Corporate Income Tax Base Research Articles

Impact of IFRS 17 Implementation on the Corporate Income Tax Base Determination

The article aims at indicating the changes to the principles for the recognition and measurement of insurance and reinsurance events introduced in 2023 as a result of the entry into force of IFRS 17 "Insurance Contracts" and their direct impact on the corporate income tax base determination of insurers. Furthermore, the article presents the proposals of tax regulations in this area put forward in various countries all over the world and the necessity to initiate a discussion on possible solutions to be applied in Poland.

Tax incentives in agricultural sector: indicators and performance results

The goal is to show the current state and prospects for tax incentives in agricultural sector. Methods – economic-statistical, factor analysis, comparison and synthesis, logical justification. Results – it is substantiated that direct methods of supporting certain sectors of agroindustrial complex can be effectively replaced by indirect methods due to differences in the rate of unified land tax for peasant (farm) enterprises, and for other forms of business there are differences in the corporate income tax base. In particular, direct support is compensated by tax mechanisms in agricultural formations producing crop products (the average level of profitability for 202-2022 was 49,6%), with the exception of rice cultivation, as well as in individual entrepreneurship and peasant (private) farms specializing in production of livestock products (profitability – 35,6%). An assessment of possible budget revenues is given, in conditions of full control and application of liability measures for improper or inappropriate use of agricultural land. Conclusions – calculation of the potential funding volumes that can be used to improve the land use is provided. The irrational use of agricultural land is associated with their ineffective exploitation: imperfect methods of cultivation or fertilization, improper planning of crop rotations. Regional characteristics, which cause different problems and needs that require adaptation of coordination measures and regulation should be taken into account. It is necessary to continue the work to cover the entire territory of Kazakhstan with agricultural maps to provide complete and accurate information on the condition and use of land resources, which will prevent possible violations for which fines and increased tax rates may be levied.

The role of anti-tax avoidance in tax base flow and international tax competition

By constructing the profit shifting model for MNCs, this study uses transfer pricing rules and bilateral tax conventions to examine the impact of anti-avoidance system on a country's corporate income tax base. Based on the balanced panel data of 50 countries from 2000 to 2013, we use the SYS-GMM method and find that the transfer pricing rules of neighboring countries significantly reduces the tax base of a country, while the impact of bilateral tax agreements on a country's tax base is slight. During the sample period, the management level of international anti-avoidance is improved, while the degree of tax competition among countries becomes more intense. Moreover, we show that anti-avoidance measures can reduce the phenomenon of tax avoidance for intangible assets.

Людський капітал у повоєнному відновленні енергетичної галузі

Restoring the energy infrastructure damaged due to military aggression requires consistent political leadership, effective planning, financial resources, and human capital. The purpose of the article is to analyze the current state of human capital formation and justify the directions of its increase. The issue of human capital formation is presented in the article through the prism of the need for the post-war recovery of Ukraine's energy industry on an innovative basis. Within the framework of the economic mechanism of human capital formation for the needs of the energy transition, a critical component is the system of education and science. The authors assessed the "Human capital and research" factor for post-war recovery based on an input-output analysis of the components of the Global Innovation Index for Ukraine. The study showed a decrease in the contribution of the "Human capital and research" factor to the development of the innovative sphere of Ukraine during 2021-2023. The decomposition of the "Human capital and research" factor allowed us to conclude its further weakening by the following components: the total volume of education funding in % of GDP; the average performance of students according to the PISA assessment; coverage of the population by higher education; expenditure on research and development in % of GDP; the success of Ukrainian universities, measured regarding the success of the top 3 universities in the world according to the version of the QS World University Rankings. Based on the results of the analysis, steps aimed at strengthening individual components of human capital are proposed: diversification of non-state participation in both financing and provision of education, in particular through state stimulation of training at the workplace; support of employment with intensive use of knowledge; determination of priority areas of specialist training. State instruments for the implementation of these steps are: the provision of direct budget support in the form of grants and innovative transfers; the provision of state guarantees for enterprise loans obtained for the implementation of innovation and investment projects; the provision of state support for the export of carbon-free energy products; reduction of the corporate income tax base by the volume of innovation costs and personnel training costs.

Tax regulation of enterprise R&D expenditures: special aspects and problems of regulation

The subject of the research is a corporate income tax regime of tax accounting of intangible assets and R&D spending. The working hypothesis is that realization of the regulative potential of tax policy in relation to stimulating R&D activity and creation of intangibles assets shall be streamlined and adapted to increase the effectiveness of innovations. Authors suggest that the key tax policy goal of the mechanism is the widening of the volumes of commercialized R&D results and intangibles, lowering the tax risks, and increasing the legal certainty. The aim of this research is formulation of tax policy proposals for subsequent reforming this mechanism of direct taxation of transactions related with R&D.To achieve the aim of the research the following research approach was employed by the authors. As a first step authors present a literature review on the issue. As a second step authors are performing the analysis of current rules related to tax accounting of R&D costs and intangibles in accordance with Tax Code of Russian Federation. As a third step authors delineate the barriers and legal obstacles in the performance of tax incentives for R&D by reviewing the judicial cases and analytical reports on the issue. Finally, authors formulate their tax policy proposals for the subsequent tax reforms in relation to tax accounting of R&D.The results and the scope of the study. Author’s working hypothesis is based on the idea that the effective application of tax policy instruments can contribute to success of the jurisdiction in winning in global tax competition game. This is particularly important in context of digitalization and for attracting investments and parts of activities of multinational enterprises to the territory of the state. Intangible assets and key people which coordinate the processes of the creation of intangibles can be regarded as the crucial value-added factors in the modern economy where technological MNEs are increasingly dominating. Countries compete internationally for these talented people and favorable and certain tax regime can positively impact on MNE decisions to make a profit center in any jurisdiction, while tax uncertainty can negatively impact this decision.Conclusions. One of the key results of this research is that R&D tax incentives in Russia remain rather unpopular instrument in corporate practice. Authors explain this with the existing legal barriers and legal uncertainty. This uncertainty leads to tax risks for taxpayers which impacts their decisions for using the incentives. Review of judicial cases related to tax accounting of R&D costs when calculating corporate income tax base showed that there are many different areas of disputes between taxpayers and tax authorities. It is important to note that some of this uncertainty is already addressed in recent amendments to Article 262 of Tax Code. Authors propose to reduce uncertainty by extending the scope of R&D tax incentives to all types of R&D activity. The goal of the research is therefore can be considered as achieved.

The Global Corporate Minimum Tax: A Cure or Not?

This paper examines how the corporate income tax base is to be shared with the proposed global corporate minimum tax, which has been agreed to by more than 130 countries. The aim of the global minimum tax is to reduce the incentive for profit shifting by putting a floor on corporate tax rates so that they do not fall below 15 percent of adjusted accounting profits. However, the global minimum tax itself will introduce new capital market inefficiencies. Foreign-owned capital can be taxed more heavily than domestic capital. The minimum tax distorts capital allocation by favouring labour-intensive projects over capital-intensive projects when the tax is paid. It also distorts the accounting decisions of corporations when they seek to avoid paying the tax. The corporate tax gains to Canada, net of personal tax revenue losses, are small, between $170 million and $645 million annually, depending on whether host countries adopt a top-up tax or not. After adjustments are made for economic losses, the annual net gain to the Canadian economy ranges from $95 million to $360 million, exclusive of administrative and compliance costs. Overall, it is not clear that the global minimum tax will work any better than other policies aimed at reducing corporate profit shifting.

Patent Box Regime: possibilities of implementation in the Russian practice of profit taxation

The subject of this research is the foreign experience of stimulating innovation activity of the companies via introduction of Patent Box Regime. The author underlines the importance of this mechanism as a measure for supporting the actors of the innovation economy on the stages of introducing innovations into production, and making profit from the efficient use of intellectual capital. The author analyzes the international statistics of acquisition of patents and key elements of preferential taxation of their income. Based on the collected material, the author examines the possibilities of implementation of such mechanism in the Russian practice. Special attention is given to the potential consequences of granting new incentives from the perspective of formation of the revenue part of the budgets of the budgetary system of the Russian Federation. The main result of this research consists in the development of a specific taxation regime for income from the use of intellectual property objects to be implemented in the Russian Federation. The author believes that the optimal mechanism is a deduction of up to 40% of qualified incomes from the corporate income tax base; at the same time, the incentive should not lead to the decrease of federal budget receipts. As sources of covering the shortfall in budget revenues of the constituent entities of the Russian Federation, the author considers the abolition of reduced tax rates for certain categories of taxpayers, as well as the extension of the limit on the transfer of loss, The conclusion is made on feasibility of implementation of Patent Box Regime in Russia considering foreign experience and domestic specificity of the country.

КОНКУРЕНТОСПРОМОЖНІСТЬ ПОДАТКОВОЇ СИСТЕМИ В КОНТЕКСТІ РОЗШИРЕННЯ ФІСКАЛЬНОГО ПРОСТОРУ УКРАЇНИ

Для багатьох країн світу конкурентоспроможність податкової системи є складною проблемою, оскільки не тільки зменшує податкове навантаження на доходи підприємств, забезпечуючи активізацію факторів економічного розвитку, але й призводить до виникнення ризиків скорочення податкових надходжень і втрати стійкості державних фінансів. Податкова конкуренція вимагає знаходження компромісу між забезпеченням інвестиційних процесів і розширенням фіскального простору для вирішення актуальних соціально-економічних завдань в умовах нових глобальних викликів.Здійснено порівняльний аналіз результативності податкових реформ країн ЄС та України, спрямованих на зменшення податкового навантаження на бізнес та підвищення рівня конкурентоспроможності податкових систем. Попри успішність реформ у країнах ЄС, в Україні виявлено їх низьку результативність щодо впливу на інвестиційні процеси і створення умов для зменшення тіньової економіки. Визначено, що податкові реформи в Україні проводилися без урахування специфічних ефектів зміни умов оподаткування доходів підприємств, зокрема, впливу зниження ставок податків на рівень податкових надходжень у середньо- та довгостроковій перспективі, активізацію інноваційно-інвестиційної діяльності, динаміку інвестицій за межі країни, процеси детінізації економіки; тощо. Доведено, що пріоритетним напрямом підвищення міжнародної податкової конкурентоспроможності України має бути не зниження податкових ставок і скорочення податкових обмежень витрат при формування податкової бази з податку на прибуток підприємств, а вдосконалення амортизаційної політики в частині забезпечення прискорення відшкодування вартості основних засобів і нематеріальних активів, стимулювання капітальних інвестицій в оновлення виробництва на інноваційній основі. Обґрунтовано, що розвиток податкової системи України (інших країн з малою, відкритою економікою, з високим рівнем корупції та тіньової економіки) має відбуватися в рамках цілісної концепції сталого розвитку, з урахуванням можливих наслідків бюджетних рішень як для поточних, так і для довгострокових бюджетів, що стосуватимуться майбутніх поколінь.

Corporate tax policy and heterogeneous firm innovation: Evidence from a developing country

This paper adds to the literature by identifying the causality of corporate tax policy on firm innovation in a developing country. We exploit the China’s 2006 corporate income tax base reform to integrate the tax system between foreign-invested and state/collective-controlled firms as a natural experiment. The difference-in-differences strategy documents a positive effect of corporate tax deduction on firm patenting. The effect is particularly significant if a firm is of larger size or locates in eastern provinces. We also examine possible channels behind the findings, including changes in R&D and capital investment, intangible assets, financial constraints, and new product sales.

Tracing Capital: Toward a Neutral Specialized Formula for Financial Institutions under Common Consolidated Corporate Tax Base (CCCTB)

Common Consolidated Corporate Tax Base (CCCTB) is an ambitious tax reform project under EU law, to harmonize corporate income tax base on a group basis at the EU level, and use a pre-determined formulary apportionment mechanism (i.e. a formula consisting the sales factor, the asset factor and the labour factor) to allocate taxing rights between EU Member States. The standard formula is based on the business model of the manufacturing industry and is not completely suitable for the financial industry. The current CCCTB Proposal has a special formula apportioning pan-EU taxable income a multinational taxpayer in the financial industry but there are some problems in it. This paper compares the financial industry formula in the USA state taxation and argues that, the role of the monetary capital is the key criterion to design the financial industry formula under the CCCTB. Based on this rationale, the financial industry formula should include a special rule for the asset factor to include the financial assets and a special rule for the sales factor. Such formula would be suitable not only to multinational groups consisting of pure financial institutions but also to multinational groups consisting of both financial and non-financial institutions.

Brief of Tax Law Professors as Amici Curiae in Support of the Department of Revenue of the State of Colorado in Department of Revenue of the State of Colorado v. Agilent Technologies, Inc.

Amici write to address specific matters of tax policy and history raised by this case. In particular, amici address 1) the history and justification for water’s edge combined reporting (the “water’s edge method”) and 2) the history and justification for the remedial provisions that are uniformly part of state corporate income taxes. As to the first issue, amici emphasize that the water’s edge method represents a deviation from sound tax policy arrived at as a political compromise between states, the federal government, and foreign entities. As such, the method should reflect the terms of that compromise and not be expanded to exclude a U.S.-based entity with no foreign activities — such as the subsidiary at issue in this case — from its unitary business’ combined reporting group. As to the second issue, amici write to explain that state remedial provisions, as a matter of policy, exist to ensure that deviations from sound tax policy required to make a tax system administrable are not permitted to significantly harm the state tax base. In this case, the taxpayer relies on a technical reading of Colorado’s tax laws to exclude a domestic member of its unitary business from its Colorado combined group. That reading, if correct, would visit substantial harm on the Colorado corporate income tax base, making this case a strong candidate for application of the state’s remedial provisions.

Designing a 21st Century Corporate Tax—An Advance U.S. Minimum Tax on Foreign Income and Other Measures to Protect the Base

The 21st Century has seen unprecedented levels of corporate tax aggressiveness and avoidance. This Article continues our exploration of second-best international tax reforms that would protect the U.S. corporate tax base and have some likelihood of adoption. In this case, we consider how a U.S. minimum tax on foreign income earned by a controlled foreign corporation should be designed to protect the United States against erosion of its corporate income tax base and to combat tax competition by low-tax intermediary countries. In the authors’ view, a minimum tax should be an interim levy that preserves the residual U.S. tax on foreign income, as distinguished from a final minimum tax that partially eliminates the U.S. residual tax. An interim minimum tax would be a significant improvement over current law and would more effectively limit incentives to seek low-taxed foreign income while ameliorating pressure to retain excess earnings abroad.To achieve the objectives of such a minimum tax, corresponding changes should be made to the U.S. corporate resident definition, the source taxation of foreign multinational corporations, and the residence taxation of U.S. portfolio investors in foreign corporations to reduce tax advantages under current law for investments in foreign corporations. These changes would reduce tax advantages for foreign parent corporate groups and thereby further protect the U.S. tax base, as well as reduce incentives for U.S. corporations to expatriate as a consequence of increased U.S. taxation of foreign income under an interim minimum tax.

РЕФОРМУВАННЯ ПОДАТКУ НА ПРИБУТОК ПІДПРИЄМСТВ У КОНТЕКСТІ ЗАБЕЗПЕЧЕННЯ СТІЙКОСТІ ДЕРЖАВНИХ ФІНАНСІВ

Забезпечення довгострокової стійкості державних фінансів України в умовах високого рівня державного боргу і значних виплат з його обслуговування вимагає формування передумов для зростання економіки та податкових доходів держави, необхідних для належного фінансування виконання її функцій. Досліджено проблемні аспекти податку на прибуток підприємств України. Акцентовано увагу на недоліках нормативно-правового регулювання визначення податкової бази, що зумовили істотне скорочення бюджетних надходжень від податку на прибуток підприємств, а також їх частки у загальній сумі доходів та обов’язкових платежів сектору загального державного управління (податкових доходів держави) у 2014–2017 рр.За результатами узагальнення досвіду Естонії з використання податку на виведений капітал зроблено висновок, що в умовах України, коли не ставки податків, а корупція та неефективна бюрократія стримують економічне зростання, запровадження цього податку є недоцільним. Адже головним наслідком такого реформування податку на прибуток підприємств буде зростання бюджетного дефіциту та державного боргу. Згідно з міжнародним досвідом, процеси зниження ставок корпоративного податку повинні супроводжуватися уніфікацією норм формування бази оподаткування прибутку з метою запобігання зловживанням і підвищення ефективності фінансового контролю. Визначено, що необхідними передумовами для забезпечення стійкості державних фінансів України є протидія ухиленню від сплати податку на прибуток підприємств шляхом встановлення законодавчих обмежень щодо врахування витрат при визначенні бази оподаткування для всіх платників податку, а також одночасне запровадження податкового стимулювання наукових досліджень, розробок та інноваційно-інвестиційної діяльності підприємств.

Ovlivňují české společnosti základ daně transakcemi se zahraničními spřízněnými osobami?

The article discusses the issue of base erosion and profit shifting in relation to the Czech corporate income taxpayers. We describe the basic techniques how the base erosion and profit shifting can be realized and analyze the occurrence of the base erosion in the Czech Republic. We compare the average ROE and ROA ratios for the largest Czech entities with those achieved by the largest companies in Luxembourg, Netherlands, and Switzerland as the countries are generally considered as tax havens. Malta is also included in the analysis. The main hypothesis is the conjecture that the Czech companies' corporate income tax base is influenced by transactions with related parties mainly by using royalties and intragroup trades in goods and services i.e. through transfer pricing. As the Czech taxpayers, based on the results of analysis, achieved in 2006-2015 period lower ROE as well as ROA in comparison to the selected countries (with an exemption of Switzerland) it can be concluded that their tax base is likely influenced by aforementioned profit shifting techniques.

Brief of Tax Law Professors as Amici Curiae in Support of the Department of Revenue of the State of Colorado in Department of Revenue of the State of Colorado v. Oracle Corporation & Subsidiaries

Amici write to address specific matters of tax policy and history raised by this case. In particular, amici address 1) the history and justification for water’s edge combined reporting (the “water’s edge method”) and 2) the history and justification for the remedial provisions that are uniformly part of state corporate income taxes. As to the first issue, amici emphasize that the water’s edge method represents a deviation from sound tax policy arrived at as a political compromise between states, the federal government, and foreign entities. As such, the method should reflect the terms of that compromise and not be expanded to exclude a U.S.-based entity with no foreign activities — such as the subsidiary at issue in this case — from its unitary business’ combined reporting group. As to the second issue, amici write to explain that state remedial provisions, as a matter of policy, exist to ensure that deviations from sound tax policy required to make a tax system administrable are not permitted to significantly harm the state tax base. In this case, the taxpayer relies on a technical reading of Colorado’s tax laws to exclude a domestic member of its unitary business from its Colorado combined group. That reading, if correct, would visit substantial harm on the Colorado corporate income tax base, making this case a strong candidate for application of the state’s remedial provisions.

Estimating an impact of base erosion and profit shifting (BEPS) countermeasures ? a case of business group

Research background: Base erosion and profit shifting (BEPS) is a reduction of corporate income tax base and related corporate income tax payments via taking advantage of tax loopholes. OECD prepared 15 BEPS actions, which set countermeasures to fight tax avoid-ance in a coordinated way and shall be implement by countries on a voluntary basis. Literature review revealed that on a macro-level and company-level the extent of BEPS is large and statistically significant while studies addressing micro-level (transaction-level) impact and BEPS countermeasures? related issues are limited.
 Purpose of the article: to identify methods and metrics available for evaluation of BEPS countermeasures? impact on a micro-level and to assess BEPS countermeasures? impact on a business group.
 Methods: the paper employs comparative analysis of scientific and professional literature to identify approaches and methods available for evaluation of BEPS countermeasures? impact on a micro-level; and a case analysis method to assess an expected impact of BEPS coun-termeasures on a specific business group. 
 Findings & Value added: An approach used to estimate BEPS countermeasures impact on the micro-level differs from the one applied in macro-level analysis. To conduct the case analysis, OECD?s proposed macro-level fiscal impact assessment approach has been adapted for a micro-level analysis. It includes the analysis of the transactions subject to BEPS countermeasures and develops an action plan to manage related risks. The conducted case analysis differs from previous research as it employs transaction-level data and estimates fiscal effect of BEPS countermeasures on a micro-level. Analysis of the activities of the specific business group revealed that 5 from 15 countermeasures are relevant and directly applicable to this business group. They would not have an immediate significant direct fiscal effect, but risks related to BEPS countermeasures exist and action plans to manage negative effects of BEPS countermeasures have to be implemented.

The Contribution of Foreign Companies to the Business Economy and Corporate Income Tax Base in Ireland

This paper looks at the sources of value added, labour payments and gross value added in the Irish business economy from 2008 to 2012. In particular it looks at the breakdown by economic sector and by country of controlling owner, especially the United States, of enterprises operating in Ireland. Foreign companies make around 80 per cent of Corporation Tax payments to the Exchequer. The paper examines the sources of these payments and highlights that in the business economy just three sectors account for 50 percent of the tax base. Finally the paper considers the possible impact of changes to the tax base away from a source of value-added basis to a destination of customer sales basis in a stylised Irish and European context for the manufacture of pharmaceuticals, a sector which contributes around one-sixth of Exchequer Corporation Tax revenues. At present, around one-quarter of the profits from the manufacturing of pharmaceuticals in the EU is in Ireland’s corporate income tax base. The stylised example shows a potential loss of up to 95 per cent of Ireland’s corporate income tax base for this sector if a sales principle was used. Finally, using an approach similar to the Common Consolidated Corporate Tax Base (CCCTB) as proposed by the European Commission it is found that a potential loss of up to 82 per cent of this tax base is possible. The potential loss of Corporation Tax revenue for the Irish Exchequer is between €575 million and €650 million per annum.

Interest Deduction in the Netherlands: Tax Aspects of the Different Interest Deduction Limitation Rules

The difference in taxation of equity and debt capital encourages to finance with debt capital. In order to prevent the erosion of the Dutch corporate income tax base, the Netherlands has a number of interest deduction limitation rules. In this article the most important interest deduction limitation rules are discussed.

HAVE EXCESS RETURNS TO CORPORATIONS BEEN INCREASING OVER TIME?

This paper examines the difference between a corporate income tax base and a corporate consumption tax base over time. Using a micro-data panel of tax returns of C corporations from 1992 to 2013, w...

Breaking BEPS: The New International Tax Diplomacy

International tax avoidance by multinational corporations is now front-page news. In a time of public austerity, citizens and legislators around the world have focused on the erosion of the corporate income tax base. In response, in 2012 the G-20 — the gathering of the leaders of the world’s twenty largest economies — launched the “Base Erosion and Profit Shifting” (BEPS) project, the most extensive attempt to change international tax norms since the 1920s.This article is the first to explain that in the course of the BEPS project, the field of international tax has adopted the institutional and procedural architecture for multilateral action used in international financial law. But will that architecture work in the international tax context? To answer that question, the article applies lessons from the international financial law literature to assess international tax agreements that are now being reached through soft law instruments and procedures comparable to those that characterize international financial law. This initial analysis is largely pessimistic. However, the article then describes how model tax treaty law — although also a form of soft law — is highly effective, and differentiates the political economy of international tax law from that of international financial law. As a result, a key theoretical point emerges: bifurcating analysis of multilateral efforts to change international tax norms into their Model Treaty–based and non-Model Treaty–based components is necessary in order to understand the new regime for international tax governance. At a more practical level, bifurcating the analysis highlights that observers should expect the Model Treaty–based parts of the BEPS project to be implemented, as well as most parts of the project focused on tax transparency. By contrast, sustained international coordination in implementing other dimensions of the project is doubtful. In reaching these conclusions, the Article contributes to the broader international economic governance literature by using a high-profile example from international tax diplomacy to show how underlying legal institutions affect the prospects for implementation of international regulatory agreements.