研究这些关联的后果。本研究考察了避税对债务和股权成本影响的一个直接而重要的含义:资本结构选择。使用logit回归，我们发现避税与发行股票而不是债券的概率呈正相关。我们使用中介(即路径)分析来提供证据，证明整体避税和风险避税对公司税前股权和债务成本的影响部分解释了我们的主要影响。为了更强的识别，我们利用看似外生的第9电路决定来实现差异中的差异设计。最后，我们发现间接证据表明，管理层关注GAAP ETR来估计税后债务成本(Graham et al. 2017)部分解释了我们的主要结果。
{"title":"The Effect of Tax Avoidance on Capital Structure Choices","authors":"Y. Lee, T. Shevlin, Aruhn Venkat","doi":"10.2139/ssrn.3422616","DOIUrl":"https://doi.org/10.2139/ssrn.3422616","url":null,"abstract":"Existing studies find that tax avoidance affects the cost of debt and equity in different ways but does not examine the consequences of these associations. This study examines a direct and important implication of the effect of tax avoidance on the cost of debt and equity: capital structure choices. Using logit regressions, we find that tax avoidance is positively associated with the probability of issuing equity rather than debt. We use mediation (i.e., path) analyses to provide evidence that the effects of overall tax avoidance and risky tax avoidance on pre-corporate tax cost of equity and debt partially explain our main effects. For stronger identification, we exploit a plausibly exogenous 9 th Circuit decision to implement a difference-in-differences design. Finally, we find indirect evidence that managerial focus on GAAP ETR to estimate the after-tax cost of debt (Graham et al. 2017) partially explaining our main results.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117064969","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}
We examine spillovers to the Irish economy from US corporate income tax rate cuts and find they lead to a small but persistent increase in Irish economic output. Our analysis of the transmission channels shows that an increase in investment, employment and exports in the externally-financed industrial sector largely drives this expansion. We also find that output spillovers from US corporate income tax cuts are larger when there is slack in the Irish labour market. Our findings suggest that the changing structure of the Irish economy means any spillovers to real economic activity from the recent US corporate tax cuts could be relatively minor. However, the larger presence and shifting focus of foreign multinational corporations’ operations in Ireland means lessons from past US corporate tax cuts may be of limited value in predicting the effects of the recent US tax system reform.
{"title":"US Corporate Tax Rate Cuts: Spillovers to the Irish Economy","authors":"Daragh Clancy","doi":"10.2139/ssrn.3486814","DOIUrl":"https://doi.org/10.2139/ssrn.3486814","url":null,"abstract":"We examine spillovers to the Irish economy from US corporate income tax rate cuts and find they lead to a small but persistent increase in Irish economic output. Our analysis of the transmission channels shows that an increase in investment, employment and exports in the externally-financed industrial sector largely drives this expansion. We also find that output spillovers from US corporate income tax cuts are larger when there is slack in the Irish labour market. Our findings suggest that the changing structure of the Irish economy means any spillovers to real economic activity from the recent US corporate tax cuts could be relatively minor. However, the larger presence and shifting focus of foreign multinational corporations’ operations in Ireland means lessons from past US corporate tax cuts may be of limited value in predicting the effects of the recent US tax system reform.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122564256","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}
This paper investigates how import duties across different part of the world influence the profitability of automobile sectors of their respected countries across the globe. Mostly developing countries are taken under observation where automobiles are imported from outside the home country. Import duties are used as a main independent variable while other independent variables used are Interest rates, Unemployment rates, Inflation rates and GDP growth rates. Number of passenger cars sold in the country was taken as representative for the profitability of the country’s automobile sector. A data set of automobile sector of the selected 50 countries of the world was analyzed using multiple regression. The findings of the result shows a negative relation between custom duties and profitability of automobile sector in a country. This result will benefit researchers to study the impact over the entire automobile industry. Government can use this study to formulate better trade policies and improve the automotive industry in Pakistan.
{"title":"Relationship between Custom Duties and Profitability of Automobile Industry: A Cross Country Analysis.","authors":"A. M. Siddiqui, D. Siddiqui","doi":"10.2139/ssrn.3400726","DOIUrl":"https://doi.org/10.2139/ssrn.3400726","url":null,"abstract":"This paper investigates how import duties across different part of the world influence the profitability of automobile sectors of their respected countries across the globe. Mostly developing countries are taken under observation where automobiles are imported from outside the home country. Import duties are used as a main independent variable while other independent variables used are Interest rates, Unemployment rates, Inflation rates and GDP growth rates. Number of passenger cars sold in the country was taken as representative for the profitability of the country’s automobile sector. A data set of automobile sector of the selected 50 countries of the world was analyzed using multiple regression. The findings of the result shows a negative relation between custom duties and profitability of automobile sector in a country. This result will benefit researchers to study the impact over the entire automobile industry. Government can use this study to formulate better trade policies and improve the automotive industry in Pakistan.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115748222","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 firm size distribution describes important economic and labor properties of any economy. Government entities must expend enormous resources in data collection, cleaning, and analysis in order to construct this and other important distributions describing the aggregate properties large economies. In the U.S., this process can be cumbersome and relies on querying multiple databases and utilizing significant computational resources. I show that construction of the U.S. firm size distribution is plausible using only individual income tax records (W2s) drawn directly from Internal Revenue Service tax records (micro data) and that the emergent distribution is statistically identical to what is reported by the United States Census Bureau. The methodology represents an incremental advance for population-scale studies in economic analysis—specifically firm and labor analysis. Finally, this paper acts as a re-validation of earlier work in fitting the firm size distribution.
{"title":"Emerging the U.S. Firm Size Distribution Using 4.2 Billion Individual Tax Records","authors":"Joseph A. E. Shaheen","doi":"10.2139/ssrn.3387584","DOIUrl":"https://doi.org/10.2139/ssrn.3387584","url":null,"abstract":"The firm size distribution describes important economic and labor properties of any economy. Government entities must expend enormous resources in data collection, cleaning, and analysis in order to construct this and other important distributions describing the aggregate properties large economies. In the U.S., this process can be cumbersome and relies on querying multiple databases and utilizing significant computational resources. I show that construction of the U.S. firm size distribution is plausible using only individual income tax records (W2s) drawn directly from Internal Revenue Service tax records (micro data) and that the emergent distribution is statistically identical to what is reported by the United States Census Bureau. The methodology represents an incremental advance for population-scale studies in economic analysis—specifically firm and labor analysis. Finally, this paper acts as a re-validation of earlier work in fitting the firm size distribution.","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131847947","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, I use confidential UK corporate tax returns data to explore whether there are systematic differences in the amount of taxable profits that multinational and domestic companies report. I find that the ratio of taxable profits to total assets reported by foreign multinational subsidiaries is one-half that of comparable domestic standalones. The majority of the difference is attributable to the fact that a higher proportion of foreign multinational subsidiaries report zero taxable profits. I document how the estimated difference is related to profit shifting and show that using accounting data leads to much smaller estimates of the difference. (JEL F23, H25, H32, L25)
{"title":"Comparing UK Tax Returns of Foreign Multinationals to Matched Domestic Firms","authors":"Katarzyna Bilicka","doi":"10.2139/ssrn.3682277","DOIUrl":"https://doi.org/10.2139/ssrn.3682277","url":null,"abstract":"In this paper, I use confidential UK corporate tax returns data to explore whether there are systematic differences in the amount of taxable profits that multinational and domestic companies report. I find that the ratio of taxable profits to total assets reported by foreign multinational subsidiaries is one-half that of comparable domestic standalones. The majority of the difference is attributable to the fact that a higher proportion of foreign multinational subsidiaries report zero taxable profits. I document how the estimated difference is related to profit shifting and show that using accounting data leads to much smaller estimates of the difference. (JEL F23, H25, H32, L25)","PeriodicalId":385233,"journal":{"name":"FEN: Differences in Taxation & Corporate Finance (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-03-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129786706","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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