Corporate Tax Reform Research Articles

The Impact of the Global Minimum Tax Reform on China and Its Countermeasures

Abstract Significant corporate tax reform was agreed upon by more than 140 nations in 2021, with implementation set for 2023 and beyond. Many people throughout the globe are discussing the possible effects of the Organization for Economic Cooperation and Development (OECD) planned adjustment to the global minimum tax (GMT) on their respective economies. The OECD has formulated a “two-pillar” scheme for international tax rules for 137 countries and regions within the overall framework. Pillar 2 is to set the tax rate at 15%, the world’s lowest corporate tax. The GMT is a reclassification of the taxing authority mechanism for the profits of multinational corporations, which has made significant adjustments to the global tax coordination and governance mechanism. People living in China and earning money from China must pay university fees, which are all of a nationality. Progressive rates ranging from 3 to 45% apply to the complete income. Therefore, taking the initiative in policy is crucial to address this challenge actively. This article makes an in-depth assessment and prediction of the impact of the GMT reform on China’s tax system and enterprises and proposes countermeasures. However, approximately 20% of the earnings can be exposed to the 15% tax rate that governments can apply. If the entire process is mixed in tandem, the tax rate equals 0.2%. Hence, an important amount of tax revenue can proceed down the drain. From the numerical outcomes, the minimum tax with jurisdictional blending was set at 12.5% under Pillar 2; the disparity between the sample’s top and lowest EATRs would decrease by 2.8% points.

Taxing Times: Assets and Liabilities of the United Arab Emirates’ Corporate Tax Reform for the Financial Sector

The introduction of corporate taxation in 2022 and accompanying reforms are changing the paradigm of doing business in the United Arab Emirates and its free zones. The players in the UAE financial sector – foreign banks and their branches, investment funds and managers, fintech startups and others – are faced with increased compliance and other costs, but there are also many opportunities to seize for those in the know. This article provides an overview of UAE corporate tax reform with the financial sector perspective in focus and ends with key takeaways and steps to take to stay on top of them.

Exploring the Landscape of Corporate Tax Reforms: A Comprehensive Bibliometric Analysis

Exploring the Landscape of Corporate Tax Reforms: A Comprehensive Bibliometric Analysis

Corporate tax reform in the European Union: are the stars finally aligned?

Abstract Are the stars finally aligned as far as corporate tax reform in the European Union (EU) is concerned? Tax reform in the EU has always been a contentious issue, as taxation was always considered one of the last bastions of national sovereignty. This article examines whether this is still the case or whether, in light of recent initiatives and proposals in this area, conditions are now ripe for comprehensive reform. The article begins by reviewing the historical trajectory of EU corporate tax law. It is shown that whilst early harmonization proposals were very ambitious, the overall constitutional set-up and the fiscal veto were not conducive to comprehensive reform. What followed these early initiatives was an era of pragmatism and slow progress, which, nevertheless, laid the foundations for important developments. Apart from the ad hoc legislative tax instruments that were agreed upon in the last 30 years to further the internal market and remove obstacles to cross-border movement, this article focused on the Commission’s ongoing work on a common tax base and consolidation, as well as other recent legislative initiatives such as the now enacted Directive on a Minimum Effective Tax Rate and the Unshell proposal. In light of these crucial developments, with all their strengths and weaknesses, it is argued that what was once considered as far too ambitious a proposal indicative of a federal Europe, now has high chances of materializing in the context of the BEFIT initiative (Business in Europe: Framework for Income Taxation). This is to be welcomed, as it is the next organic step to take in the process of EU integration. Whilst the stars may not yet be fully aligned, it is argued that what is needed at this point in time, is a change of mindset and a realization that Member States’ tax sovereignty has long been eroded.

The Implications of Pillar Two for Corporate Tax Reform

Recent proposals for corporate tax reform in Canada call for changing the existing tax on shareholder income to a tax on rents or above-normal profits. A feasible option would be an allowance for corporate equity (ACE) system based on the territorial principle. Canada has agreed to the approach to international corporate tax reform developed by the Organisation for Economic Co-operation and Development, including the pillar two minimum tax proposal. We explore the compatibility of adopting pillar two with the ACE system. Several elements of pillar two would complement moving to an ACE system. Large multinational corporations would be liable for a top-up tax if their effective tax rates in any given jurisdiction fell below 15 percent. The effective tax rates and the top-up tax would both use the territorial approach and consolidated accounting. The top-up tax would be similar to a tax on excess profits. Pillar two might also mitigate tax competition and reduce the constraints that countries face in increasing their tax rates on excess profits. For these reasons, pillar two would facilitate moving to an ACE system. At the same time, the minimum tax would deter adoption of an ACE if the deduction for the cost of equity finance reduced the pillar two effective tax rate. On balance, pillar two would be compatible with proposed corporate tax reforms.

Measuring the Expected Effects of the Global Tax Reform

Abstract Over 140 countries agreed on a fundamental corporate tax reform in 2021 to be implemented in 2023 and beyond. To measure its potential effects, we study asset price changes within minutes of the reform announcements. We construct proxies for the reform’s costs regarding U.S. companies’ tax burdens and countries’ public finances. Likely exposed companies exhibit significant negative stock returns. Our lower-bound estimates indicate total shareholder value losses of $112.6 billion one day after the reform announcements. Further, likely exposed countries experience increases in sovereign debt credit risk. Our findings inform the cost-benefit analysis of a historical international tax reform. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Asymmetric corporate tax compliance: Evidence from a tax reform in China

Using China's 2008 corporate tax reform as a quasi-natural experiment, we construct a difference-in-differences setting to study firms' asymmetric tax compliance. Compared to firms whose taxes were unaffected by the reform, firms whose tax rate increased reported significantly lower profit margins to avoid paying more taxes. However, firms facing a tax cut did not behave differently from the unaffected firms. The asymmetric behavior is valid for private firms, but not for state-owned firms that have softer budget constraints. Such tax avoidance is done through the manipulation of the costs of goods sold and other expenses, rather than managing net receivables.

International Corporate Tax Reform

International Corporate Tax Reform

A Critical Evaluation of the International Impact of the Global Minimum Tax

This study provides a critical evaluation of the global minimum tax within the framework of the so-called “two-pillar” solution, addressing in particular its distributional effects, through a reconceptualization of the harmful tax competition policy challenge as a collective action problem. In doing so, it juxtaposes the potential outcome of the two-pillar initiative to the international tax implications prospectively arising from the proposed US corporate tax reform.

A Proposal for a “Big Bang” Corporate Tax Reform

A Proposal for a “Big Bang” Corporate Tax Reform

A Proposal for a "Big Bang" Corporate Tax Reform

A Proposal for a "Big Bang" Corporate Tax Reform

Causal effects of corporate taxes on private firms' earnings management: a regression discontinuity analysis

PurposeThe authors emphasize the information role of earnings management and how it may be used to “mislead some stakeholders about the underlying economic performance of the company or to influence contractual outcomes that depend on reported accounting numbers.” Specifically, the authors examine the causal effect of tax incentives on private firms' earnings management based on a corporate tax reform in China.Design/methodology/approachIn December 2001, China implemented a tax collection reform which moved the collection of corporate income taxes from the local tax bureau to the state tax bureau. This reform results in exogenous variations in the effective tax rate among similar firms established before and after 2002. The authors apply a regression discontinuity design and use the generated variation in the effective tax rate to investigate the impact of taxes on firm earnings management.FindingsThe authors find that tax reduction substantially increases private firms' incentives to manage earnings information, and such effect is particularly pronounced when tax collection intensity and government interventions are low. Further evidence shows that lower tax rates stimulate firms' investment, inventory turnover and recruitment of skilled human capital. A plausible mechanism is that private firms signal a promising outlook by managing earnings to attain greater financing and improve investment/operation levels when financial constraints are removed.Originality/valueFirst, the authors present the causal effects of tax incentives on private firm's earnings management, which deepens the authors’ understanding on the determinants of firm's earnings information production. Second, this study also contributes to the literature on tax-induced earnings management. Third, the authors believe that this topic offers clear policy implications and would be of particular interest to regulators.

Evaluating Japan's corporate income tax reform using firm-specific effective tax rates

This study evaluates Japan's corporate tax reforms in the 2010 s by estimating the effective average tax rate (EATR) and effective marginal tax rate (EMTR), common methods for international comparisons, using data on Japanese firms. Japan lowered its statutory tax rate while it expanded the tax base. This study analyzes the differing effects of the tax rate reduction and depreciation method reform by conducting simulations to represent the effects of each reform on the EATR and EMTR. Japan's tax reform in the 2010 s reduced both EATR and EMTR by lowering tax rates. The reform of depreciation methods had little effect on EATR and raised EMTR, but had a limited effect on companies with eligible depreciable assets. The overall effect of the corporate income tax reform is that the effect of the tax rate reduction exceeded that of the depreciation method reforms, and thus the EMTR also declined.

A Proposal for a 'Big Bang' Corporate Tax Reform

A Proposal for a 'Big Bang' Corporate Tax Reform

The Macroeconomic Effects of Corporate Tax Reforms

The Macroeconomic Effects of Corporate Tax Reforms

Immediate Effects of Corporate Tax Reform

Immediate Effects of Corporate Tax Reform

The Long-Run Effects of Corporate Tax Reforms

The Long-Run Effects of Corporate Tax Reforms

The Silicon Valley imaginary: US corporate tax reform in the 1980s

Abstract How do policy paradigms change? This article demonstrates that changing social imaginaries about economic growth enabled paradigmatic changes in USA corporate tax policy in the 1980s. Based on archival sources, it reconstructs how policy makers switched from focused support for capital-intensive smoke-stack industries towards support for emerging high tech-sectors between two major tax-bills in 1981 and 1986. This switch was made possible by the emergence of what we call the Silicon Valley imaginary—the idea that sound economic policies stimulate the reallocation of society’s resources towards new economic fields. The emergence of this social imaginary resulted from political realignments and changing notions of economic growth and justice. The search for sources of future economic growth and societal coalitions led policy-makers to appropriate ideas about the promises of new industries.

Policy Effects of International Taxation on Firm Dynamics and Capital Structure

Abstract This article develops a quantitative open economy framework with dynamics, firm heterogeneity and financial frictions to study the impact of corporate tax reforms targeted at multinationals. The model quantifies their impact on firm selection, production and welfare. Firms draw idiosyncratic shocks, invest in capital, choose optimal financing and select endogenously into selling abroad, through exporting or FDI. I apply this framework to the removal of the U.S. repatriation tax as in the Tax Cuts and Jobs Act. The reform’s impact trades-off two selection effects—more offshoring versus greater U.S. business dynamism. The reform leads to higher U.S. welfare at little cost to the Treasury. A series of exercises illustrate that the novel features of this framework have significant quantitative implications. The reform gives starkly different cross-sectional predictions and lower welfare gains when financial frictions are removed and it is welfare reducing in a static counterpart of the model.

Thanks, neighbor! Stock market experience around significant European tax cuts

PurposeThis paper analyzes the effect of corporate tax cuts on the competitiveness of the tax-cutting countries and neighbor countries.Design/methodology/approachThis study utilizes four significant corporate tax reforms among the OECD countries in Europe that offer a one-time tax cut of 6% or more. The short-term event study approach examines the stock index reactions for both the tax-cutting countries and the other countries. Multivariate fixed-effect regressions are employed to study the cross-sectional variations in the non-tax-cut countries.FindingsThis paper finds positive excess returns for Slovakia and Germany around the tax-cut passage. Multivariate analysis of stock market reactions of the non-tax-cutting countries reveals some evidence supporting both the positive spillover effect and the negative competitive loss effect. More advanced countries are more likely to experience higher abnormal returns, while higher tax countries are more likely to suffer lower abnormal returns. Other factors identified that might have influenced the effect of a foreign tax cut include the existing trade flows with the tax-cutting countries, whether the country has a common currency and the export orientation of the economy.Research limitations/implicationsThe findings are subject to sample-size issues. The lack of results for the other two countries is due to complicating events, as suggested by the further investigation of concurrent news events around the event days.Practical implicationsThe simultaneous analysis of the reform countries and the other countries in the region suggests that policymakers need to consider the relative positioning of their country vs the other countries in terms of economic development and current tax burdens when determining the optimal policy for their country or to respond to the tax policy changes in the other countries.Originality/valueThis study offers empirical evidence regarding the effect of corporate tax changes on competitiveness through the lens of stock markets' reactions, which depend on the net results of the spillover gain vs the competitive loss.