Corporate Effective Tax Rates Research Articles

Assessing the risk of profit shifting among the suppliers to Danish municipalities

PurposeAn increasing number of Danish municipalities wish to minimize tax avoidance due to profit shifting in their public procurement. To facilitate this effort, this study aims to develop a firm-level indicator to assess the potential risk of profit shifting (PS-risk) from Danish subsidiaries of multinational corporations to subsidiaries in low-tax jurisdictions.Design/methodology/approachDrawing from previous research, PS-risk is assumed to depend on the maximum difference in the effective corporate tax rate between the Danish subsidiary and other subsidiaries under the global ultimate owner, in conjunction with the tax regulations relevant to profit shifting. The top 400 contractors in Danish municipalities from 2017 to 2019 are identified and their relative PS-risk is estimated by combining information about corporate ownership structure with country-specific information on corporate tax rates, tax regulations and profit shifting from three independent data sets.FindingsThe PS-risk estimates are highly significantly positively correlated across the data sets and show that 17%–23% of the total procurement sum of the Danish municipalities has been spent on contracts with corporations having a medium to high PS-risk. On average, PS-risk is highest for large non-Scandinavian multinational contractors in sectors such as construction, health and information processing.Social implicationsDanish public procurers may use the indicator to screen potential suppliers and, if procurement regulations permit, to ensure high-PS-risk bidders document their tax practices.Originality/valueThe PS-risk indicator is novel, and to the best of the authors’ knowledge, the analysis provides the first estimate of PS-risk in Danish public procurement.

The Influence of Capital Structure on Corporate Effective Tax Rates of Listed Firms in Tanzania

This study examines the relationship between capital structure and corporate effective tax rates using data from 25 randomly selected listed firms on the Dar es Salaam Stock Exchange over a ten-year span (2013–2022). We employed a random fixed effect panel regression model while controlling for firm-specific variables such as size, profitability, age, and growth. The study reveals a significant and negative relationship between capital structure and effective tax rates, implying that firms utilising higher debt financing tend to experience lower effective tax rates. Additionally, firm size and profitability exhibit a significant relationship with capital structure. These findings hold significant implications for Tanzanian businesses, suggesting that they may enhance tax efficiency through strategic capital structure decisions. For policymakers, the results provide empirical insights on potential tax policy reforms, potentially fostering a more favourable business environment in Tanzania. This research contributes empirical evidence on the financial and tax dynamics of listed firms in Tanzania.

The Role of Firm Size as a Moderating Variable on Special Relationship Transactions, Modal Intensity, and Profitability Towards Effective Tax Rate

The purpose of this study is to examine the interactions between a number of variables that affect the effective corporate tax rate (ETR), including special transaction relationship—in this example, affiliate debt—modal intensity, and profitability—using the size of the company as a moderating variable. Panel data from 41 manufacturing businesses listed on the Indonesian Stock Exchange for the years 2017 through 2021 was used to implement the strategy. Our findings demonstrate that the impact of special relationship transactions on effective tax rates is neither affected nor changed by corporation size. According to data processing findings, a company's size can both adversely reduce the impact of modal intensity on the effective tax rate and positively moderate the impact of modal intensification on the effective tax rate. These results, in our opinion, will be helpful to governments when deciding on fiscal policies as well as to businesses when deciding where to locate and make investments in these nations. This study, in our opinion, is a significant contribution to the literature since it takes into account new factors, including institutional and business-related factors, that were not jointly taken into account in other studies on the determinant effective tax rate.

A Comprehensive Analysis of the Drivers Behind the Effective Tax Rate of Financial Times Stock Exchange (FTSE) in Malaysia

This study examines corporate effective tax rates (ETR) of Malaysian multinational corporations (MNC) listed in the Financial Times Stock Exchange (FTSE) Bursa Malaysia Kuala Lumpur Composite Index (KLCI) and FTSE Bursa Malaysia Mid 70 Index. The main objective of this study is to examine the relationship between the ETR of MNCs with subsidiaries in tax haven countries, and selected corporate characteristics such as firm size, leverage, capital intensity, return on assets, inventory intensity, profit margin, and foreign directors. Using a multiple linear regression approach on a balanced panel sample of 68 companies (321 firm-years) spanning 2017 to 2021, the study provides evidence for the variability of corporate ETRs in which the average corporate ETRs falls below the STR for the financial year 2021 of 24%. The statistical results also reveal that lower ETRs are associated with highly leveraged companies, and greater investments in fixed assets. Further, a negative coefficient for return on assets and profit margin suggests that companies have benefited from tax incentives provided by the government. Hence, this study contributes to tax literature and policymakers on factors that influence the corporate ETR, especially MNC with subsidiaries in tax haven countries. Tax authorities should implement tight monitoring to avoid these MNCs extensively engaging in tax planning which will result in revenue loss to the Malaysian income tax collection.

How does environmental regulation affect corporate tax burdens? Evidence from China's environmental courts

This research examines how environmental regulation impacts corporate tax burdens. Although the literature argues that environmental policies exacerbate firms' tax avoidance, we offer a new insight from the perspective of government behaviour. Using the difference-in-differences approach and data on Chinese listed manufacturing firms from 2003 to 2019, we find that the establishment of environmental courts in China results in a 1.70 percent increase in corporate effective tax rates. The effect is significant only for private firms and is more pronounced in cities with stringent environmental regulations and fiscal stress. Tougher tax enforcement and the reduction of preferential tax policies are two potential channels. Given that environmental regulation reduces the tax base, local governments implement tougher tax enforcement and reduce preferential tax policies to maintain necessary tax revenues. Our study highlights the role of government in determining corporate tax burdens and evaluates the hidden tax costs of environmental regulation.

Do consumers pay the corporate tax?

AbstractUsing granular gas price data and rich variation in corporate tax rates, we find that corporate taxes increase consumer prices. About 64% of the corporate tax is borne by consumers. The effect is stronger when firms have limited access to tax planning opportunities, face stricter tax enforcement, or when consumer demand is less elastic. Taxes also reduce the number of firms and their scale, consistent with a tax‐induced increase in marginal cost. Our results suggest that tax policies that increase effective corporate tax rates may have unintended consequences for consumers through higher prices.

Pareto-improving minimum corporate taxation

The international agreement on a minimum effective corporate tax rate, implementation of which is imminent, marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which – the policy objective being to change the rules of the tax competition game – are critical for assessing the design and welfare impact of this fundamental policy innovation. Analysis and calibration plausibly suggest sizable scope for minima that are Pareto-improving, benefiting low tax countries as well as high, relative to the uncoordinated equilibrium.

Tax burden of food industry companies of Ukraine

The tax burden determines the payment of taxes by the market subject to various budgets and serves as the basis for verification by the State Tax Service. The corporate income tax rate, which is equal to 18% in Ukraine, is called normative. The effective tax rate can be determined from the standpoint of macroeconomic analysis of the tax burden for the industry and from the standpoint of microeconomic analysis of the tax burden for individual enterprises. It is relevant to study the effective tax burden of food industry enterprises, which form significant shares of GDP and tax payments in the consolidated budget of the country. The purpose of the study is a microeconomic analysis of the influence of factors on the effective tax rate of food industry companies of Ukraine and the verification of the hypothesis about the degree of deviation of the effective rate from the normative tax rate of food enterprises. Methodology. The methods of generalization, descriptive statistics and systematization, factor and correlation-regression analyses are used in the investigation. Economic and statistical analysis was carried out using Microsoft Office software packages. The results. An algorithm for calculating the effective corporate tax rate is proposed. The list of financial operations at food enterprises of Ukraine, which produce a change in the financial result before taxation, is determined. It was revealed that in recent years the effective tax burden approaches to the normative tax rate, 18%. A methodology of microeconomic calculations was developed for assessing the tax burden of a company based on indicator-factors, including: company assets, income from product sales, number of employees, share of liabilities in assets, share of tangible assets in assets, share of current assets in assets, profitability of assets and equity capital, labor intensity, growth rate of real GDP. Correlations between the effective tax rate and the factors are determined. The largest number of influencing factors and the number of correlations are obtained for four enterprises of the sample: private joint stock companies "Mondelis Ukraine", "Lagoda Confectionery Factory", "Rivne confectionery factory", "Kharkiv biscuit factory". Key words: tax burden, tax return, normative tax rate, effective tax rate, food industry enterprises, factoranalysis, correlation analysis.

Czech Corporate Effective Tax Rate as Investors Costs Changes with Times

Abstract When choosing the appropriate jurisdiction, trading companies need to consider many variables. This can include administrative burdens, the speed of establishment of a company, the granting of some degree of anonymity of ownership, and a friendly tax environment. This article is focused on finding the corporate effective tax rate in the Czech Republic in the period 2005–2017 with the database of the Czech tax administrator. In the light of the international tax law, the information concerning effective tax rates becoming necessary. The results of this study show that the nominal tax rate may not be decisive for the determination of the tax burden, as most countries allow the application of tax allowances and deductions and thus achieve virtually lower taxes.

The Effect of the Effective Corporate Tax Rate Toward Investment Decision in Indonesian Public Company

Purpose This research aimed to determine the effect of the effective tax rate in public company investment in Indonesia. Design/methodology/approach The research was conducted using firm data during 2008-2020 and considered the long-term investment concept. Meanwhile, the cross-section of 672 companies and the ordinary least square technique were used to get the estimation. Findings The estimation result showed that the effective tax rate has significant negative effect on fixed asset investment. If effective tax rate decrease, it can be because the company gets tax rate reduction incentives, conduct accelerated depreciation, fiscal reconciliation on the financial statement which can increase fixed asset investments. Moreover, the estimation also showed that the age of the company is able to strengthen the relationship between effective tax rate and company investment. The difference in domestic and foreign companies does not affect the elasticity ETR toward investment. Research limitations/implications Based on the estimation result mentioned, it is expected to provide guidance in implementing incentive tax, which can encourage public company investment. Originality/value There are many studies on the effect of income tax rates, but the results cannot be used specifically in Indonesia since the tax sensitivity may be different based on the development level of the country and the characteristics of the company.

Institutional determinants of the effective tax rate in G7 and BRIC countries

This paper studies the relationship between the corporate effective tax rate (ETR) and several institutional factors in the G7 and the BRIC countries (Brazil, Russia, India, and China). We use the panel data methodology with a data sample of 25,878 listed firms in 2010–2018. The results show that all the variables analyzed have an effect on the ETR. Some—such as the statutory tax rate, government effectiveness, regulatory quality, rule of law, and open markets—affect all countries, whereas others, such as corruption control and economic freedom, affect only the BRIC countries, and gross domestic product growth, the deficit, and gross debt only affect the G7 countries.

Political cycle and effective corporate tax rate: evidence from China

ABSTRACT This research aims to investigate the changing of effective corporate tax rate during the political cycle of Provincial Party Congresses with the data from Chinese industrial businesses from 1998 to 2009. The study shows that the effective tax rate for enterprises fluctuates with the political cycle of Provincial Party Congresses. The effective tax rate, in particular, tends to rise in the year before and during the Provincial Party Congresses, then decline year after year. Further study reveals variation in the impact of political cycles on officials and enterprises with various characteristics; for example, the impact of the corporation effective tax rate is more obvious for male officials, private firms, and so on. At the same time, the paper does not find a significant age ‘ceiling effect’ among prefecture-level officials in China. And the regional rule of law construction does not have a significant effect on the political cyclicality of corporate effective tax rates, whereas the political cyclicality of effective corporate tax rates is more pronounced in regions with higher government investment intensity. Finally, this paper puts forward policy recommendations such as improving officials’ promotion and assessment mechanisms and optimizing the government’s policy implementation.

Opterećenje porezom na dobitak u multinacionalnim osiguravajućim grupama - slučaj Hrvatske, Srbije i Slovenije

The corporate income tax burden may be an important factor in investment decision-making. Multinational companies pay close attention to the analysis of corporate income tax burden in the countries where they operate and plan to invest. On the other hand, the corporate income tax burden may significantly vary across countries due to different statutory rates and rules for calculating taxable income. The corporate income tax burden in subsidiaries of multinational insurance groups in Croatia, Serbia, and Slovenia is analyzed in this paper. It is shown that the corporate income tax burden in insurance companies significantly differs between studied countries. Insurance companies in Serbia have by far the lowest tax burden, notably owing to tax loss carryforward and interest on government securities that are exempt from taxation. Although Slovenia has the highest statutory tax rate, insurance companies in Croatia have the highest average corporate effective tax rates. Many interest groups, particularly owners and managers of multinational insurance groups, may find the research findings interesting.

Corporate Effective Tax Rates for Research and Policy

How much companies pay in corporate income taxes is often better captured by effective tax rates (ETRs) rather than by statutory ones. Economists further distinguish between those modeled using the law—forward-looking ETRs—and those estimated from actual data on companies’ profits and taxes—backward-looking ETRs. In this article, I move beyond this distinction, and I break down backward-looking ETRs according to the type of data used to estimate them. I focus on backward-looking ETRs that are estimated using companies’ balance sheet databases. Based on my review of recent findings, I argue that backward-looking ETRs—of multinational corporations in particular—have become more frequently estimated thanks to advances in data availability while also becoming more relevant as a result of ongoing global corporate tax reform debates.

AIR POLLUTION AND OUTWARD FOREIGN DIRECT INVESTMENT — A CROSS-COUNTRY EMPIRICAL STUDY

The purpose of this study is to examine the role of air pollution in foreign direct investment (FDI) outflows. Using PM[Formula: see text] concentration as an index of air pollution and a panel data of 102 economies from 2011 to 2020, several specifications of a dynamic panel spatial autoregressive model justified by several diagnostic tests and that considers the potential endogeneity problem have been estimated. The primary finding is that air pollution has a positive impact on a country’s FDI outflows. It is also found that air pollution is a more important and robust factor affecting outward investment than the effective corporate tax rate, political risk and the level of economic development. Moreover, outward FDI exhibits a positive spatial dependence among countries and regions and has a positive dynamic process. All these conclusions are consistent with our expectations and are robust for different model specifications.

Tax Avoidance, Tax Risk, and Corporate Governance: Evidence from Korea

This study examines the association between the effective corporate tax rate and the volatility of future effective corporate tax rates in Korean companies. We analyzed the effect of corporate governance on the association between tax avoidance and tax risk. Our sample is comprised of all the firms listed on the Korea Composite Stock Price Index market. We measure each firm’s tax avoidance as GAAP ETR, Cash ETR, and BTD, and use the corporate governance rating of the Korea Corporate Governance Service to measure corporate governance. Our results show that the volatility of the effective corporate tax rate and the effective corporate tax rate would have a significant negative association. Our results show that tax risk decreases when the corporate tax avoidance level increases and the tax risk increases when the corporate tax avoidance level decreases. In addition, we find that the better the corporate governance structure, the higher the level of supervision and control of managers, thereby mitigating the impact of tax evasion on future corporate tax risk. The findings of this study regarding tax avoidance and corporate governance are important for investors because tax risk can significantly affect investor welfare.

Economic Factors, Tax Policy, and Corporate Effective Tax Rates: The Case of India

Economic Factors, Tax Policy, and Corporate Effective Tax Rates: The Case of India

Tax Harmony: The Promise and Pitfalls of the Global Minimum Tax

The rise of globalization has become a double-edged sword for countries seeking to implement a beneficial tax policy. On one hand, there are increased opportunities for attracting foreign capital and the benefits that increased jobs and tax revenue brings to a society. However, there is also much more tax competition among countries to attract foreign capital and investment. As tax competition has grown, effective corporate tax rates have continued to be cut, creating a “race-to-the-bottom” issue. In 2021, 137 countries forming the OECD/G20 Inclusive Framework on BEPS passed a major milestone in reforming international tax by successfully introducing the framework of a global minimum corporate tax, known as Pillar Two. It aims to set a floor for corporate tax rates with various corrective measures so that multinational enterprises’ income will be taxed once in either source country or residence country at a substantive tax rate. Hence, Pillar Two is the first implementation of the “single tax principle” at the global level. Because Pillar Two requires an unprecedented amount of coordination among countries, it is important to understand Pillar Two thoroughly so that countries can maneuver the challenges of implementation, while still enjoying the ultimate benefit that would come from this global tax harmony. This Article analyzes the issues of tax competition and why most countries in the world have come to the conclusion that a global minimum tax is needed. This Article explains the single tax principle as the theoretical underpinning of Pillar Two, breaks down the principles and policies that comprise Pillar Two, and anticipates what promise and pitfalls passage of the global minimum tax will bring. Because the basis of Pillar Two is a direct extension of the Global Intangible Low Tax Income (GILTI) and Base Erosion and Anti-Abuse Tax (BEAT) provisions of the Tax Cuts and Jobs Act, it is reasonable to anticipate that the global minimum tax will be considered a success if it is implemented by all the G20 countries.

The double burden of maldistribution: a descriptive analysis of corporate wealth and income distribution in four unhealthy commodity industries

ABSTRACT The health and ecological harms created and spread by firms active in many unhealthy commodity industries (UCIs) have received considerable attention from the public health community. However, less focus has been paid to analysing the distribution of wealth and income – important social and economic determinants of health – by these industries. This study aimed to examine long-term trends in wealth and income distribution by publicly listed corporations active in four UCIs: fossil fuels; tobacco; ultra-processed foods; and alcohol. Quantitative analysis of a range of data was conducted for firms listed on stock exchanges in the United States (US). Wealth and income distribution metrics were analysed at the industry level, including effective corporate tax rates and shareholder value ratios. The equity ownership structures and investor location of 20 of the largest firms were also explored. Since the 1980s, US-listed firms in the examined UCIs have distributed much less of their wealth and income to governments and much more to shareholders and investors mostly based in high-income countries. The study provides evidence that firms active in UCIs create a ‘double burden of maldistribution’: their externalised social and ecological harms disproportionately affect disadvantaged population groups and governments in low- and middle-income countries; whilst, simultaneously, they are increasingly transferring wealth and income to a group over-represented by a small and privileged elite. The identified distributive injustice warrants increased policy attention.

Pareto-Improving Minimum Corporate Taxation

The recent international agreement on a minimum effective corporate tax rate marks a profound change in global tax arrangements. The appropriate level of that minimum, however, has been, and remains, extremely contentious. This paper explores the strategic responses to a minimum tax, which—the policy objective being to change the rules of tax competition game--—are critical for assessing the design and welfare impact of, and prospects for, this fundamental policy innovation. Analysis and calibration plausibly suggest sizable scope for minima that are Pareto-improving, benefiting low as well as high tax countries, over the uncoordinated equilibrium.