Corporate Effective Tax Rates Research Articles

Meta-analysis categorization of EU countries in the context of corporate income tax

The corporate income tax is a corporate tax which aggregates economic, political and social aspects. The paper focuses on identification, analysis and assessment of homogenous EU countries groups, which show the common characteristics in the field of corporate taxation based on the selected segmentation criteria. Within the statistical meta-analysis in this paper some several methodical approaches were used: variants of agglomerative hierarchical cluster analysis, k-means method and fuzzy c-means and also multidimensional scaling method are implemented and compared. The purpose of this research is, in the context of theoretical implication to provide a synthesis of knowledge and empirical evidence about selected determinants of corporate taxation, and to verify the applicability of the clustering methods when gaining knowledge in the field of taxation. In the context of practical implication is the main purpose of this research the categorization of European countries into economically meaningful clusters, based on their similarity in corporate taxation, and to assess the convergence of European countries in corporate taxation. Results of provided cluster analysis are five groups of multidimensional objects with distinctive characteristics: nominal and effective corporate tax rate, economic performance and the level of debt.

The Quantification of the Significance of EATR Determinants: Evidence for EU Countries

At present, corporate tax is applied in all EU Member States with the exception of Estonia. Nevertheless, the nominal corporate tax rate does not reflect the real tax burden. For determination of the effective tax burden for corporations, there are used effective corporate tax rates. The aim of the paper is to quantify the relation between the effective average corporate tax rate and nominal corporate tax rates, depreciations, loss compensation and selected investment incentives and to identify the significance of these factors based on the panel analysis. Based on the panel analysis it was found that effective average tax rate is only statistically dependant on nominal corporate tax rate, on tax loss compensation and on the depreciation tax rate of movable property, while in case of other factors, such as depreciation of immovable property, tax holidays and R&D incentives, the dependence is not statistically significant.

Changes in corporate effective tax rates over the past 25 years

We investigate systematic changes in corporate effective tax rates over the past 25 years and find that effective tax rates have decreased significantly. Contrary to conventional wisdom, the decline in effective tax rates is not concentrated in multinational firms; effective tax rates have declined at approximately the same rate for both multinational and domestic firms. Moreover, within multinational firms, both foreign and domestic effective rates have decreased. Finally, changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates.

Minimum Global Effective Corporate Tax Rate as General Anti-Avoidance Rule

This article handles the timely and urgent challenge of international corporate avoidance that fills the headlines of leading newspapers, monopolizes political debates between presidential candidates and influences the life of every American who is losing more than 100 Billion U.S. dollars in revenues annually, while demanding fair taxation of citizens and multinationals. I call upon Congress to enact a new Internal Revenue Code provision that requires a minimum global effective corporate rate. According to my proposal, if the global effective corporate rate (of any U.S. multinational and its controlled foreign corporations) falls below 15%, the U.S. Corporation will be required to close the gap and pay the Internal Revenue Service up to the 15% minimum on its global profits as an interim liability. Additionally, I propose the enactment of an exit tax to limit corporate inversions and, finally, advocate for the strengthening of international norms through bilateral treaty modifications and international cooperation. I argue that this innovative proposal offers a comprehensive, distinct and justified reform package that will successfully and efficiently address the challenge of international corporate avoidance. This article makes three significant contributions: First, it offers a holistic approach to international reform that looks at the whole picture of corporate avoidance instead of offering rules that address each strategy of avoidance individually – as is common in the current discourse; Second, my argument references and utilizes the extensive literature available that addresses the issue of combating avoidance in domestic transactions as a foundation from which to find solutions for avoidance in cross border transactions. Therefore, my proposal works within the current framework, rather than starting anew or ignoring the experience gained from dealing with domestic avoidance when addressing the issue of international avoidance, but also brings innovative and substantial change that is politically feasible as proven by President Barack Obama's proposal of minimum taxation which has some similarities to my proposal. Third, my proposal calls for the U.S. to take on an international leadership role in the area of international reform and emphasizes the significance of connecting the U.S. debate with the current trend of international reform as reflected in the OECD Base Erosion and Profit Shifting (BEPS) final reports (published Oct. 5th 2015).When facing the challenge of curtailing international corporate avoidance, our fundamental social contract is at stake. Our responsibility, as citizens, to preserve and protect our democracy, society and economy is calling us to fight for this cause. It is the responsibility of the United States as a world leader and economic power, to enhance and advocate for effective and efficient reform of the international regime, so that the global community will be better equipped to face the challenges of a 21st century economy. This is our new fiscal revolution.

Options for Corporate Tax Reform in 2017

Options for Corporate Tax Reform in 2017 Martin Feldstein The following was adapted from remarks originally given at the Fall 2017 meeting of the Brookings Panel on Economic Activity on September 8, 2017. The U.S. corporate tax system is wrought with problems that have accumulated over many decades. The Tax Reform Act of 1986 (TRA86) provided a major overhaul of the personal income tax, reducing the top rate from 50 percent to 28 percent while maintaining revenue and distributional neutrality. But it did little to improve the corporate tax system. Indeed, TRA86 actually raised corporate tax revenue in order to pay for reductions in personal rates. Moreover, the specific changes in depreciation rules brought about by TRA86 reduced investment incentives, biasing the tax system in favor of owner-occupied housing instead of productivity-enhancing investment in business structures and equipment. The House Republican plan, which was developed while Paul Ryan was chairman of the Ways and Means Committee, proposes to do five important things: (i) reduce the overall corporate tax rate; (ii) correct the tax treatment of the profits earned by the foreign subsidiaries of U.S. corporations; (iii) replace the traditional corporate tax with some form of cash-flow corporate tax; (iv) deal with pass-through businesses in an efficient and equitable way; and (v) avoid increasing the fiscal deficit while doing these things.1 I briefly comment on each of these five goals below. [End Page 401] I. Reducing the Corporate Tax Rate The U.S. federal corporate tax rate is presently at 35 percent, the highest among all the major industrialized countries. In addition, individual U.S. states levy corporate taxes at an average rate of 9 percent. Because state taxes are deductible when calculating federal taxable income, the overall corporate tax rate is closer to 40 percent. In contrast, the average rate among countries that belong to the Organization for Economic Cooperation and Development is about 25 percent. The effective corporate tax rate is reduced by accelerated depreciation of investment in plants and equipment and by the deduction of nominal interest payments rather than the lower real interest payments. These are similar to the practices in other industrial countries. The House Republican plan calls for reducing the statutory rate from 35 percent to 20 percent. The Trump presidential campaign called for reducing it to 15 percent. Reducing the corporate tax rate would attract funds to the corporate sector from other uses, such as owner-occupied housing and agriculture. It would also attract foreign capital to the U.S. corporate sector. These shifts would increase the efficiency with which capital is allocated across sectors and across international markets. The increased capital in the U.S. business sector would raise the productivity and real wages of American workers. It would also increase real GDP growth as the corporate capital stock grows. Although lowering the corporate tax rate would have substantial economic benefits, it would also have a significant budgetary cost. Because the corporate income tax presently accounts for about 1.6 percent of GDP, cutting the rate from 35 percent to about half that level would directly reduce revenue by about 0.8 percent of GDP. Though this would be partly offset by the faster economic growth and by the rise in real wages and profits, there would still be an increase in the budget deficit. To limit the revenue loss and achieve a long-run balanced budget, the statutory rate will probably need to be reduced to no less than 25 percent, a point to which I return below. II. Correcting the Tax Treatment of the Profits Earned by the Foreign Subsidiaries of U.S. Corporations The United States is virtually alone in how it taxes the profits earned by the foreign subsidiaries of domestically based corporations. Consider a foreign subsidiary of a U.S. corporation that earns profits in Ireland. It pays [End Page 402] the Irish government a 12 percent tax and is then free to do what it wants with the after-tax profits. It can invest them in Ireland, or hold them in financial assets, or invest them in any other country in the world. But if it brings these after-tax...

The determinants of Italy’s corporate tax rates: an empirical investigation

This paper examines the determinants of the effective corporate tax rates in Italy in the years 1998-2006. While from its inception in the early 1970s, the Italian business income tax regime changed only marginally for over twenty years, in the period between 1998 and 2006, the corporate tax system underwent two major reforms with the declared objective of simplifying the system and reducing the tax burden on firms. Therefore, from a tax policy perspective, the author believes Italy is an interesting case study. The empirical analysis is based on a strongly balanced panel with 5,134 companies that combine company accounts and firm survey data. The author employs a fixed effects panel regression to study the role of size, the debt ratio, the rate of profitability, labor productivity, the assets composition, and internationalization in explaining heterogeneity among firms and, therefore, their effective corporate tax rate. Furthermore, the author employs a quantile regression to analyze the impact of the variation in the effect of independent variables on the effective corporate tax rate at different quantiles of the distribution, thus, providing information on the degree of heterogeneity in firm behavior with the final aim of capturing non-linear effects of the independent variables on the tax rate. Keywords: effective corporate tax rates, tax heterogeneity, panel regression, Italy. JEL Classification: H25, H32

Exploring the Link between Corporate Governance Characteristics and Effective Corporate Tax Rate: A Panel Data Approach on U.S. Listed Companies

Exploring the Link between Corporate Governance Characteristics and Effective Corporate Tax Rate: A Panel Data Approach on U.S. Listed Companies

Rezerwy na zobowiązania a efektywna stopa podatku dochodowego od przedsiębiorstw

The paper quantifies the impact of timing differences that emerge in the case of discrepancies between accounting and tax rules on the corporate tax burden. The objective of the paper is to investigate the effect of the accelerated deductibility of company expenses via provisions for future liabilities on the multi-period effective average corporate tax rate (EATR). In the investigation, pension provisions and so-called “other provisions” are taken into account and a multi-period backward-looking measure of the tax burden based on corporate cash flows is developed. The investigated companies are divided into several subgroups according to their size and multi-period cash flow. Under the current tax law, the highest tax burden among companies with positive cash flows is observed for medium-sized firms, at 33%. For small and large enterprises, the burden takes values of 24% and 25% respectively. A different situation is observed among firms with negative cash flows- in general, the EATRs are noticeably higher in this case. Under the current tax law, the average effective tax rates are 60% for all firms and 38%, 45% and 51% for medium-sized, small and large corporations respectively.If changes are made to the ways provisions for future payments are treated under tax regulations, a slight reduction may be observed in the multi-period average effective tax burden. In general, the timing effects of the deductibility of provisions lead to an average change in the effective tax rate from –1 percentage point (in the case of small companies with positive cash flows) to –4 percentage points (in the case of small entities with negative cash flows and medium-sized entities with positive cash flows). Although the differences in the median tax burden may seem to be slight, they are statistically significant.

Minimum Global Effective Corporate Tax Rate: The American Citizenship and Leadership Responsibility

This article handles the timely and urgent challenge of international corporate avoidance that fills the headlines of leading newspapers, monopolizes political debates between presidential candidates and influences the life of every American who is losing more than 100 Billion U.S. dollars in revenues annually, while demanding fair taxation of citizens and multinationals. I call upon Congress to enact a new Internal Revenue Code provision that requires a minimum global effective corporate rate. According to my proposal, if the global effective corporate rate (of any U.S. multinational and its controlled foreign corporations) falls below 15%, the U.S. Corporation will be required to close the gap and pay the Internal Revenue Service up to the 15% minimum on its global profits as an interim liability. Additionally, I propose the enactment of an exit tax to limit corporate inversions and, finally, advocate for the strengthening of international norms through bilateral treaty modifications and international cooperation. I argue that this innovative proposal offers a comprehensive, distinct and justified reform package that will successfully and efficiently address the challenge of international corporate avoidance. This article makes three significant contributions: First, it offers a holistic approach to international reform that looks at the whole picture of corporate avoidance instead of offering rules that address each strategy of avoidance individually – as is common in the current discourse; Second, my argument references and utilizes the extensive literature available that addresses the issue of combating avoidance in domestic transactions as a foundation from which to find solutions for avoidance in cross border transactions. Therefore, my proposal works within the current framework, rather than starting anew or ignoring the experience gained from dealing with domestic avoidance when addressing the issue of international avoidance, but also brings innovative and substantial change that is politically feasible as proven by President Barack Obama's proposal of minimum taxation which has some similarities to my proposal. Third, my proposal calls for the U.S. to take on an international leadership role in the area of international reform and emphasizes the significance of connecting the U.S. debate with the current trend of international reform as reflected in the OECD Base Erosion and Profit Shifting (BEPS) final reports (published Oct. 5th 2015).When facing the challenge of curtailing international corporate avoidance, our fundamental social contract is at stake. Our responsibility, as citizens, to preserve and protect our democracy, society and economy is calling us to fight for this cause. It is the responsibility of the United States as a world leader and economic power, to enhance and advocate for effective and efficient reform of the international regime, so that the global community will be better equipped to face the challenges of a 21st century economy. This is our new fiscal revolution.

State ownership, agency conflict and effective tax rates: Evidence from China

Agency conflict between minority and controlling shareholders in state owned firms has to be considered in order to examine the variability on effective tax rates. In China, state ownership helps the government to achieve its social objectives by optimizing corporate income tax. We provide a significant result to prove that state owned firms paid higher corporate income taxes than private firms. Our results also indicate that corporate effective tax rates are positively associated with firm sized and inventory intensity. However, we have no strong evidence to support the association with leverage, return on assets and capital intensity.

Effective Corporate Tax Rate and Rent-Seeking: An International Comparison with the US

Effective Corporate Tax Rate and Rent-Seeking: An International Comparison with the US Da-Hsien Bao, Professor; George Romeo, Professor Abstract Current corporate tax reform debates focus on whether or not to lower the US top rate of 35 percent to match other developed countries’ rates, and whether large corporations paid their fair share. Anecdotal evidence indicates that large US corporations engage in rent-seeking. This descriptive study examines the corporate effective tax rates and compares the US rates with the rates of six foreign countries. Results show the mean corporate effective tax rate of the US is significantly lower than that of six other OECD countries even though the statutory rates of the foreign countries are lower than the US. As a group, the mean effective tax rate of the 99th percentile of US firms does not significantly differ from that of other US firms, and the price-earnings association is not valid for 99th percentile of US firms because earnings are not earned productively but through rent-seeking. Consideration must be given to the percentage of actual taxes that US corporations pay, as well as the statutory rate, when reviewing future tax policy. Full Text: PDF DOI: 10.15640/rcbr.v5n1a3

Effective Rates of Corporation Tax in Ireland

This Technical Paper considers the effective tax rate on corporate profits in Ireland. It will be appreciated that this apparently straight-forward concept generates significant confusion. There is no single best measure of the effective tax rate and this Paper presents and examines eight different calculations for an effective tax rate on corporate profits in Ireland under three broad headings: using model companies; using official national statistics; and using company financial reports.The spread of estimates ranges from 2.2 per cent to 15.5 per cent for the most recent data available. Different approaches are relevant depending on the specific nature of the question being addressed. Some approaches are better at measuring the complexity and breadth of corporate tax. Other approaches are better at measuring the effective tax rate of companies. In attempting to assess the effective corporate tax rate that is applied to the aggregate total of corporate profits in Ireland, this Paper has concluded that the approach based on national aggregate statistics is the most suitable.The data from the Central Statistics Office and the Revenue Commissioners provide the best estimates of the effective rate of Irish Corporation Tax on the total profits that are subject to Irish tax but even within that there remains a choice of measures. This Paper has put forward the thesis that the measures based on Net Operating Surplus and Taxable Income best represent the effective Corporation Tax rate in Ireland.Much lower effective tax rates can be identified, notably the effective foreign tax rate for US-owned, Irish-incorporated companies, in the direct investment data produced by the Bureau of Economic Analysis. These show how MNCs can structure their activities to generate very low effective tax rates but it is not possible to achieve such low rates for profits earned in Ireland.The most appropriate effective tax rates identified in this Paper are below the headline 12.5 per cent rate and the reasons for this are the inclusion of foreign-source profits in the case of Taxable Income, and the exclusion of the interest cost of financing in the case of Net Operating Surplus. The impact of these factors is relatively small and the analysis presented here has shown that, since 2003, the effective Corporation Tax rates on Net Operating Surplus and Taxable Income have averaged 10.9 per cent and 10.7 per cent respectively.

ETR Development and Analysis: Case from the Czech Republic

The paper investigates the effective corporate tax rate (ETR) in the Czech Republic from 2003 to 2013 from the point of both time-series and cross-sectional analysis. We exploit the access to Bureau van Dijk, Amadeus database to get broad data sample from financial statements. Thus, micro backward-looking approach was applied in the paper. We find clear downward trend in the ETR during the given period and statistically significant correlation between the ETR and statutory corporate tax rate (STR). We also undertake analysis of geographical regions using ZIP codes of the companies and analysis of economic sectors according to NACE of the sample firms. Main finding of the cross-sectional analysis is the highest ETR in the region of Prague (capital).

The Impact of Tax Rebates on Firm Value: Evidence from High-Tech Certificates Announcements in China

High technology and innovation has become a central part of China’s long-term growth strategy. The 2007 enterprise tax reform (EIT) significantly reduced the statutory tax rate of high-tech firms from 33 percent to at most 15 percent, and possibly less, guaranteed for at least 3 years. Before the reform, tax benefits to high-tech firms were only provided at the local level, were not available nationwide on a uniform basis, and subject to stringent financial criteria. In spite of the reform high-tech certificates have been criticized for being awarded to companies that were already enjoying tax benefits, in which case the reform only marginally changed their effective corporate tax rate. Using an event study methodology to study the stock market reaction to high-tech certificates announcements in China, we find that high high-tech certificate announcements generated significant positive abnormal returns. The impact is significantly larger for private firms than government-owned firm, because private firms were less likely to benefit from other pre-event tax benefits, as well as small and growth firms, and non-high tech manufacturing industries. Although this paper focuses on a specific provision of EIT reform, it is one of the first empirical evaluations of the reform and the first study that investigates whether the reform in high-tech taxation was effective at reaching non government-owned firms.

Theoretical and Practical Aspects of Corporate Income Tax

Corporate income tax burden comparisons in different countries are mostly performed by using the statutory corporate tax rates. A more objective level of the current corporate tax burden, however, is represented by effective corporate tax rates that include the influence of both factors, i.e. the statutory corporate tax rate and the tax base. The economic literature (see e.g. Nicodeme, G., European Commission 2001) offers a variety of approaches toward calculating effective corporate tax rates. The most commonly used ones can be divided into three groups: approaches based on using the macro backward-looking methods, micro backward-looking methods and micro forward-looking methods. The differences among macro and micro approaches depend on the data used. The macro approaches compute the effective tax rates based on aggregated macroeconomic data, contained in the national accounting of individual states. The micro approaches calculate these rates using elements of financial statements of individual companies that contain either empirical data or the data concerning theoretical perspectives. To estimate the company’s tax burden the backward-looking approaches use the ex-post reallife data of the companies concerned. The forward-looking approaches use the data concerning particular future entrepreneurial investment decisions of companies. Approaches based on the macro backward-looking methods are able to detect the total taxation differences at the national level. Approaches based on the micro backward-looking methods are mainly based on the nationality of particular companies, regardless of the nationality of tax systems that currently affect their taxable operations. Approaches based on the micro forward-looking methods are based on methodologies developed by King, M.A. and Fullerton, D. (National Bureau of Economic Research Working Paper No.1058, 1983), and also by Devereux and Griffi (Institute for Fiscal Studies Working Paper Series No.W98/16, 1999), and do not Int Adv Econ Res (2015) 21:247–248 DOI 10.1007/s11294-014-9505-9

Chief Financial Officers’ Power, Institutional Environment, and Corporate Effective Tax Rate: Evidence from China

In this study, we investigate how chief financial officers’ (CFOs’) power and institutional environment influence corporate effective tax rates (ETRs). Using a sample of Chinese listed firms from 2004 to 2010, we find that firms with expert power or political power CFOs enjoy a low effective tax rate. Furthermore, CFOs’ expert power plays a more important function in reducing ETR in regions with a better institutional environment compared to those with less-developed institutions. CFOs’ political power is the most important factor in reducing ETR in regions with a less developed institutional environment than in those regions with a better institutional environment.

The Non-Linear Effect of Corporate Taxes on Economic Growth

Abstract The paper deals with the problem of taxation and its potential impact on economic growth and presents some new empirical insights into this topic. The main aim of the paper is to verify an assumed nonlinear impact of corporate tax rates on economic growth. Based on the theory of public finance and taxation, we hypothesize that at relatively low tax rates it is possible that the impact of taxation on economic growth become slightly positive. On the other hand when the tax rates are higher a negative impact of taxation on economic growth could be expected. Despite the fact that the most of the existing studies find a negative linear relationship between these variables, we can also find strong support for a non-linear relationship from several theoretical models as well as some empirical studies. Based on panel data fixed-effects econometric models, we, as well, find empirical evidence for a non-linear relationship between nominal and effective corporate tax rates and economic growth. Our data consists of annual observations for the period 1999 to 2011 for EU Member States. Based on the results, we also estimated the optimal level of the corporate tax rate in terms of maximizing economic growth in the average of the EU countries.

Effective Tax Rates in Corporate Taxation: a Quantile Regression for the EU

In this work we study the determinants of the effective tax rates for corporate taxation in countries of the European Union. First, we carry out an exhaustive review of the empirical literature where no consensus is reached about the signs of the determinants and we can observe that in the case of the European countries this topic has scarcely received attention, contrary to the US case. Then from the Compustat database and for the period 1992–2009, we estimate quantile regressions that allow possible nonlinear relationships to be detected. The estimations reveal different effects of factors such as size, debt, asset composition and profitability on the effective corporate tax rate depending on the decile. In short, for companies with lower ETRs, the most influential variables are the size, the intensity of inventories and the profitability, whereas for the companies that suffer the highest fiscal pressure it is debt that turns out to be the strongest determinant. These results justify the employment of quantile regression instead of the traditional linear approximations. DOI: http://dx.doi.org/10.5755/j01.ee.25.5.4531

Changes in Corporate Effective Tax Rates Over the Past Twenty-Five Years

We investigate systematic changes in corporate effective tax rates over the past 25 years and find that effective tax rates have decreased significantly. Contrary to conventional wisdom, we find that the decline in effective tax rates is not concentrated in multinational firms; effective tax rates have declined at approximately the same rate for both multinational and domestic firms. Moreover, we find that within multinational firms, both foreign and domestic effective rates have decreased. Finally, we find that changes in firm characteristics and declining foreign statutory tax rates explain little of the overall decrease in effective rates. The findings have broad implications for research, as well as for current policy debates about reforming the corporate income tax.

Corporate effective tax rates in Asian countries

This paper aims to (a) calculate Devereux and Griffith's (2003) forward-looking effective tax rates for 12 Asian countries over a span of 30 years, (b) show the impact of tax holidays on the effective tax rate in Asian countries, and (c) empirically explore the possibility of tax competition among Asian countries. Through relevant analyses, I arrive at three key conclusions. First, while small countries with little rent in domestic markets set their effective tax rates at almost zero, large countries maintain much higher effective tax rates. Second, for countries that have generous capital allowance systems, tax holidays may lead to a rise in not only the effective marginal tax rates (EMTRs), but also the effective average tax rates (EATRs). Third, some Asian countries may engage in tax competition, at least over the EATR, for a limited period of time. However, while some countries have raised their effective tax rates in recent years, others have continued with tax reductions. These results indicate that the recent tax interactions among Asian countries differ from the simpler interactions seen among the European countries.