Determinants Of Effective Tax Rates Research Articles

Determinants of Effective Tax Rate: Empirical Evidence From Selected Manufacturing Industries in Bangladesh

Purpose: The objective of this study is to conduct an empirical investigation of financial and operational firm specific factors that have an impact on the effective tax rate (ETR) for Bangladeshi manufacturing firms operating in a variety of industries. Method: The study solely focused on three different production industries: Pharmaceuticals and Chemicals, Engineering, and Ceramics. At least six years’ set of panel data have been collected from each industry between 2016 and 2021 in order to conduct an analysis of the panel corrected standard error model (PCSE). Thus, the PCSE model is used to conduct an analysis on a total of 265 observations derived from 44 different company listed in DSE. Findings: Out of eight financial and operational factors, firm size and profitability has a significant positive correlation with ETR in practically every sector separately and collectively. The findings are supported by political cost theory that suggests large firms have to pay more taxes due to political attention. One exception has been found regarding Ceramics sector where firm size has insignificant negative impact on ETR. This is reinforced by the political power theory, which states that politically influential corporations are less likely to voluntarily pay taxes because of the incentives provided by the power they wield in politics. On the other hand, Interest coverage ratio, Interest to sales ratio, capital intensity, firm age leverage has also significant impact on the effective tax rate in both model ETR1 and ETR2 differently across sectors. This study also concludes that there is variation among industry to industry and little bit of year indicators. Novelty: The study investigates the factors of manufacturing companies empirically and contributes to the variety of taxation issues among various manufacturing sectors. According to the authors’ best knowledge, there has been very little research on taxes, hence this study is a completely new contribution to Bangladesh’s manufacturing sector. Keywords: Effective Tax Rate; Dhaka Stock Exchange; Political Cost Theory; Political Power Theory

Determinants of effective tax rates of public enterprises as an indication of tax avoidance on profit tax

Determinants of effective tax rates of public enterprises as an indication of tax avoidance on profit tax

The Relationship Between Effective Tax Rate and Firm Size

The current research studies firm size and other determinants of effective tax rates for UK companies operating in the wholesale and retail trade sector. A panel of 784 companies from the BvD Company Independence Indicator (BvD's FAME database) is studied over the six-year period 2008-2013. The research approach is unique in terms of the comprehensive data it is using as it is large panel data and it involves finance and accounting analytics. The analysis shows that size and profitability were significant factors affecting the average effective tax rates of companies in the wholesale and retail trade sector.

Determinan Tarif Pajak Efektif pada Perusahaan yang Terdaftar di Bursa Efek Indonesia

The purpose of this study is to analyze the determinants of effective tax rates. Effective tax rates are often associated with tax avoidance activities. Independent variables in research are company size, audit committee, leverage, independent commissioners, inventory intensity, return on asset, audit quality, capital intensity, and institutional ownership. GAAP ETR and Current ETR are the dependent variables in this research.
 493 companies listed on the Indonesia Stock Exchange from 2014 to 2018 act as the study population. Sample selection is done using a purposive sampling technique. 216 companies that fulfilled certain criteria are included as samples for the study. Data testing with panel data regression is done to test the hypothesis.
 Test results conclude that the rate of return on assets and firm size had a significant negative effect, while institutional ownership had a significant positive effect on the two dependent variables, namely GAAP ETR and Current ETR. Leverage has a significant positive effect on GAAP ETR but has no significant effect on Current ETR. Other independent variables, namely audit quality, inventory intensity, audit committee, capital intensity, and independent commissioners do not show any significant effect on GAAP ETR and Current ETR.

Business and institutional determinants of Effective Tax Rate in emerging economies

This paper studies the determinants of Effective Tax Rate (ETR) in emerging economies from a joint perspective, focusing on the BRICS (Brazil, Russia, India, China and South Africa) and MINT (Mexico, Indonesia, Nigeria and Turkey) countries. We consider both traditional business characteristics (size, leverage, asset composition and profitability) and other newer ones (firm growth, earnings management and deferred tax), as well as the specific institutional factors of each country (Statutory Tax Rate, level of development, index of economic freedom, GDP growth and institutional quality). We use a sample of 7844 listed companies taken from the Compustat data base for the period 2006–2015 and we apply panel data methodology. Our results show that both business variables and institutional factors have a significant effect on the tax burden for firms in emerging countries. We consider that these findings will be of use to firms in their investment and location decisions in these countries, and to governments when drawing up fiscal policies. In our opinion, this research amounts to an important contribution to the literature because it includes new variables, both business-related and institutional, which had not been considered together in previous studies on the determinants of ETR.

Influence of Ownership Structure on the Determinants of Effective Tax Rates of Spanish Companies

This paper examines the effect of state ownership on the effective tax rates of Spanish companies. Using information regarding 3169 companies during the period of 2008–2014, we show that there are significant differences between the tax burdens of non-state-owned enterprises (NSOEs) and state-owned enterprises (SOEs), with the effective tax rates of private ownership companies being higher than those of state-owned firms. Company features, such as size, leverage, research and development investment, profitability, firm age, foreign operations, and auditing determine the tax burden of private ownership firms. That of state-owned companies, however, is affected only by leverage and capital intensity. For both SOEs and NSOEs, the tax burden is lower when they are taxed under the Spanish special taxation regime for small- and medium-sized enterprises. In short, company characteristics are more important in private ownership firms, in which almost all the variables considered have certain repercussions. This result may be because private ownership companies devote more resources to tax avoidance, and their fiscal strategy may determine their economic and financial structure. However, SOEs present significantly lower effective tax rates than NSOEs, probably because of the tax incentives that the law provides for them to support their sustainability.

Do US Firms Pay Less Tax than Their European Peers? On Firm Characteristics, Profit Shifting Opportunities, and Tax Legislation as Determinants of Tax Differentials

Using pairs of similar US and European firms listed on the S&P500 or StoxxEurope600, we examine effective tax differentials between US multinational corporations (MNCs) and their European peers. We show that statutory tax rates and profit shifting opportunities are important determinants of effective tax rates. Our findings suggest substantially lower total tax payments of US MNCs after the 2017 US tax reform. Based on past reforms of Controlled Foreign Company (CFC) rules and of the principle of worldwide taxation, we confirm that international tax legislation affects effective tax expenses. We also provide evidence for heterogeneity in firm responses: MNCs with profit shifting opportunities benefit most from more-lenient CFC rules.

Determinants of effective Tax Rate of the top 45 Largest listed companies of Indonesia

The capital inflows and outflows of a country are closely related to the established tax rate policy. Tax rate is one of important factors in investment decisions. Evidence that there are variations in effective tax rates amongs firms draw attention of researchers to understand the impact of tax policies on corporate tax burdens (Gupta and Newberry, 1997; Molloy, 1998). Effective tax rate is a dependent variable that is commonly used as a proxy to measure corporate tax burden. This study examined corporate effective tax rates (ETRs) of the top 45 largest listed companies of Indonesia within 2009-2014 (after tax reform of 2008, to be exact). We used two types of ETR1 and ETR2 measures as dependent variables. The first type is the ratio of current income tax expense divided by income before interest and taxes and the second type is the ratio of total income tax expense (current tax expense plus deferred tax expense) divided by income before interest and taxes (Noor et al. 2008).We also used some of independent variables related to firms’characteristics, such as firm size, capital intensity, leverage, returns on assets, and inventory intensity. The statistical results reveal that all independent variables contributed to ETR1 and ETR2 except the capital intensity is not contributed to ETR2. However, the findings provide support for the tax policy on corporate actual tax burdens.

Determinants of effective Tax Rate of the top 45 Largest listed companies of Indonesia

The capital inflows and outflows of a country are closely related to the established tax rate policy. Tax rate is one of important factors in investment decisions. Evidence that there are variations in effective tax rates amongs firms draw attention of researchers to understand the impact of tax policies on corporate tax burdens (Gupta and Newberry, 1997; Molloy, 1998). Effective tax rate is a dependent variable that is commonly used as a proxy to measure corporate tax burden. This study examined corporate effective tax rates (ETRs) of the top 45 largest listed companies of Indonesia within 2009-2014 (after tax reform of 2008, to be exact). We used two types of ETR1 and ETR2 measures as dependent variables. The first type is the ratio of current income tax expense divided by income before interest and taxes and the second type is the ratio of total income tax expense (current tax expense plus deferred tax expense) divided by income before interest and taxes (Noor et al. 2008).We also used some of independent variables related to firms’characteristics, such as firm size, capital intensity, leverage, returns on assets, and inventory intensity. The statistical results reveal that all independent variables contributed to ETR1 and ETR2 except the capital intensity is not contributed to ETR2. However, the findings provide support for the tax policy on corporate actual tax burdens.

Tax Havens and Effective Tax Rates: An Analysis of Private versus Public European Firms

We examine the impact of tax haven operations on the effective corporate tax burdens of publicly listed and privately held firms domiciled in Europe. In particular, we consider how European firms' tax haven operations interact with factors such as listing status and home-country tax reporting systems to determine the relative tax burdens of publicly listed and private firms. Our main empirical results show that tax haven operations are associated with lower effective tax rates for both private and public firms, and that the impact of tax havens in lowering effective tax rates is more pronounced for private firms than for public firms. Home country characteristics are also important determinants of effective tax rates for both private and public firms with tax havens. Given that firms use tax havens as tax avoidance mechanism in lowering tax burdens regardless of their listing status, regulatory and tax enforcement bodies should focus on private as well as public firms.

Determinants of effective tax rates for firms listed on Chinese stock market: Panel models with two-sided censors

This paper is to investigate the determinants effective tax rate for the firms listed on China’s stock markets. The panel data consists of 481 firms from 2007 to 2009 as our empirical data. In order to illustrate a country’s tax policies on firms’ real tax burdens, the dependent variable, ETR, is left-censored at 0 and right-censored at 1, the estimation for panel data model with two-sided censoring suggested by Alan, Honor´e, and Leth-Petersen (2014) is implemented in this paper. There are two important findings are obtained: first, this model can add more observations especially the observations with tax preferences. Second, theories suggest that ETR reflects outcomes of tax preference and this paper is the first time to consider the effective tax rates set between 0 and 1 and this range is more meaningful for the ETRs.

Are Multinational Corporate Tax Rules as Important as Tax Rates?

Previous research has documented the influence of statutory tax rates on international firms' effective tax rates, or ETRs. We add to this body of research by examining common factors of the income tax base, which affects ETRs. Specifically, this study examines the determinants of effective tax rates for publicly traded companies based in European Union (EU) countries. The time period examined is after 2004, when all EU firms were required to use standardized accounting principles under International Financial Reporting Standards (IFRS). We find that, across EU countries, such factors are relatively consistent with factors found in studies of U.S. companies' effective tax rates, which include inventory, leverage, depreciation tax shield, and R&D intensity. We also find that the presence of country book-tax conformity rules increases effective rates. Importantly, our finding that such tax base (or rule) effects are at least as important as rate effects adds to the international debate about uneven tax structures around the globe.

Determinants of Effective Tax Rate: Evidence for USA and the EU

This article carries out a comparative analysis of the tax burden borne by listed companies in the USA and the European Union (EU) and of the determinants of the Effective Tax Rate (ETR). A sample of companies was drawn up from the Datastream/Worldscope database over the period 1995-2007. By applying panel data estimation procedures, the main findings are, on the one hand, that ETRs are significantly lower for US firms than for European firms and that the tax burden is determined by both the actual characteristics of the individual firm and by the tax policies adopted by governments.

Effective Tax Rate Under a Convex Tax Schedule

It is well known that the typical U.S. firm faces a convex tax schedule (Graham and Smith 1999). This paper analyzes the effective tax rate (ETR) for a firm facing a convex tax schedule, and shows how the degree of convexity affects the ETR. In addition to the traditional factors (earnings level, leverage ratio), it is shown that the ETR should also be affected by firm-specific characteristics such as earnings growth rate and earnings volatility via their impact on tax convexity. Earnings growth rate should have a positive effect, and earnings volatility a negative effect, on ETR. Empirical tests with a large sample of U.S. firms provide strong support for the predictions regarding the determinants of ETR.

Determinants of Bilateral Effective Tax Rates: Empirical Evidence from OECD Countries*

AbstractThis paper identifies the relevant determinants of a company's effective tax burden. Thereby, we account for bilateral aspects of corporate taxation by calculating bilateral effective tax rates as proposed by Devereux and Griffith (1999 and 2003). The empirical evidence of a large panel of nearly 8,000 bilateral effective tax rates within the OECD suggests that country size is an important determinant of the effective tax rate. In line with the literature, bilateral tax rates with small host countries exhibit a smaller overall effective tax rate, despite the fact that larger countries are more likely to reduce the tax burden by means of tax treaties at the bilateral level. Further, we find that geographically remote countries impose higher taxes, whereas economic integration tends to reduce the extent of the bilateral effective tax burden.

Taxes and firm size in pacific-basin emerging economies

U.S. studies have found a positive relation between effective tax rates and firm size indicating that large U.S. firms suffer a ‘political cost.’ The applicability of this hypothesis is examined in the context of emerging economies. This study examines the relation between effective tax rates and firm size in Hong Kong, Korea, Malaysia, Taiwan and Thailand. First, for each year, firms are categorized into quintiles based on size, and mean effective tax rates are calculated to see if any pattern persists. Next, this potential relationship is tested using a regression analysis framework. In this context, other potential determinants of effective tax rates are examined that have never been considered empirically by previous research. Overall, in contrast to U.S. studies, the results suggest that there is a negative relation between firm size and effective tax rates in Pacific-Basin emerging economies. However, the findings are sensitive to the choice of effective tax rate measures and study period. Profitability is also found to be a potentially relevant factor to explain effective tax rates.