Domestic Profits Research Articles

A Simple Model of Corporate Tax Incidence

We analyze the incidence of a linear corporate tax using a simple and portable competitive general equilibrium model in which capital owners choose to invest either in domestic production or a foreign investment opportunity and workers make extensive margin labor supply decisions. Our analysis explores the effect of corporate taxation on wages, employment, domestic profits, and domestic investment. Analytical results and numerical simulations generate insights in line with recent empirical evidence on corporate tax incidence: the burden of the corporate tax is shared between workers and firms, with larger responses among more capital-intensive firms.

Keeping Mobile Firms at Home: The Role of Public Enterprise

Abstract We show that the presence of a public firm can deter private firms from relocating to foreign countries in response to high domestic taxation. We also examine partially privatized public firms showing that the higher the exogenous domestic profit tax, the larger the public ownership share needs to be to deter private firm mobility. We illustrate that deterring mobility increases domestic welfare.

The Missing Profits of Nations

Abstract By exploiting new macroeconomic data known as foreign affiliates statistics, we show that affiliates of foreign multinational firms are an order of magnitude more profitable than local firms in a number of low-tax countries. Leveraging this differential profitability, we estimate that 36$\%$ of multinational profits are shifted to tax havens globally. US multinationals shift twice as much profit as other multinationals relative to the size of their foreign earnings. We analyse how the location of corporate profits would change if shifted profits were reallocated to their source countries. Domestic profits would increase by about 20$\%$ in high-tax European Union countries, 10$\%$ in the US, and 5$\%$ in developing countries, while they would fall by 55$\%$ in tax havens. We provide a new international database of GDP, trade balances, and factor shares corrected for profit shifting. In contrast to the picture painted by official statistics, our results suggest that the corporate capital share has increased not only in North America but also in high-tax European countries. Capital is making a comeback globally, but its rise is obscured by the tax avoidance strategies of multinational companies.

Revenue-neutral or profit-neutral tariff and tax reforms under imperfect competition: Welfare implications

Concerns over the financial losses of government in revenues resulting from tariff reductions under trade liberalization have triggered many low-income countries to opt for a proper strategy of reforming their domestic consumption taxes. This paper analyzes the welfare effects of two coordinated tariff and tax reform strategies: one is to keep government revenue unaffected, and the other is to leave domestic profit unchanged when there are tariff cuts. Within a stylized framework of international duopoly, we identify conditions under which the tariff and tax reforms (revenue-neutral and profit-neutral) make domestic consumers better off and are welfare improving to a reforming country.

The impact of foreign bank presence on domestic banks' profit: evidence from Vietnam

The impact of foreign bank presence on domestic banks' profit: evidence from Vietnam

Country Note: Arm’s Length Principle from a Swiss Perspective: Profit Allocation to Inbound and Outbound Permanent Establishments

Switzerland continues to be one of the most preferred locations for many businesses when setting up a headquarters or permanent establishment (PE) structures. Thus, obtaining tax certainty and predictability is crucial for such structures. Swiss tax law does not provide for detailed rules for international profit allocation and particularly the arm’s length principle (ALP) for the determination of an enterprise’s profit. Therefore, the Swiss tax authorities and courts largely rely on general national tax law principles for their assessment of the allocation and calculation of the taxable profit of a company or a PE in Switzerland. They have developed a sophisticated system of profit correction in order to determine the relevant taxation basis, in particular when prices between related entities or within PE relationships are deemed to not be set at arm’s length. This practice is continuously evolving, and the Authorized OECD Approach (AOA) is increasingly integrated in the assessment of each individual case. Against this backdrop, the present contribution discusses the application of the ALP from a Swiss tax treaty and Swiss national law perspective as applicable to transactions among separate entities as well as to head office and PE relations. With respect to the latter, the reader will find an overview of the profit allocation rules applicable in domestic and international cases. Moreover, for illustration, two case studies are developed and analysed for cross-border relations with fixed place PEs (inbound and outbound cases) and an example is provided for the interaction between international and domestic profit allocation. Switzerland, profit allocation, AOA, permanent establishment, arm’s length principle, transfer pricing, international, intercantonal, developments, cases.

Revisiting foreign market entry motivations: the case of Korean commercial banks

PurposeThis study examines what motivates firms to go and remain abroad despite uncertain profit potential. In a departure from probing traditional market-seeking, profit-driven motives, the authors explore how domestically driven, sociocultural motivations may shape the foreign market entry decisions of Korean commercial banks (KCBs). The authors argue that, due to the power imbalance between KCBs and their chaebol clients within the historical and cultural contexts of their relationships, KCBs' foreign market entries may depend more on their clients' presence in these markets than on their profit potential.Design/methodology/approachThe authors focus on the foreign market entries of KCBs and their client firms. Using the data of 8 KCBs and their client firms belonging to the 60 business groups (chaebols) of Korea, the authors analyze 6,577 observations involving the dyadic relationship between a KCB and its client firm in 15 host countries from 2005 to 2014.FindingsThe authors find that the number of clients' subsidiaries operating in foreign markets may increase the likelihood of KCBs entering these markets. Moreover, when KCBs earn more domestic profit from client firms, the potential Korean market in the host country is greater, and the institutional distance between the host country and Korea is smaller.Practical implicationsIn addition to the critical role of a bank-centered financing system in advancing a developing country and its firms, the authors’ findings suggest that firms should pay attention to the local diaspora and the institutional distance between the host and home countries in order to manage power-imbalanced relationships and make them sustainable.Originality/valueThe study contributes to the literature on foreign market entry by demonstrating how the home country's sociocultural factors may worsen the power imbalance, thereby pushing firms to make seemingly irrational decisions to go and stay abroad. That is, KCBs' foreign operations may be a way of seeking relational benefits with client firms, which would serve as a source of long-term domestic market profits. The authors’ findings thus highlight the need to consider how sociocultural factors may also shape firms' decision-making in their international business.

Determinants of Antimicrobial Resistance among the Different European Countries: More than Human and Animal Antimicrobial Consumption.

Although antimicrobial consumption is considered the main driver of antimicrobial resistance (AMR), other factors probably have a significant but less studied impact. The study’s goal was to assess AMR drivers across different European countries and quantify their possible contributions using the latest data available. Using the ESAC-Net (European Surveillance of Antimicrobial Consumption Network) database, the ESVAC (European Surveillance of Veterinary Antimicrobial Consumption) database and the OECD (Organisation for Economic Cooperation and Development) information, a dataset including 23 European countries was created. Associations between AMR and potential contributing factors were assessed using bivariate correlation and multiple linear regression models for multivariable analyses. Factors associated with the AMR rate among European countries were human ambulatory consumption of antibiotics and per capita expenditure on health, meaning that the higher human ambulatory consumption of antibiotics and the lower the per capita expenditure on health, the higher the AMR. Both variables together explain 74% of AMR variation. Private expenditure on health in terms of % GDP (Gross Domestic Profit) was positively related to a higher AMR rate. In conclusion, considering antibiotic consumption as the most important factor contributing to AMR may be a deviant focus, as resistance transmission may be paramount for AMR levels. Low per capita expenditure on health, probably a surrogate of worse healthcare conditions and a high level of resistance transmission, has a strong correlation with the AMR rate. Increasing public expenditure on healthcare, to strengthen infection control structures and processes interventions, seems relevant to tackle antimicrobial resistance at the European scale.

Managing the capital force impulse of the agrarian enterprise: transfer approach

In the current conditions of globalization and European integration trends, domestic agricultural companies use the transfer pricing mechanism when exporting agricultural products, which on one hand allows owners to increase the efficiency of internal management, and on the other to hide real profits and reflect unprofitable production in financial statements. At the same time, traditional double-entry bookkeeping and financial reporting (including those prepared in accordance with IFRS) are unable to show the real power momentum of domestic agricultural enterprises profitability (their return on capital). This narrows the circle of potential investors when making decisions on the feasibility of investing financial resources in the development of Ukrainian agricultural sector. The purpose of the study is to develop a 3D-form of the Actuarial Report on Capital Force Impulse (3D - ARCFI), which informational content will provide an objective assessment of the capital force impulse of an agricultural enterprise and help to attract investment in its development. The object of the study is the process of actuarial accounting and 3D reporting as information subsystems for controlling the capital power momentum at domestic agricultural enterprises. The research methodology is based on the application of 3D-recording method and classical mechanics methods in displaying information from the actuarial accounting system on 3D-force accounts to develop a model of power momentum management of an agricultural entity return on capital as an alternative approach to transfer pricing based on informational filling of 3D-ARCFI with the help of net profit method. The study results showed dependence of domestic agricultural enterprises investment attractiveness on the qualitative informational filling of the actuarial management reporting in 3D format. The practical value of the results received confirmed the effectiveness of the proposed 3D-model of profit power momentum management within the transfer approach based on accounting-informational basis of 3D-ARCFI, which will contribute to an objective perspective assessment of agricultural companies return on equity power momentum and increase their market investment attractiveness. AcknowledgmentThe article has been prepared within the research project “Business Value Management” (state registration No. 0118U000131) implemented in the Kyiv National University of Trade and Economics.

A computer vision-based weed control system for low-land rice precision farming

<span>Agricultural sector is one of the economic pillars of developing nations, because it provides means of boosting gross domestic profit. However, weeds pose a threat to food crop by competing with it for nutrients and undermining the profit to be made from it. The treatment of these weeds is necessary, but at minimal impact on the actual food crop. Herbicide usage is one major means of weed control, owning to the expensive and labour-intensive nature of hand weeding. Recently, the need for site specific spraying has been on the rise because of health concerns which have been raised on the effect of herbicides on food crops and the effect on the environment. Most research on the field focuses on accurately identifying the weeds whilst neglecting the weed control. In this research, we apply fuzzy logic-based expert system to control how herbicide is sprayed on low-land rice in order to reduce excessive herbicide usage. The system supplies the control with weed density (Box size) and confidence level. The values of both are then passed to the fuzzy logic control for spray decision. The Sugeno as well as Mamdani models were tested using generated values for detected weed box size and confidence levels of the computer vision. The mean absolute error obtained was 0.9 for both, and 0.3 and 0.2 respectively, for the mean square error. The error shows how accurate the system can be and with low error value, it shows that the system implementation is capable of providing control for spraying of herbicides which in turn will yield more returns for low-land rice farmers.</span>

Domestic dynamics of crop production in response to international food trade: evidence from soybean imports in China

ABSTRACTInternational food trade plays an important role in food security, but little research has been devoted to studying crop dynamics in importing countries caused by trade. We studied the spatiotemporal patterns of soybean planting area in China (the largest soybean importing country) in response to soybean imports. The results show how the soybean planting area from 1980 to 2012 in China is dominated by two temporal patterns, both of which first increased, then decreased, with an 8-year time lag. The first increasing-decreasing pattern is affected by increasing soybean imports, and the second increasing-decreasing pattern is driven by decreasing domestic soybean profits. The results also show spatially distinct spatial patterns: soybean planting area decreased in southeastern China while it increased in northwestern China. Our analysis of soybean planting area helps China and other food-importing countries understand spatiotemporal responses of domestic agricultural cultivations caused by international food trade and agricultural pollution management.

The impact of new foreign banks strategies on banking in Africa

With the deregulation and liberalisation of the Ghanaian financial sector, the Ghanaian banking sector has seen an influx of new foreign banks, which are competing very well in this market. However, there is limited research on the impact of the strategies and impact of these new bank's operations in the host country. Using a qualitative and the interview method, data was collected from a case of four foreign banks operating in Ghana and analysed using cross-case comparative analysis. The findings from the study reveal that the exposure of foreign bank strategies in domestic markets leads to both positive and negative impacts. The operations of these foreign banks impact positively on their performance with higher profits and a negative impact on domestic bank's profitability. This paper explores these empirical findings and presents its implications for foreign bank's operations in the domestic markets of an emerging economy.

Dirty Versus Clean Firms’ Relocation Under International Trade and Imperfect Competition

This paper develops a simple partial equilibrium model with two countries (North and South) to fathom the effects of firms’ relocation in a context of international and imperfect competition. Two different production technologies are considered, a clean technology and a dirty one, and the effects of relocation according to the kind of technology used by the relocated firms are determined. Two heterogeneous firms in the North and only one dirty firm in the South are assumed and the four different possible scenarios are compared: neither firm relocates, the two northern firms relocate, the clean one relocates and the dirty one relocates. This paper demonstrates that the relocation of a dirty firm as compared to the relocation of a clean firm is worse for the environment, better for northern consumers, and better for the domestic profits. Moreover, the relocation of a dirty firm always increases global emissions, while the relocation of a clean firm may decrease global emissions.

국내 은행 수익성 결정요인에 관한 민감도 연구

본 논문은 2002년부터 2016년까지의 년간 자료를 이용하여 은행내부변수와 외부거시변수가 은행 수익성을 나타내는 대표지순인 ROE에 어떤 반응을 미치는지에 대해 분석하였다. 방법론으로는 Arellano and Bond(1991)가 소개한 First-Difference Generalized Method of Moments(GMM DIF)를 사용하였다. 여신건전성, 대출비율, 생산성, 노령화 지수는 은행 수익성에 실질적으로 영향을 미치기는 하지만 본 분석에서는 유의적인 의미를 갖지는 못한 것으로 나타났고, 나머지는 변수들은 통계적으로 의미를 띌 만큼 양(+) 또는 음(-)의 영향을 미치는 것으로 나타났다. 물가수준과 시장집중도가 높을수록 은행수익성에 부(-)의 영향을 미치고, 주택매매지수는 양(+)의 영향을 미치는 것으로 나타내고 있다.

Subcontracting bargaining power and the trade policy

ABSTRACTIn this paper, we consider that the split of surplus from a subcontracting deal depends on the relative bargaining powers of domestic and foreign firms. The finding shows that a domestic optimal export policy is a tax (subsidy) if the bargaining power of the domestic firm is sufficiently small (large). We also demonstrate that a domestic firm’s higher bargaining power increases (may decrease) domestic profit if the export policy is exogenous (endogenous). In the presence of an outsider option, the domestic optimal export policy will be threatened by the outsider option if the domestic firm’s bargaining power is sufficiently small, and thus a large bargaining power increases the optimal export tax. At the same time, the foreign firm may still subcontract to the domestic firm even if the domestic firm has a higher total marginal cost of the intermediate good than the outsider option.

Offshoring Quotas and Strategic Export Subsidies

ABSTRACTWe present an analysis of strategic export subsidization in the presence of exogenous limits on the extent of offshoring that is permissible for a domestic firm. Rather than offsetting a quota’s cost-raising effect, the government reduces its optimal strategic subsidy compounding the negative effects on the domestic firm’s market share. This double jeopardy of lower subsidies and greater offshoring restrictions must reduce domestic profits as well as domestic welfare. Finally, we show that there is no guarantee that such an offshoring quota will raise domestic employment in the oligopolistic sector, calling into question the efficacy of such a barrier.

Import competition, product quality reversal, and welfare

We investigate product quality in an import-competing country using the framework of vertical product differentiation. Comparison of three polices suggests that the quality-based R&D subsidy brings quality-reversal, leading to a win-win-win equilibrium in consumer surplus, domestic profit and social welfare.

Nonhuman Narrators and Multinatural Worlds

Located at the center of Karen Tei Yamashita’s novel Through the Arc of the Rain Forest (1990) is the Matacão, a vast expanse of thick, mysterious black plastic that has emerged in the middle of the Brazilian Amazon. When scientists uncover a means to extract it, the Brazilian government’s chief concern is to maximize domestic profit. “Brazil [has] once before emptied its wealthy gold mines into the coffers of the Portuguese Crown and consequently financed the Industrial Revolution in England,” argue government officials, insisting that “[t]his time, if there [is] any wealth to be had, it had better remain in Brazil” (96). Fueling this concern is Brazil’s continued indebtedness to the International Monetary Fund (IMF), which Matacão-derived wealth promises to partially alleviate. Such concerns reveal a historical subtext of Yamashita’s novel, one that is invested in excavating a long history of resource exploitation in Brazil beginning with Portuguese colonization in the sixteenth century. Following the Portuguese preoccupation with sugar and gold and a post-independence fixation on rubber and coffee, Brazil’s state-sponsored development of the Amazon region in the 1950s and 60s gave way to a neoliberal turn in economic policy in the mid-1990s that effectively ushered in the age of extractive capitalism. Driven by slave labor (during and after colonization) and enabled by the genocide, displacement, and internal colonization of millions of indigenous peoples, resource extraction in Brazil has also resulted, over the last five hundred years, in ecological destruction on a scale so stunning—1.2 million km2 of forest lost—that it has been characterized as “one of the most tragic effects in the making of the modern world system” (Pádua 131).1

The economy of excess versus doctrine of quality

A review article devoted to the book of Andrzej Blikle – Doktryna jakości. Rzecz o skutecznym zarządzaniu. As pointed out by the Author, the book is a case of a work rare on the Polish publishing market, written by an outstanding scientist, who successfully runs a business activity. The combination of practical experience with theoretical knowledge gave a result that may be satisfying both for practitioners as well as theorists, and also those who want to get to know the ins and outs of an effective and efficient business management. The Author of the review believes that it is an important voice for shaping an inclusive socio-economic system, which constitutes a value in itself. Although the book is mainly concerned with business management, its message has a much wider dimension and is concerned with real measures of wealth, money and people’s lives. The book was awarded The SGH Collegium of Business Administration Award “For the best scientific work in the field of business administration in the years 2014-2015”.

Taxing income in the oil and gas sector — Challenges of international and domestic profit shifting

This paper provides specific estimates on the scale of profit shifting among hydrocarbon MNEs. We estimate a semi-elasticity of reported Earnings Before Interest and Taxes (EBIT) to sector specific income taxation of −1.68. Observed effects are larger when using Profit and Loss before Taxes, allowing for debt shifting. We find no profit-shifting among entities that are majority-owned by a national government. We also observe a higher vulnerability of non-OECD economies in our sample, which consists of 294 domestic and multinational parents and subsidiaries during the period from 2004 to 2012. To assess the importance of domestic profit-shifting channels, we take advantage of domestic tax differentials among hydrocarbon producers facing additional rent taxes and find that domestic profit shifting accounts for about one third of total income concealed.