Tax Benefits Research Articles

CHINA’S LEADERSHIP IN NEW ENERGY VEHICLES: STRATEGIES AND GLOBAL IMPACT

This article examines the transformative effect of China’s New Energy Vehicle (NEV) initiatives, highlighting its importance in global automotive innovation and environmental sustainability. While the term NEV is exclusively associated with China, it also encompasses electric vehicles, plug-in hybrids, and hydrogen fuel cells, as a result of the country’s strategic push to reduce pollution and greenhouse gas emissions. China’s dominance in the NEV sector is attributed to its policies, which include substantial subsidies and tax benefits, as well as a rapidly expanding domestic market and robust infrastructure investments. The article examines the way these policies have facilitated domestic production, pushed technological advancements, and improved production efficiency. It emphasizes China’s 14th Five-Year Plan, which aims to increase the market share of NEVs and develop infrastructure while aiming for carbon neutrality by 2060. The analysis suggests that other nations could be benefited by adopting similar strategies, which include government support, R&D investment, and infrastructure expansion, to create their own NEV industries. The issue of integrating foreign technology and developing local expertise is also addressed, along with potential challenges and solutions. Keywords: new energy vehicles, charging infrastructure, battery technology, sustainable transportation, market expansion, international partnerships.

FINANCIAL MANAGEMENT PRACTICES ON GROWTH OF BUSINESS ENTERPRISES IN MBINGA DISTRICT, TANZANIA

A robust financial management system forms the foundation for business growth and long-term survival. However, there is limited information on the financial management practices that contribute to business growth in the Mbinga district. This study examined financial management and working capital management practices. A semi quasi-experimental research design was employed, utilizing questionnaires distributed to a sample of 62 business owners. Descriptive statistics were analyzed using the SPSS package. The results indicated that 41.9% of business enterprises employed working capital management practices, while 24% used capital structure management practices. Financial management practices were found to enhance management efficiency with a mean score of 3.74, increase the availability of capital with a mean score of 3.61, and improve operational margins with a mean score of 3.56. The study concluded that financial management practices are crucial for business growth and recommended their implementation. The study also found that capital structure management practices were applied to a lesser extent, although businesses showed an understanding of balancing debt and equity for financial sustainability. These findings suggest that the effective implementation of financial management practices is crucial for the growth and performance of businesses in the district. The study concludes that the integration of sound financial management practices contributes to better financial decision-making, risk mitigation, and resource optimization, leading to business expansion and sustainability. From a policy perspective, the study recommends that regulators and stakeholders encourage firms to leverage debt financing due to its associated tax benefits and advantages for financial sustainability. Theoretically, the findings underscore the relevance of agency theory in understanding the dynamics between managers and shareholders, and the principle of optimal capital structure in maximizing firm value. These insights provide a foundation for future research and practical interventions aimed at improving financial management practices in similar contexts.

Estimation of Tax Benefit of US Nonprofit Hospitals

Nonprofit hospitals are under increasing scrutiny to justify the generous tax benefit they receive due to their tax-exempt status. Quantifying the value of the tax benefit they receive at the federal, state, and local levels is critical for designing informed public health policies and ensuring nonprofit hospitals' taxpayer accountability. To estimate the financial benefit that nonprofit hospitals derive from their tax-exempt status and assess how the benefit is distributed across state and local communities. Using methodologies and measures consistent with current tax law and practice and data from 2021 Medicare Cost Reports, this study calculated the total financial benefit from nonprofit hospitals' tax-exempt status for all US nonprofit hospitals with the required Cost Reports data. Nonprofit hospitals' total tax benefit, which equals the sum of federal and state income tax, sales tax, property tax, the fair market value of charitable contributions from donors, savings from tax exemptions on issued bonds, and federal unemployment tax. A total of 2927 US nonprofit hospitals received a $37.4 billion total tax benefit in 2021 from federal income tax ($11.5 billion; 31%), sales tax ($9.1 billion; 24%), property tax ($7.8 billion; 21%), state income tax ($3.7 billion; 10%), charitable contributions ($3.2 billion; 8%), bond financing ($2.1 billion; 6%), and federal unemployment tax ($200 million; <1%). Tax benefit varied substantially across states, from $25 098 (Delaware) to $159 464 (Massachusetts) per hospital bed and from $19 (Alabama) to $275 (Massachusetts) per capita. Tax benefit was highly concentrated, with 7% (n = 212) of hospitals accounting for half of the total amount. This study highlights the wide variation of nonprofit hospitals' tax benefit across states, its high concentration among a small number of hospitals, and the primary role played by state and local taxes. Policy efforts to strengthen nonprofit hospitals' taxpayer accountability are likely to be more effective when pursued at the local level. The detailed standardized estimation road map can be used by various stakeholders to estimate tax benefit for external valuation and reporting purposes, updated as laws change, and improved upon as better data sources become available.

Integrating corporate social responsibility with financial outcomes: stock performance of firms hiring US veterans during COVID-19

PurposeWe propose an alternative rationale for why some firms employ veterans, driven not solely by benevolence but also by the prospect of enhanced outcomes. Financially, hiring veterans could correlate with improved stock market performance for the hiring company while aligning with corporate social responsibility (CSR) initiatives. Our study centers on the stock market performance of companies hiring veterans. It aims to underscore a lesser-known facet of the veteran employment discourse and its connection to the hiring firm's financial performance.Design/methodology/approachThis paper evaluates the stock market performance of three VETS portfolios (made of companies that hire veterans) compared to the benchmark SPDR S&amp;P 500 ETF. Using a modular approach, we create three VETS passive indices: VETSEW (equal-weighted index), VETSPW (price-weighted index) and VETSVW (value-weighted index). The study analyzes the annual returns, portfolio allocations, risk-adjusted performance metrics and style analysis of the portfolios from January 1, 2020, to December 31, 2022.FindingsThe findings indicate that all three VETS portfolios outperformed the benchmark, with higher ending balances and superior risk-adjusted ratios such as the Sharpe and Sortino ratios. Notably, the portfolios demonstrated resilience during challenging periods, including the COVID-19 pandemic, subsequent recovery and an inflationary period.Research limitations/implicationsLimitations include the paper's focus solely on stock returns, suggesting a need for broader financial and management ratios. Moreover, a deeper exploration into how veterans contribute during turbulent times is suggested for further investigation. Although the study touches upon the financial performance of veteran-focused companies during challenging economic times, it does not extensively delve into the specific ways in which veterans add value under such circumstances, presenting an opportunity for further exploration.Practical implicationsFirms that employ veterans amid the COVID-19 pandemic demonstrate favorable risk-adjusted returns, underscoring the potential of veterans as valuable crisis-time assets. Our research further underscores the correlation between veteran hiring and enhanced financial prowess. These insights carry significant policy implications, including CSR initiatives for hiring veterans, skill translation and training and collaboration with veteran organizations.Social implicationsThe paper's findings suggest significant implications: (1) Policymakers could incentivize firms to hire veterans through tax benefits or grants, leveraging their skills for organizational resilience. (2) Collaborative efforts between policymakers and firms can promote responsible hiring, boosting a company's reputation through diversity and inclusion, positively impacting society. (3) Support for skill translation from military to civilian jobs is crucial. Programs certifying skills and tailored education aid veterans' successful transition into the workforce. (4) Collaborations between policymakers, veteran organizations and private sector entities can create networks, job placements and support systems for veterans' employment.Originality/valueNumerous prior studies within the domain of corporate social responsibility have predominantly neglected the contributions veterans offer to businesses and the underlying reasons behind firms' decisions to employ them. Our research uniquely concentrates on the stock market performance of companies that choose to hire veterans.

The Impact of the Opportunity Zone Program on Residential Real Estate

Problem definition: Opportunity zones (OZs) are designated census tracts in which real estate investments can gain tax benefits. Introduced by the U.S. Tax Cuts and Jobs Act of 2017, the goal of the OZ program is to foster economic development in distressed neighborhoods. In this paper, we investigate and optimize the OZ selection process and examine the impact of OZs by exploiting two data sets: a proprietary real estate data set that includes 36.1 million residential transactions spanning all 50 U.S. states and census-tract demographics data between 2010 and 2019. Methodology/results: We show that census tracts with higher poverty and unemployment rates were more likely to be selected. Counterintuitively, however, tracts with a higher average real estate price were also more likely to be selected. We then apply difference-in-differences, synthetic control, and matching techniques to rigorously assess the impact of the OZ program on two key real estate metrics: price and transaction volume. We find that the OZ program increased real estate prices by 4.03%–6.13% but do not observe a significant effect on the transaction volume. We also find that investors primarily targeted the high-end real estate market, namely, exhibiting a cherry-picking behavior. To better fulfill its intended societal and economic goals, we propose an optimization framework with fairness considerations for OZ assignment decisions. We show that the OZs assigned from our fairness-aware optimization formulation can better serve distressed communities and mitigate investors’ cherry-picking behavior. Managerial implications: Our paper underscores the importance of incorporating fairness in OZ designation to achieve a desirable real estate market reaction. Our large-scale empirical analysis provides a comprehensive assessment of the current government OZ assignment, and our fairness-aware optimization framework provides concrete recommendations for policy makers. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2024.0746 .

Enhancing small business success through effective tax management and policy optimization

The examination of fiscal practices and challenges faced by small businesses underscores the pivotal role of effective tax management in their success and growth. Tax deductions, which allow businesses to reduce taxable income by subtracting certain expenses, are essential tools that help alleviate financial pressures. Despite their potential benefits, many small business owners struggle due to insufficient tax planning and the need for meticulous financial record-keeping. The reviewed studies reveal a significant need to optimize tax policies to support small business development. For instance, proposals such as the Standard Business Deduction (SBD) aim to simplify the tax process by providing a fixed amount that can be claimed above the line, reducing the need for detailed expense tracking and potentially lowering compliance and enforcement costs. Additionally, recommendations for improving accounting practices highlight the importance of simplifying and standardizing accounting requirements to meet informational needs and enhance efficiency. Further research indicates that tailoring tax policies to specific sectors, such as agriculture, can address the unique challenges faced by small businesses in these areas. Effective tax planning and a well-organized accounting system are crucial for maximizing tax benefits and enabling productive investment in business growth. Overall, the intersection of business structure, tax systems, and accounting organization is critical for the effective operation of small enterprises. Future research should focus on refining these areas to provide solutions that support the sustainable development and prosperity of small businesses.

Can the policy of income taxes merger reduce air pollution emission of enterprises? Evidence from China

This study examines how a uniform income tax rate affects Chinese domestic and international firms in 2008. Specifically, it investigates how this tax policy affects these enterprises’ air pollution emissions through a difference-in-differences (DID) model. Data suggest that implementing the Policy of Income Taxes Merger can effectively decrease the pollutant emission intensity of enterprises. This program aims to provide tax benefits to Chinese domestic firms while addressing pollution emissions by alleviating financial limitations and enhancing production efficiency.

Impact of tax benefits on Peruvian companies' financial results

This study investigates how tax benefits influence corporate profitability in companies in Chachapoyas, Peru, emphasising the importance of proper fiscal management to improve financial performance. The relevance of tax incentives in profitability management is discussed, and challenges associated with legislative uncertainty and the lack of tax training are examined, which limit efficiency in resource management and the optimisation of financial assets. Using a quantitative approach, financial and tax data are analysed to examine the relationship between tax benefits and corporate profitability in a natural context, employing descriptive and inferential analysis techniques with SPSS software. The findings indicate a significantly positive correlation between tax benefits and profitability, demonstrating that tax optimisation can support sustainable economic growth for businesses. A deficiency in the knowledge and application of efficient tax strategies is identified. The study highlights the need for educational and tax optimisation programmes to improve tax management in businesses, which can contribute to a broader tax base and greater state capacity to finance essential public services. The article provides an applied and strategic perspective on fiscal and economic management, offering valuable implications for public policy formulation and corporate decision-making, and highlighting the importance of a holistic approach that integrates fiscal, financial, and corporate management.

Fiscal Incidence of the Property Tax

We use data from Florida spanning a decade (2010–2019) to empirically revisit the topic of fiscal incidence, the difference between benefits received and taxes paid, as it applies to property taxation. We first estimate demand equations in order to calculate the Lindahl tax share, or price the median voter would be willing to pay for public goods. Our measure of fiscal incidence is the difference between the Lindahl tax share and the actual tax share. With the exception of police and fire expenditures, benefits tend to outweigh costs for those with higher incomes, a pattern we attribute to public goods being valued more by high-income residents who pay a modestly progressive property tax. Controlling for income, Hispanic and black residents have higher levels of fiscal incidence. We explore how policy reforms, including equitable property assessment, affects fiscal incidence.

China’s Green Finance: new in fiscal and legal regulation

Having embarked on the formation of an “ecological civilization”, the People’s Republic of China pays special attention to environmental legislation, the creation of a modern system of “green” economy and “green” finance. The effectiveness of legal regulation of environmental relations largely depends on the availability of financial guarantees of relevant environmental standards. One of these guarantees is the environmental protection tax, recently introduced in the fiscal system of the People’s Republic of China.The article analyzes the main elements of this tax — taxpayers, the object of taxation, rates, the procedure for calculating and paying, system of tax benefits. Special attention is paid to the specifics of tax administration, the organization of cooperation between tax authorities and environmental protection authorities, the interaction of tax control and environmental monitoring.

“Public goods, labor supply and benefit taxation”

“Public goods, labor supply and benefit taxation”

The Impact of Corporate Tax on Investment

According to the experience of developed countries in the world, improving the corporate tax system is important in ensuring the stability of the economy, increasing business and investment activity. The work is devoted to one of the most topical issues of today, which discusses the impact of income tax on investment attraction. This work is aimed at ensuring the compatibility of income tax and investment, and taxes are aimed at pursuing a prudent tax policy as a regulator of the economy. Proposals and recommendations have been developed to stimulate investment activity through income tax benefits, to ensure high efficiency of income tax and investment policy.

Drawback And Its Contributions To Exports: Analysis Of The Special Regime In Brazilian Companies In The Piracicaba/Sp Region

Background: The drawback is a special customs regime designed to allow companies to exempt or defer taxes and fees on imported raw materials, inputs, packaging materials, and intermediate products that are used in the production of goods intended for export. This mechanism helps lower the cost of finished products, thereby enhancing their competitiveness in the global market. As an export incentive, the drawback plays a significant role in alleviating the tax burden on manufacturers. This study sought to explore the concept of drawback, its different modalities, and the key benefits it offers. Materials and Methods: The research methodology included a literature review and a case study involving two companies located in the Piracicaba/SP region that utilize this customs regime. Data was gathered through a questionnaire with open-ended questions directed at the Foreign Trade managers of these companies. Results: The findings reveal that the companies studied leverage the drawback regime to significantly reduce the prices of their export products, taking advantage of the tax benefits to lower costs and enhance product competitiveness Conclusion: Both theory and practice show that this special customs regime serves as a stimulus to imports and exports, thus enabling the growth of companies in the international market. It can be said that it is an important mechanism for promoting the internationalization process of companies.

THE STATE OF THE ARCTIC PROBLEMS OF THE NENETS AUTONOMOUS OKRUG AND PROSPECTS OF THEIR SOLUTION

The article analyses the first stage of the Nenets Autonomous Okrug’s (NAO) implementation of the 7 tasks set out in the Strategy for Developing the Russian Arctic Zone and Ensuring National Security until 2035. Particular attention is paid to the study of the development of the project for the construction of the deep-water seaport of Indiga and the Sosnogorsk – Indiga railway, transport infrastructure development, including the reconstruction of the seaport and airports. The article analyses the activities on dredging on the Pechora River, construction of a highway, the development of oil and gas condensate mineral resource centers, based on the NAO fields, including the development of new ones. The problem of geological study and development of mineral resource base of solid minerals is considered. The article examines the population dynamics, the experience of Arctic residents, and their tax benefits. The author separately considers the construction of an agroindustrial park and the implementation of export-oriented projects involving deep processing of venison, as well as the issues of developing a tourism cluster in the region. It is concluded that, with the exception of the completion of the Naryan-Mar – Usinsk highway and the intensive development of tourism, the rest of the Arctic projects are at the initial stage, their development hampered by the lack or complete absence of funding.

RELATIONSHIP OF MANAGEMENT AND ECONOMIC INDICATORS IN THE HOSPITALITY SECTOR: THE SEARCH FOR OPTIMAL STRATEGIES

Optimal strategies are a key lever for business success in the current difficult conditions, and the hospitality sector is no exception. The aim of the study was to determine how management practices affect economic indicators in the hospitality sector.The research employed methods of regression and correlation analysis, and descriptive statistics analysis. Cost management was found to have a positive effect on the Return on Assets (ROA) (0.088) and the Occupancy Rate (0.191).The analysis showed that the factor of staff training investment has a positive but weak effect on the return on assets (0.068) and the utilization rate (0.005). It was identified that the seasonality factor also has a positive effect on the utilization rate (0.510). The market competition factor was found to have a slight negative effect on the profitability of assets (-0.018) and the utilization rate (-0.009). Key financial management tools such as the development of a detailed budget and regular updating of business financial forecasts are identified. Emphasis is placed on the importance of managing cash flows to ensure the necessary liquidity and planning short-term financial needs. Optimization of the tax burden through the use of tax benefits as an element of financial management in difficult business conditions is proposed. Further research will focus on the impact of digitalization on optimal business strategies and their impact on the main economic indicators in the hospitality sector in view of increased uncertainty in the business environment.

Socio-Economic Factors Influencing Growth of Small and Medium Enterprises in Mombasa County, Kenya

Small and Medium Enterprises (SMEs) contribute over 70% of jobs, contribute to GDP, aid industrial development, satisfy local demand for services, innovate and support large firms with inputs and services. However, the SMEs in Mombasa County are constantly faced with the threat of failure where three out five fails at infancy. The study investigated the influence of economic factors (taxation, finance access and wages and unemployment) on growth of SMEs in Kenya, in Mombasa County. The specific objectives of the study were; to explore the effect of taxation on growth of SMEs, to find out the effect of Financial Access on growth of SMEs, to determine the effect of wages on growth of SMEs operating, and to evaluate the effect of general unemployment on growth of SMEs operating in Mombasa County. This study employed the institutional theory of growth, the Schumpeter theory of growth and the Endogenous growth theory anchored the study. An explanatory research design was used so as to meet the research objectives. The target population was 54,245 registered SMEs and a sample size of 246 was derived using the Cochran, statistical formula. The list of registered SMEs in Mombasa formed the study population. A Systematic Random Sampling was used from a sample of 246 SMEs was drawn. Data was collected using a structured questionnaire. Multiple regression Analysis technique was the main technique to find the effect of social economic factors on SME growth. to analyze the data using the Statistical Package for Social Sciences with a significance level set at 0.05. Findings showed that SE conditions are just modest level. Correlation results showed that Taxation conditions (r=.344, p=.000), Financial Access (r=.430, p=.000), Wages affordability (r=.241, p=.000) are positively and significantly correlated with SME growth. Regression results showed that SE factors; Taxation conditions (=.268, p=.000), Financial Access ( =.383, p=.000), Wages ( =.182, p=.015) and Unemployment ( = -.170, p=.045) has significance effect on SMEs growth. Conclusions; Socioeconomic can reverse the current trend of high SMEs failure rate. Socioeconomic factors can buck the present trend of a high failure rate among SMEs. The study recommended that the county and national governments should implement measures enhancing tax benefits for SMEs such as utilizing the taxes prudently. Additionally, the SMEs should adopt strategies that enhance internal financial capabilities so as to incase their revenue streams. Moreover, it is recommended the SMEs to have a working and sustainable wage policy that is able to attracts and keeps talented workforce and therefore ensure continued business growth. By using a multi-sectoral approach, both local and national governments should prioritize and focus on short- and long-term policies that lower the rising rates of unemployment.

Enhancing small business success through financial literacy and education

Financial literacy and education are critical components for the success and sustainability of small businesses. This paper explores the importance of equipping small business owners and their teams with comprehensive financial knowledge and skills. By understanding financial concepts, effectively managing finances, and making informed decisions, small businesses can improve their chances of long-term success and growth. Financial literacy involves the ability to understand and use various financial skills, including budgeting, investing, borrowing, and financial analysis. For small business owners, having a strong grasp of these concepts is essential for effective financial planning and management. Financial education programs tailored to small businesses can cover key areas such as cash flow management, financial statement analysis, tax planning, and strategic financial planning. One of the primary benefits of financial literacy is improved cash flow management. Small businesses often struggle with cash flow issues, which can lead to insolvency if not properly addressed. By understanding cash flow cycles, forecasting cash needs, and implementing effective cash management strategies, business owners can ensure they have sufficient liquidity to meet their obligations and invest in growth opportunities. Financial literacy also enables better decision-making. Business owners who are financially literate can analyze financial statements to assess the health of their business, identify areas for improvement, and make data-driven decisions. This includes making informed choices about financing options, investment opportunities, and cost management. With a solid financial foundation, small businesses can navigate economic uncertainties and adapt to changing market conditions. Tax planning is another critical area where financial literacy can make a significant impact. Understanding tax obligations and leveraging tax benefits can reduce the overall tax burden on the business. This allows small businesses to retain more of their earnings for reinvestment and growth. Furthermore, strategic financial planning, supported by financial literacy, helps businesses set realistic goals, allocate resources efficiently, and track progress. Financial education empowers business owners to develop long-term strategies that align with their vision and market dynamics. In conclusion, enhancing financial literacy and education among small business owners and their teams is vital for fostering success and sustainability. By equipping them with the necessary financial skills and knowledge, small businesses can improve cash flow management, make informed decisions, plan for taxes effectively, and develop strategic plans that drive growth and resilience in a competitive market.

Related party transactions and tax avoidance: does government ownership play a role?

Purpose This study aims to examine the association between related-party transactions (RPT) and tax avoidance. The study further investigates whether government ownership improves scrutiny of tax aggressiveness activities among Taiwanese group companies. Design/methodology/approach The authors used 16,061 firm-year observations derived from the Taiwan Economic Journal Database (TEJ) from 2005 to 2021. The authors applied GLS fixed-effect regression. Additional tests, such as a difference-in-difference examination, propensity score matching (PSM) analysis and other tests were performed to obtain more robust results. Findings The results show different consequences between eliminated and non-eliminated RPT toward tax avoidance. RPT enhances tax benefits aligned with the efficient contracting hypothesis. Under varying degrees of government control, this paper empirically reveals that government ownership has a role in mitigating tax avoidance. This implies that government control improves corporate governance by balancing opportunistic and efficiency-based tax avoidance. Practical implications This paper provides substantial practical implications since using the strategy of reducing taxes through RPT will result in greater tax savings at the business group level. Therefore, RPT is beneficial for enhancing business efficiency. Furthermore, government control increases corporate governance quality, which could lead to balancing tax aggressiveness activity. Originality/value Using a unique setting for RPT reporting in Taiwan, this paper divides RPT into eliminated and non-eliminated RPT. The findings offer significant insight for policymakers, investors and managers regarding the utilization of RPT to enhance efficiency in business groups. Additionally, this paper highlights the role of government control in preserving a harmonious balance in tax planning practices.

PROSPECTS OF ECONOMIC INTEGRATION OF UKRAINE WITHIN THE FRAMEWORK OF THE ASSOCIATION AGREEMENT WITH THE EU

The article examines the prospects of economic integration within the framework of the association agreement with the EU. It is noted that modern studies on the integration of Ukraine into the EU most often consider the problems of the Ukrainian dimension of European and Euro-Atlantic integration, Ukraine's acquisition of the status of a candidate for EU membership in the conditions of the war in Ukraine , the state European integration policy of Ukraine: theory, methodology, mechanisms, reengineering in international business. The main prospects for further economic integration of Ukraine into the EU are offered: strengthen responsibility for corruption schemes in the economy and in the field of intellectual property rights; implement the Tax Policy Strategy, which should take into account all sectoral aspects of the Association Agreement with the EU; strengthen control over public procurement; apply real tools to stimulate energy efficiency and innovative development (tax credit or tax discount), environmentally safe production (emission limits, correction factors, etc.), establish a tax-free minimum income of citizens and apply real control over persons receiving tax benefits. It is justified that the level of innovative activity should be stimulated primarily by tax benefits. It is shown that in foreign countries, the emphasis is primarily on the financing of innovative research by private companies, which allows them to obtain an innovative product, which can then be sold both inside the country and outside its borders. In Ukraine, for the most part, the state is not interested in such processes and does not create certain preferences for persons developing innovative products. It is proposed to introduce an innovative tax credit, which will allow subjects of innovative activity to reduce the tax burden from corporate income tax or postpone its payment. Thanks to this approach, Ukraine can obtain innovative products that will be in demand on the world market.

Debt and taxes: the role of corporate group structure

Abstract I show that the corporate group structure generates tax benefits that create incentives for higher leverage. The tax benefits arise when losses on distressed subsidiaries are tax deductible for a parent firm. Higher tax rates then imply that more of these losses are borne by the government instead of the parent firm, reducing the expected costs of bankruptcy and thereby incentivizing the subsidiaries to take on higher leverage. Using data from a large sample of European multinationals, I show that this tax benefit exists on top of the trade-off theory and debt-shifting effects, and is stronger when deductions of subsidiary losses are more generous.