Corporate Effective Tax Rates Research Articles

The heterogeneous relation between firm size and corporate effective tax rates: Evidence from listed companies in China

This article attempts to consider the firms pay no taxes and explain there are different levels of effective tax rate across firms. By means of OLS, Tobit, quantile regression, and censored quantile regression methods this article detects the heterogeneous relation between firm size and corporate effective tax rates. The empirical results show that censored quantile regression model is the best method to detect the firms pay no taxes and explain there are different levels of effective tax rate across firms.

Are the tendencies of the race to the bottom real in the European Union?

The increasing globalization and integration of markets are one of the causes of tax competition. Even though tax competition may be beneficial for some countries, on the other hand for others states it may mean an erosion of their public budgets. The Member States are therefore forced to compete for a capital by a reducing of the tax burden (especially a cutting of the corporate effective tax rates) to don’t lose their tax bases. At present time of the debt crisis, when most of the Member States look for a solution to a balance of their deficit budgets, there a question arises whether a tendency towards a cutting of corporate effective tax rates does not lead to a race to the bottom and the erosion of their public budgets. In this context, the aim of this paper is to answer whether the race to the bottom is real in the European Union. This paper empirically evaluates the level of the race to the bottom in the European Union and using panel analysis it verifies on a sample of 27 Member States over the period 1998 to 2010 whether the tendencies of the race to the bottom are real. According to the panel analysis this paper concludes that the tendencies of the race to the bottom are particularly evident in the new Member States, i.e. in the EU-12 countries, while for the old Member States, i.e. for the EU-15 countries, the race to the bottom cannot be statistically confirmed.

The U.S. Corporate Tax Reform and Its Macroeconomic Outcomes

The corporate tax reform has been among the most controversial issues during the past U.S. presidential debates. Though much has been said about the adverse macroeconomic effects of the corporate tax hike, less attention has been paid to the magnitude of such effects. This study attempts to measure the adverse effects of the corporate tax hike on macroeconomic variables such as investment, real GDP, productivity growth, hourly wages, unemployment rate, natural rate of unemployment, and consumer price index (CPI). The estimated regression results with quarterly data from1960 to 2010suggest that a 10% increase in the effective corporate tax rate reduces private investment by3.1%, real GDP by 1.5%, productivity by 2.6%, and hourly wages by 4%. The results also indicate that this increase in the effective corporate tax rate raises short-term unemployment rate by 0.5%, the natural rate of unemployment by 1%, and the consumer price index (CPI) by 0.9%.

Effective Tax Rates in the Moravian-Silesian Region

Abstract The aim of this work is to evaluate the effective corporate tax rate in the Moravian-Silesian Region in the Czech Republic on the basis of a backward-looking micro view. The results obtained are then compared with other methods of measuring the tax burden, especially with the corporate tax quota and effective corporate tax rate based on a backward-looking macro view and its components. The tax burden will be evaluated for the period 2007-2010 in order to capture the effects of the economic crisis. It is clear that the effective tax rate computed according to the backward-looking micro view and corporate tax quota confirms the results of a number of empirical studies because, in comparison to an effective marginal tax rate based on the macro view, they reflect fluctuations in business cycles.

Tax-efficient sourcing and supply-chain management

With such significant growth in the LNG industry and the broader energy and natural resources sector, the supply-chain risk and the cost of sourcing capital equipment and materials is increasingly difficult to manage. Many organisations are beginning to consider the merits of moving to a tax-efficient supply chain and procurement model, both through sourcing from a low-cost country and also centralising purchasing and supply operations in a tax-efficient location. Tax-efficient sourcing integrates supply chain and procurement-operating model design with tax planning to deliver significant cost reductions and profit increases through centrally controlling procurement operations. The consideration of the most efficient tax structures to support sourcing and distribution of equipment also delivers. Centrally controlled strategic and tactical supply chain and procurement operations in a tax-efficient location support an organisation in: realising benefits through leveraging scale in operations and procurement; designing a flexible framework that can be used to decide which categories of spending are managed globally, regionally, and locally;and, the acceleration and sustainability of significant procurement savings delivery from low-cost locations. Planning and management of the tax implications of physical supply-chain operations to reduce the actual taxes paid on profits and operations happen through: the potential to reduce corporate taxes on company profits; reducing absolute value-added tax (VAT) payable or cash-flow cost of VAT; reducing duty payable; optimising the indirect taxes paid on physical flows; and, change of transfer pricing driving reduction in effective corporate tax rates.

Tickets to Ride: The Race for Preferable CIT Regimes Towards ASEAN Economic Community

Years are approaching as Association of South East Asian Nations (ASEAN) is expecting to have its own economic community in 2015. The commitment to realize, among others, a single market and equitable economic development have been set out. Yet, Member States are continuing their 'revenue giveaways' by enacting tax statutes and regulations that constitute preferable tax regimes and 'tickets to ride' for companies. Indonesia, for example, has recently enacted a regulation that provides tax breaks in a certain period for newly incorporated resident companies investing in several industries, while Singapore has for several years provided their resident start-up companies with tax exemptions. Where taxes, particularly corporate taxes, are becoming more primary in generating State revenue, preferable tax regimes as such would clearly create burdens in a State's budget. On the other hand, it goes without saying that these regimes would be incompatible with the efforts to create a single market, as investors would place their capitals in Member States having the lowest effective corporate tax rate, assuming all other investment determinants are equitable in one Member State and another. Nevertheless, financial cooperation towards AEC seems to consider corporate taxes as a non-determinant in establishing a highly competitive economic region. The question is, therefore, does the pillars of ASEAN Economic Community (AEC) envisage a tax competition, that is somewhat harmful, among Member States? Also, contextual to the theme of the conference, would this kind of competition be the identity of AEC? This article would attempt at answering these questions by first pinpointing preferable provisions within the currently enforced corporate tax regimes in some Member States. It would then determine whether the establishment of AEC entails consequences or provides opportunities for harmonization of corporate taxes among Member States. Subsequently, the author would conclude whether tax competition among Member States is a purposive action, which respectively labels an identity for the AEC.

The effectiveness of tax incentives in attracting investment: evidence from developing countries

This article summarizes the first part of my dissertation which empirically investigates the relationship between corporate taxation and investment in developing countries, with particular attention to tax incentives. It attempts to answers three questions: (i) is lowering the corporate tax burden as effective to encourage investment in countries with a relatively unattractive investment climate as it is in countries with a relatively attractive investment climate?, (ii) are specific tax incentives effective in attracting investment?, and (iii) do governments take each others’ tax policy into account when making tax policy decisions? In a first study, we find that foreign direct investment is less sensitive to the marginal effective corporate tax rate in countries with a relatively unattractive investment climate. A second study reveals that lower CIT rates and longer tax holidays are effective in attracting FDI in Latin America and the Caribbean but not in Africa. This result is broadly confirmed in a third study that focuses on the effectiveness of tax incentives in two monetary unions: the Eastern Caribbean Currency Union and the African CFA Franc zone. Moreover the third study indicates that reduced complexity of the tax system and more legal guarantees help to attract investment in the CFA Franc zone. Finally, the second study also shows that those tax instruments to which firms are most sensitive - the CIT rate and tax holidays -, are the ones on which governments compete the strongest.JEL Classification Codes: H21, H25, H26, H32, F21, H87

Do Complicated Tax Systems Prevent Foreign Direct Investment?

The negative relationship between tax rates and FDI is well known. This paper looks at how complexity of the tax system affects FDI. Fulfilling tax requirements can be time‐consuming, and this implies a cost for more complex tax systems. Alternatively, complexity may provide opportunities to reduce the overall tax bill. We find that measures of tax complexity have a significant inhibiting effect on the presence of FDI for a country pair, but have little impact on the level of FDI flows. A 10% reduction in tax complexity is comparable to a one percentage point reduction in effective corporate tax rates.

PROFIT TAXATION AND THE ELASTICITY OF THE CORPORATE INCOME TAX BASE: EVIDENCE FROM GERMAN CORPORATE TAX RETURN DATA

We estimate the elasticity of corporate taxable income with respect to the effective corporate tax rate on the basis of a pseudo-panel constructed from corporate tax return micro data for the period 1998-2001, a period which saw the introduction of a major corporate tax reform in Germany. Endogeneity of the effective tax rate is controlled for by an instrumental variable approach. Our instrument for the observed effective corporate tax rate is the counterfactual effective tax rate a corporation would face in a particular period had there be no endogenous change of corporate profits. This counterfactual is obtained from a detailed microsimulation model of the corporate sector based on tax return micro data. We find a statistically significant and relatively large point estimate of the average tax base elasticity, which implies that a reduction of the statutory corporate tax rate would reduce corporate tax receipts less tha n proportionally due to income shifting activities. We also find some statistically weak evidence for the hypothesis that the tax base elasticity is higher for corporations that may benefit from various forms of tax shields.

New evidence on determinants of corporate effective tax rates

This article attempts to explain the different levels of effective tax rates across firms and by means of quantile regression method, this article detect the variation in the sensitivity of firms’ effective tax rates (ETRs) to return on assets, capital intensity, inventory intensity, leverage and firm size across the major quantiles of the ETR distribution. The key empirical results show that not all large firms enjoy the political power even though the result of OLS satisfies the political power hypothesis. This paper also indicates who can get the maximum benefits from tax preferences. Key words: Effective tax rate (ETR), tax preference, political power hypothesis, political cost hypothesis.

Faktor-Faktor yang Mempengaruhi Variasi Tarif Pajak Efektif Perusahaan: Studi Terhadap Perusahaan yang Terdaftar di BEI Tahun 2002 – 2006

This paper analyzes the determinants of variability in corporate effective tax rates (ETRs) in a multivariate framework, using 2002 – 2006 Indonesian listed companies’ micro-level data. Specifically, I examined the association between effective tax rates (ETRs), firm size and variable proxying for firm’s capital structures and asset mix while controlling from profitability. This study’s present evidence that ETRs are associated with the asset mix (level of capital intensity and inventory intensity) and return on assets. However, results also show that ETRs are not associated with size and firm’s capital structure. Additionally, I controlled industry membership in sensitivity analysis because these firm specific characteristics might differ systematically by industry. To ensure the robustness of the result, diagnostic check was also performed. Related to the 2008 tax law amandement, this research can contribute to tax authority in order to identify firms that still have the potential to pay more taxes by looking at their capital intensity and inventory intensity.

The Effect Of The Tax Reform Act Of 1986 On Economic Efficiency

The Federal Income tax law was dramatically changed by the Tax Reform Act of 1986. The purpose of this study is to determine if the TRA reduced the variability of corporate effective tax rates and in turn improved economic efficiency. To determine if variability has been reduced, corporate effective tax rates were measured for 1986 and 1987. The variance of the effective tax rates was computed and tested to determine if the variability was reduced.

Institutional environment, inside ownership and effective tax rate

PurposeThe purpose of this paper is to examine the effect of institutional environment and inside ownership on the tax reporting practices of Chinese listed firms.Design/methodology/approachIt is an empirical study using a sample of Chinese listed firms for eight years of time periods between 1998 and 2005.FindingsThis study finds that in Chinese provinces with more developed institutions, firms have higher effective tax rates; however, firms with inside ownership in these regions have lower effective tax rates. Further analysis shows that the above results hold only for non‐state‐owned firms.Originality/valueThe paper presents the first study of the impact of inside ownership and institutional environment on corporate effective tax rate in China.

Marginal Effective Tax Rates And Tax Incentive Structure Evaluation: The Case Of Greece

<span>In addition to the neoclassical theory of investment choice, another way of evaluating a tax incentive structure is through the use of marginal effective tax rates. An attempt is made at present to provide estimates of these rates for Greece, and the research concentrates mainly to the calculation of marginal effective corporate tax rates (i.e. only corporate taxes are considered) while the construction of indices extends to the two categories of capital goods, equipment, and buildings. The theoretical background for constructing these indices is given, with special emphasis attributed to neutrality in the designing of efficient taxation systems. The research showed that the Greek tax incentive system is depressing marginal investments, while it is additionally found that there was a more favorable tax treatment of manufacturing investment in equipment than that of buildings. No attempt on recent formulations of the Greek incentive system was made to provide measures (as for example a net investment credit) that could produce some degree of tax neutrality.</span>

Comparison of Corporate Effective Tax Rates among Four Asian Countries and Japan

Comparison of Corporate Effective Tax Rates among Four Asian Countries and Japan

The Combined Effective Corporate Tax Rate in Malta Explained

In this note, the author explains Malta’s full imputation system, as well as its tax refund system and concludes that, as a result of the operation of these two systems, although the corporate average effective tax rate is high in Malta, the combined average effective tax rate is one of the lowest in the European Union.

Effective Corporate Tax Rates and the Size Distribution of Firms

We analyze the effects of effective corporate tax rates on the size distribution of firms. In modelling this relationship we account for conditional variables as well as unobservable time and industry effects. A number of hypotheses are tested concerning heterogeneity in the impact of effective corporate tax rates on the size distributions of firms with regard to firm size class, industry and time. The results are based on data covering the whole Swedish economy for the period 1973-2002. The descriptive results suggest that effective corporate tax rates differ by firm size, industry and over time. Application of t-tests demonstrate inequality in mean and variance of effective corporate tax rates between major size classes but not within major size classes: smaller firms report a higher effective corporate tax rate than larger firms. The t-tests also demonstrate inequality in mean and variance of effective corporate tax rates between industrial sectors: service sector reports a higher effective corporate tax rate than production sector. The regressions show effective corporate tax rates to have: a negative effect on the size distribution of large firms, negative effect on transportation, financing and service sector and a positive effect on manufacturing, electricity and on production sector. We conclude that effective corporate tax rates affect the size distribution of firms as well as the composition of industries.

Corporate Tax Planning: A Study On Corporate Effective Tax Rates of Malaysian Listed Companies

This study attempts to examine corporate effective tax rates (ETRs) of Malaysian public companies listed on Bursa Malaysia during official assessment system and self assessment system tax regimes. The objective is to examine the level of corporate ETRs during official assessment system and self assessment system tax regime and. To achieve the objective, this study uses pooled sample data of 316 companies for the years 1993 to 2006. In determining the two tax regime, the investigation period is classified into two, where the period from 1993 to 2000 represents the official assessment system tax regime whereas the period from 2001 to 2006 represents the self assessment system tax regime. This study finds that corporate ETRs are below the statutory tax rate (STR) in both tax regimes. Moreover, this study reveals that ETRs during the self assessment system tax regime is lower than the official assessment system tax regime. Additionally, this study also examines the determinants of corporate ETRs during both tax regimes. The result supports political cost theory which suggests that larger companies endure higher ETRs. Besides that, lower ETRs are significantly related to highly leverage companies, greater investment in fixed assets and lower investment in inventory. This study also finds that companies with higher return on assets face lower ETRs. Further, sector analysis are carried out to provide the evidence for the variability of ETRs across sectors. The results indicate that companies from trading and services, properties and construction sectors face higher ETRs. Overall, this study explains the impacts of tax incentives to corporate ETRs and determinants of corporate ETRs.

A Dynamic Micro-Econometric Simulation Model for Firms

The firm-based simulation model presented in this paper aims to help practical policy making, by providing a tool for analyzing the behavioural effects induced by changes in the tax code and for forecasting corporate tax revenues. To achieve this end, one of the key innovations adopted in the paper is the use of robust estimation techniques designed to ameliorate the undue impact of influential observations. The simulation results indicate that a statutory corporate tax rate reduction does not reduce the effective corporate tax rate to an equal extent because firms adjust their behaviour to new tax rules. The simulation also reveals that even though the macroeconomic environment is important for the taxes paid by the firm, it is not obvious that the effective tax rate for these firms may change because of the changed macro conditions.

Did FIN 48 Arrest the Trend in Multistate Tax Aggressiveness?

We examine whether state corporate effective tax rates (ETRs) that began trending downward in the 1990s rose in response to FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes. We find state ETRs increase substantially in 2006 through 2008 for tax aggressive firms. Firm-level cash tax payments also increased over the 2005 through 2008 time period, controlling for federal and foreign ETR changes. Finally, state-level tax collections increased in 2006 and 2007. Consistent with analytic and behavioral theory, our results suggest that FIN 48 helped arrest the trend in multistate tax aggressiveness.