Corporate Profit Tax Research Articles

Determinants of German firm’s adjusted effective tax rate

ABSTRACT This analysis examines firm-specific determinants of the effective tax rate of German limited liability companies. The effective tax rate is calculated by considering the local trade tax, corporate profit tax, and solidarity tax for 9,318 firms from 2020 based on the Orbis data base. Our findings demonstrate a inverse u-shape relationship between the effective tax rate and firm size. Furthermore, companies with major shareholders tend to have lower tax rates, while those with a supervisory board tend to pay higher tax rates on average. These findings are consistent with the theoretical considerations on tax aggressiveness.

КОНЦЕПЦИЯ ДИФФЕРЕНЦИРОВАННОГО МЕТОДА НАЛОГООБЛОЖЕНИЯ ПРИБЫЛИ ПРЕДПРИЯТИЙ

The purpose of this article is to present the concept of the differentiated method of corporate profit taxation developed by the author. The article reveals its regulations and elements. The definitions of economic categories and principles of differentiated method are proposed. The possibilities of tax control and management of tax basis, tax burden, it compensation, financial stability of enterprises and the economy as a whole, transition of sectoral enterprises from group to group in conditions of this concept are considered.

Corporate profit tax, managerial delegation and multinational firm's transfer pricing

AbstractThis paper analyzes the transfer pricing decision of the multinational firm. There are differences in profit tax rates between home‐country and host‐country. The multinational firm determines the transfer price to its overseas affiliate and delegates the responsibility of deciding on the final sales to its affiliate manager. We find that: (1) The multinational firm will set a higher transfer price if its affiliate hires a manager. If the host‐country firm also hires a manager, the managerial delegation may lead to an asymmetry “prisoner's dilemma”. (2) When home‐country's tax rate is higher than that in the host‐country, multinational firm tends to set a lower transfer price relative to the marginal production cost. (3) When host‐country's tax rate is higher than that in the home‐country, an increase in the host‐country corporate tax rate decreases multinational firm's profit and the consumer surplus, while its impact on the host‐country firm's profit is non‐monotone; an increase in the home‐country tax rate decreases host‐country firm's profit, increases consumer surplus, but has a non‐monotone impact on multinational firm's profit.

Corporate Profit Tax and MNF's Transfer Pricing with Decentralized Delegation

Corporate Profit Tax and MNF's Transfer Pricing with Decentralized Delegation

Analysis of the Effect of Simplified Profit Tax on SMEs at the Level of Factual Budgeted Revenues in Albania

Small and medium enterprises are very important part of Albanian Economy, they represent almost 99% of Albanian registered enterprises and generate more than 80% of jobs in the labour market. They also contribute 60-75% of Gross Domestic Product. SME-s are key elements of the Albanian economy. This study tries to investigate the effects of changes in fiscal policies to SMEs in Albania, which is also the reason why this topic is of interest to many researchers. If we compare Albania’s number of SMEs with other countries that stand for the same level of economic development, they are almost at the same level. Moreover, turnover and the number of employees have increased for SMEs, while revenues collected from this tax have decreased. The study tends to explain how the simplified corporate profit tax rate affects budget revenues, its impact and the changes over the years. We use secondary data to analyze periods from the year 2000 to the year 2019. Also, to analyze if the simplified profit tax is important or statistically significant and it has an effect on the budget revenues, we use an econometric regression model. In a conclusion, this study will also show the government measures during the post-Covid-19 period taken for SMEs. Besides conclusions, we give our recommendations based on our econometric model analysis.

Corporate profit tax, firm entry with unemployment, and income inequality

AbstractIn this paper, we provide a general equilibrium analysis of corporate profit tax on income distribution, unemployment, and wage inequality. With firm dynamics in industrial sector, we identify a new channel through which profit tax affects income and wage inequality: profit tax cut will widen not only the wage gap between skilled and unskilled labor, but also exacerbate the wage inequality of unskilled labor among different sectors. The welfare effect of profit tax cut depends on unemployment deepening (labor‐distortion effect) and more manufacturing firms enter the market (business‐creation effect), eroding the market share of incumbent firms (business‐stealing effect).

An Evaluation of the System of Taxing Capital Gains from Shares in Cameroon in Light of Double Taxation of Corporate Profits

The quest for additional revenue yield has led to fundamental changes in the Cameroonian tax system, specifically in the method of taxing capital gains on transfer of shares. Though aimed at improving the system from an equitable angle, these changes may give rise to theoretical controversy given the method of taxing these gains. In particular, the trigger of the capital gains tax (CGT) and the method of taxing corporate profits are potential elements to be raised against the recent increase of CGT rate on shares and the deletion of the incentives initially granted. This paper argues the inappropriateness of these changes through an evaluation of its rationale. Notwithstanding the primacy of the equity criterion, the theoretical basis for taxing these gains may however dictate departure from such principle in order to achieve the objective of increasing the revenue yield.

Estimation of Profit Taxation Effect on Russian Companies’ Investments

Lak of investments in fixed assets which stimulate economic growth is one of the problems of the modern Russian economy. According to the main hypothesis of the research, that corporate profit taxation decreases companies’ investment level, we aimed to assess the level of impact of profit taxation on investments in fixed assets. To test the hypothesis, we estimate the empirical investment equation, using the indicator of tax burden as one of the factors affecting investment. The theoretical basis of the research is the neoclassical cash-flow model. The marginal effective tax rate (METR) was used as an indicator of the tax burden. The empirical equation was estimated using a random effects model on the panel microdata, which includes financial statistics of 4,000 Russian companies for the period 2014–2018. The sample companies represent 78 regions of Russia and about 50 types of economic activity. We assumed heterogeneous effect of profit taxation and estimated the model separately for each of the three groups of companies differing in the degree of financial constraints. According to the results obtained, for the entire sample, for the entire period under review, we observe a negative impact of the marginal effective rate on the level of investment, significant at the 1% level. In aggregate, if the marginal effective tax rate falls by 1 percentage point, the investment level will increase by 0.05 percentage points. We obtained the following main results: profit taxation has a significant negative effect on the level of investment for companies that are not financially constrained, and the effect is not observed for financially constrained companies; younger companies are more sensitive to changes in profit taxation. However, general sensitivity of investment to profit taxation is quite modest.

Assessment of the international competitiveness of the corporate profit tax in Ukraine

The article is devoted to assessing the international competitiveness of the corporate profit tax system based on the approach of the US Tax Foundation, which develops International Tax Competitiveness Index of the corporate profit tax (ICI) and takes into account the level of profit tax rates, cost recovery, tax incentives and complexity of tax law. According to the analysis of the international ranking of OECD countries, Estonia, Latvia, Lithuania, and Hungary had the highest ICIs in 2019-2020. The main factors that have had a positive effect on their competitiveness are the low top marginal income tax rate, unlimited loss carryback and carryforward, no restrictions on the list of assets subject to depreciation, as well as the use of accelerated depreciation, which allows companies to compensate for a larger share of the initial value of assets, LIFO inventory or at least inventory by the weighted average cost method, no Patent Box; no tax credit for R&D, and low corporate profit tax complexity. The calculation of the ICI for Ukraine, based on the approbation of the methodological approach of the Tax Foundation, found that in 2019-2020 Ukraine with a total score of 55.07 took 24th place out of 35 OECD countries. The author characterizes the main components of Ukrainian corporate profit taxation in terms of their impact on international competitiveness; in addition, ways to increase ICI are substantiated.

Foreign experience in income taxation of companies

The subject of this research is the rules of corporate income taxation foreign countries existing in foreign countries, the experience of implementation of which is valuable for further development of the Russian legislation. The current state of tax systems is viewed from the perspective of implementation of the baisc tax functions: fiscal and regulatory. The importance of corporate profit taxation in formation of the income base of the budgets of the budgetary system of the Russian Federation justifies special attention to the existing mechanisms for distinguishing tax revenues between budgets of bot different levels and same level. In the context of state regulation of the economy, analysis is conducted on the tax incentive instruments and preferential tax conditions intended for stimulating innovative activity of the companies. The scientific novelty lies in summarizing the experience of foreign countries in corporate income taxation, determining the leading  practices, and formulating recommendations for their implementation in Russia. The conducted research reveals the trends in reforming tax legislation of the developed countries aimed at stimulation of entrepreneurial activity. Sustained reduction in corporate income tax rates, shift away from progressive scale, and implementation of new tax incentives contribute to lowering of fiscal burden on businesses and create favorable conditions for the economic development. The author develops recommendations for the improvement of corporate profit taxation in the Russian Federation: 1) For increasing the validity of division of tax revenues between regional budgets, it is suggested to change the procedure for calculating the tax payable by separate banks units. In calculation of the share of taxable profit for each bank unit, it is recommended to take into account labor costs, amount of loans issued and deposits raised. 2) The comparative analysis of the Russian and foreign experience of tax incentives demonstrated the shortage of instruments intended for commercialization of innovations in the Russian Federation, which substantiates the need for implementation of preferential taxation of income from use of the objects of intellectual property.

СУЧАСНИЙ СТАН СИСТЕМИ ОПОДАТКУВАННЯ ПРИБУТКУ ПІДПРИЄМСТВ УКРАЇНИ

Taxes are used as a way of government influence on social production, its dynamics and structure, and are also a source of government revenue. To the greatest extent, this applies to corporate income tax, since it is one of the most important sources of budget revenue. Difficult political and economic conditions, instability and complexity of domestic legislation, a significant tax burden on business highlight the need to study the peculiarities of corporate income taxation not only as a powerful fiscal tool, but also in terms of its regulatory functions. In Ukraine, the possibilities of using corporate income tax as a regulatory factor are somewhat limited by its large budgetary value, so there is a need to study also a foreign experience of corporate income taxation in order to find the best ways for our country to improve the collection and administration of corporate income tax. To stimulate entrepreneurial activity, ensuring its stable development, it is necessary to create an optimal effective tax system that would provide stable revenues to the state budget, without burdening entrepreneurs. This issue is extremely acute, because the corporate income tax can be used as an effective tool for balanced dynamic economic growth on the basis of innovative development, and as a reliable source of state budget revenues. This article defines theoretical questions concerning the economic essence and place of the corporate profit tax in the taxation system. Determined main reasons for the fluctuations of revenues from corporate income tax in the budget of Ukraine, namely: the loss of income tax of the dominant fiscal role in the formation of tax revenues of Ukraine is due to lower rates and changes in the procedure for determining the object of taxation, as well as general negative trends in economic development of Ukraine. The main areas of improvement of corporate income taxation mechanism in Ukraine at the present stage of economy development are investigated. Conclusions are drawn about introducing a progressive system of corporate income taxation, harmonization of accounting and tax legislation on the calculation of corporate income tax, reviewing the list of tax incentives and using the accelerated depreciation method that reduces the tax base.

Перспективи розвитку екологічного оподаткування в Україні

The development of technologies entails the deterioration of both the global environmental situation and at the regional level. The solution of environmental issues is directly related to the use of natural resources, as well as the utilization of the economic system, including through the transformation of waste into raw materials for energy production, various materials, reduction of toxic emissions into the air, water, biodiversity, etc. The main economic instruments of environmental protection and improvement of the ecological situation, which are used in world practice for these purposes, are analyzed. Among them are special taxes, pledge-refundable schemes and expanded business responsibility. The analysis of economic instruments of state regulation of nature management and sources of funding for environmental measures in Ukraine suggests that it needs to be revised and systematized with a scientifically sound definition of the parameters of mandatory payments in favour of the state and the proportions of natural distribution resource payments between the parts of the budget system to prevent the scattering of financial resources and their targeted use to finance environmental protection programs and improve the environmental situation in Ukraine. The expediency of strengthening the integration of such payments into the structure of existing taxes on goods (excise tax on gasoline), while maintaining environmental incentives, in particular, coordination with the taxation of corporate profits, for example, in the form of a reduction factor in the case of their include cost. In this case, the environmental component of taxation should correspond to the scale of environmental damage and is the basis of the mechanism for calculating tax payments or other economic incentives. This can be ensured by deepening the differentiation of tax rates depending on the damage to the environment, as well as the conditions of use of natural resources, the availability of certification of nature management enterprises according to ISO 14000 standard.

Corporate Profit Tax and Strategic Corporate Social Responsibility Under Foreign Acquisition

Abstract This study investigates government public policies facing competing firms’ strategic corporate social responsibility (CSR) activities and finds that the choice of CSR crucially depends on corporate profit tax. We demonstrate that strategic CSR decreases while social welfare increases with corporate tax. When the government grants uniform output subsidies, we show that bilateral CSR leads to a lower CSR level than under unilateral CSR but bilateral CSR is always beneficial to society. However, when the government grants discriminatory output subsidies which yield different levels of unilateral CSR, we show that domestic CSR leads to a lower CSR level than under foreign CSR. In an endogenous CSR choice game, domestic CSR (no CSR) is a Nash equilibrium when corporate tax is low (high) under the uniform subsidy, while foreign CSR could be a Nash equilibrium when corporate tax is low under the discriminatory subsidy.

Ukraine

Tax policy in Ukraine is engaged in two fronts at once. On one front, very significant work has been done over the years on the gradual improvement and updating of the tax system; on the other, it questions essential tenets of the existing system, exploring fundamental changes to it. While serious efforts have been devoted, for example, to the modernization of the international aspects of the income tax, upgrading the regime to OECD standards, there is a strong push from some quarters of the policy debate to do away with the Corporate Profit Tax (CPT) altogether. The central idea is to replace it with a Distributed Profit Tax (DPT), generally referred to in Ukraine as the Exit Capital Tax (ECT). In essence, this system would not tax profits as they accrue to the corporation, deferring the tax to when the corporation distributes dividends to the shareholder.

Digital business taxation issues and threats abstract

“Article of digital business taxation issues and threats”, analyzes the impact of the digitalization in modern society and the changes of corporate profit tax. This article has been concentrated on the regulation of the European Union but mentions the international adjustments as well. The article has been written in a discussion of national law and bilateral agreements, which apply to the traditional permanent headquarters concept. This article discusses the current situation, where digital businesses are not being taxed with corporate profit tax, and possibilities to change it according to the needs of the digital economy In addition, when digital businesses emerged, the permanent headquarters concept, which taxed based on the permanent location, required further discussion and a new definition. Therefore, the article talks over the proposals of the European Union to equalize corporate profit taxation. The article analyzes the possible consequences and issues of the adaptation of the EU directive. In question of regulating the corporate profit tax, the authors discussed the competence of the EU.

Profit taxation and the optimal privatisation of state holding corporations

AbstractTo examine the optimal privatisation of a state holding corporation when the government imposes a corporate profit tax on firms, we consider a multiplant state holding corporation producing differentiated goods, competing with firms in the private sector that may be uniplant or multiplant. This set up applies to many mixed markets. We find that the optimal privatisation depends on not only the degree of product substitution and the production organisation of firms in the private sector, but also on the profit tax imposed on firms. Specifically, the optimal privatisation degree increases with the profit tax imposed on firms. There is more privatisation when state holding corporations are sold to different investors than when they are sold to a single investor, and when firms in the private sector are multiplant than when they are uniplant. Given the degree of privatisation, the private sector reduces more of its production when responding to a higher profit tax rate. Moreover, the hypothesis of profit tax neutrality holds under the optimal degree of privatisation. The result suggests that the effect of the profit tax in mixed markets can be cushioned by privatisation.

The Impact of Globalization and International Tax Competition on Tax Policies

The aim of the paper is to determine to what extent the strengthening of the transparency of the Ukrainian economy and its incorporation in international tax competition affects the tax policy of the country and the peculiarities of its tax system. In the study, the logical analysis of the direct and inverse relationship of changes in taxation with such manifestations of globalization, as the movement of capital and labor resources from Ukraine and to the country, is combined with an empirical (regression) analysis of the relationship between globalization and the main characteristics of the Ukrainian tax system. It is proved that the increase of incorporation of Ukraine in globalization processes, despite the reduction of taxes on the main factors of production, is accompanied by an increase in the general level of tax burden on the economy (tax rate). The above mentioned is a consequence of increase of other taxes, including excise, caused both by internal needs of Ukraine (conducting the policy of fiscal consolidation caused by large public debt, and increasing defense expenditures) and its international obligations (EU Association Agreement). The tax system in Ukraine is much stronger (about 25%) influenced by the general index of globalization in comparison with its subindex characterizing the economic component of globalization. Obviously, this is owing to the greater influence on taxation in Ukraine of other components of globalization such as political and social one. The results show that the growth of the globalization index is accompanied by rather expected effects such as reduction of corporate profit tax rates and personal income tax, transferring the tax burden from capital to labor and, to a greater extent, on consumption, improving business conditions in the context of tax payments, and specific increase in the general level of tax burden on the economy, significant losses of the state that is not so much from the reduction of tax rates as from the erosion of the tax base on income, which is the result of a combination of negative effects of external and internal factors; the threat of escalating the policy of low tax rates. It is recommended to the Ukrainian Government to focus increasingly on the tax evolution trends in post-socialist EU countries to strengthen Ukraine`s position in tax competition with this group of countries.

СИСТЕМА МЕТОДИЧНОГО ЗАБЕЗПЕЧЕННЯ ОЦІНЮВАННЯ РЕЗУЛЬТАТИВНОСТІ ДОХОДНО-ПРИБУТКОВИХ ПОДАТКІВ

У статті характеризується система методичного забезпечення оцінювання фіскальної результативності доходно-прибуткових податків в Україні, проводиться аналіз методик оцінювання його економічної ефективності, а також визначається інтегральний показник результативності для визначення напрямів його реформування з метою нарощування фіскальної результативності. До доходно-прибуткових податків в Україні відносяться податок та збір з доходів фізичних осіб, податок на прибуток підприємств, єдиний податок із суб’єктів малого підприємництва. Фіскальна результативність доходно-прибуткового оподаткування визначається ефективністю механізму справляння кожного податку окремо чи системи прямого оподаткування в цілому. Складовими фіскальної результативності є фіскальна значимість, фіскальна ефективність, постійність і рівномірність надходжень, соціальна справедливість. Окремими характеристиками фіскальної результативності є обсяги надходжень, частка податку у загальній структурі доходів бюджету та у ВВП, рівень ефективної ставки податку, рівень виконання планових податкових надходжень тощо. З метою вдосконалення механізму справляння доходно-прибуткових податків в Україні визначено факторні залежності фіскальної результативності доходно-прибуткових податків в Україні за період 2014-2018 рр. від рівня фіскальної значимості, рівня виконання планових надходжень, витратомісткості оподаткування, навантаження працівників органів державної податкової служби, ефективності та нерівномірності податкових надходжень. На основі проведених розрахунків визначаються основні пропозиції та рекомендації щодо пошуку шляхів зміцнення фіскально-регулюючих засад доходно-прибуткового оподаткування, які дадуть змогу у майбутньому вивести податкову систему на якісно новий рівень.

Demand of organizations for accelerated return of capital investment in profit taxation in Russia

We analyze how actively Russian organizations apply the right to accelerate the return on capital investments when calculating corporate profit tax in federal districts. The emphasis of the study is placed on such an accelerated asset write-off tool as depreciation bonus. The investment climate of the Russian regions is reflected both in the size of investments and the dynamics of investment activity of organizations, and in the instruments used for direct and indirect stimulation of capital investments. For organizations, these incentives are expressed in terms of the corporate profit tax burden. Significant differences were shown by federal districts, by the absolute amount of the accrued depreciation premium, by the number of organizations using the right to it, and by relative indicators: depreciation premium per organization, the share of organizations that use this tool to reduce tax liabilities, tax savings on profit. The result of the study was confirmation of a positive relationship between the share of investments to which the depreciation premium was applied and the corporate profit tax burden, which may explain the unevenness in using accelerated depreciation methods for tax purposes.

Comparative analysis of income tax and tax on the shown out capital: modern realities and prospects

The paper is devoted to the characterization and analysis of income tax in Ukraine at the present stage, as well as the issue of the level of tax burden, the level of all revenues to the state budget of Ukraine and all issues and problems associated with its management. The authors also examined the prospects for reform of this tax, its transformation into a tax on the withdrawn capital in the conditions of losses for enterprises and a decrease in economic indicators in general. The paper provides a comparative analysis of these two taxes and analyzes the impact of such a reform on the economy of the whole country. Also analyzed are European models of taxation of corporate profits in order to comply with international standards of Ukraine. At the present stage, the income tax is the main tax paid by legal entities, because making a profit is the main goal of any company, and such a tax can both promote development and cause quite big problems for business. At the same time, there is a lot of discussion and controversy about the transformation of the traditional income tax by the withholding tax, taking the example of Estonia. This issue is one of the most pressing now, because the transformation of the tax will have a strong impact on the state of our economy and will allow the business sector to develop with renewed vigor fairly quickly. The subject of this study is the tax on withdrawn capital, as well as how it affects the business of our country. The question of how to ensure reform in general and the transformation of income tax into withholding tax is still controversial and is often raised in the work of various experts. The paper describes and compares these two taxes (income tax and withheld capital tax), focusing on the problems and shortcomings of both taxes and ways to improve the situation.