Global Tax Research Articles

The impact of tax expenditures on economic growth: The US experience

In the last decade, assessing the tax expenditures’ economic efficiency has grown in importance due to the increasing number of situations where stakeholders use tax benefits for personal enrichment. The problem is aggravated by the very nature of tax expenditures, which represent budget revenue losses. The expediency of tax expenditures can be proved by estimating their impact on economic growth. The paper aims to measure such impact using the case of the USA. Methodologically, the study relies on Barro’s conception of endogenous growth. The study applies econometric methods of analysis. The data for the study is taken from the Global Tax Expenditures Database (GTED), the U.S. Department of the Treasury, the U.S. Bureau of Economic Analysis, and the U.S. Census Bureau for 1998–2022. The results indicate no correlation between the share of tax expenditures in a specific sphere in the total amount and their efficiency (the strength of the positive impact on GDP). For instance, the tax expenditures in commerce and housing have the greatest share (35.4 %), yet their impact is relatively weak compared to other categories of tax expenditures: 1 dollar of expenditures induces a 0.04 dollar increase in GDP. At the same time, tax expenditures in the social sphere with an insubstantial share of 2 % generate a 10 times higher return (a 0.49 dollar increase in GDP per 1 dollar of expenditures). Therefore, the structure of tax expenditures with an explicit social orientation appears to be the most preferable for the USA.

The Compatibility of the Substance over Form Doctrine with Tax and Investment Treaties: A Case Study of Lone Star v the Republic of Korea

Abstract In late August 2022, the Lone Star tribunal concluded one of the latest awards in tax-related investment treaty disputes (the tax-related claims account for almost USD 1.5 billion of the total of almost USD 4.7 billion claimed in compensation). It also is the first award in which the tribunal dealt with the application of the substance over form doctrine (SOFD) by tax authorities and courts of the host state to prevent the abuse of a double tax treaty (DTT), and the impact of the refusal to accord the claimants the benefits under the DTT via a domestic (Korean) SOFD on the investment protection standards under the bilateral investment treaty (BIT). The Lone Star tribunal implicitly considered the Korean SOFD to be a suitable rule to prevent abuses of the Korea-Belgium DTT and thus compatible with the BLEU-Korea BIT. This article critically analyses the tribunal’s methodology and reasoning in reaching that conclusion. Notably, the article highlights the need to consider the principle of an abuse of rights while examining the compatibility of a SOFD with a BIT and a DTT. Such an approach could enhance the rule of law in the interpretation of tax and investment treaties in other similar cases. It is also in accordance with the principle of systemic integration. The article argues that it is increasingly more important to properly understand the concept of economic substance insofar as denial of benefits (DoB) clauses in investment treaties and principal purposes test (PPT) in tax treaties appear to specifically prevent abuses of those treaties by arrangements with no or insufficient economic substance. Global and regional tax developments, including the implementation of anti-base erosion and profit shifting (BEPS) rules, as well as Pillar Two rules (global minimum tax of 15%), strengthen the need for a comparative research on economic substance under tax and investment treaties. Such research may reveal that a convergence in denying benefits under DTTs and BITs will enhance the rule of law and increase legal certainty in tax and investment domains.

Optimizing Income Tax Exemption: A Focus on the 'Subsistence Minimum' Threshold

This article delves into the establishment of a perspective on introducing non-taxable income for individuals, emphasizing the effective organization of tax relations. Employing a rigorous research methodology, the study aims to provide conclusive insights, scientific recommendations, and practical guidance. The goals encompass fostering a deeper understanding of non-taxable income implications, while the methods involve a comprehensive examination of tax reforms, benefits, and personal income taxation. The results offer valuable perspectives on optimizing taxation systems, particularly in relation to the subsistence minimum. The implications of this research extend to informing global tax policies, promoting efficiency, and ensuring equitable fiscal practices.
 Highlights:
 
 The article explores the introduction of non-taxable income, addressing key issues in tax relations.
 It provides conclusive insights, scientific proposals, and practical recommendations for optimizing taxation systems.
 The research emphasizes the importance of fostering equitable fiscal practices and informing global tax policies.
 
 Keywords: Tax Relations, Tax-Free Income of Individuals, Personal Income Tax, Property Tax, Fiscal Practices

Corporate income taxation and external balances in the European Union

This study examines the impact of corporate taxation on the external balances of 27 European Union member countries from the late 1990s to 2021. Using an ARDL process and a 2-stage least squares estimation procedure, we find that, in the short term, higher corporate taxation is positively and significantly related to the current account balance and the trade balance for the whole sample. There are considerable differences in the effects in the euro area and non-euro countries, with the latter experiencing a much stronger short-term impact. In the long term, there are no critical differences in the results between the two groups, and the impact of corporate taxation is positive but statistically significant only for the trade balance. The size of the impact of corporate taxation on net exports and current account balances is of similar magnitude, which likely implies that the international profit shifting via manipulating intrafirm prices in international trade does not strongly affect the external balances in our sample. Our results imply that initiatives to increase global tax rates could be justified from an international trade perspective.

A Global Minimum Tax for Large Firms Only: Implications for Tax Competition

A Global Minimum Tax for Large Firms Only: Implications for Tax Competition

Global Minimum Tax Without Global Impact: Examining the OECD's Pillar 2 and its Potential Impacts on Illicit Financial Flows

Global Minimum Tax Without Global Impact: Examining the OECD's Pillar 2 and its Potential Impacts on Illicit Financial Flows

ОЦІНКА ЕКОЛОГІЧНИХ ЗБИТКІВ ВІД ВИКИДІВ ТРАНСПОРТНО-ЛОГІСТИЧНИХ ЗАСОБІВ В КОНТЕКСТІ СТАЛОГО РОЗВИТКУ

This article thoroughly examines the environmental damage caused by emis-sions from transportation and logistics vehicles in Odesa, within the framework of sustai-nable development objectives. It presents a detailed analysis of the main pollutants emitted by vehicles using gasoline, diesel, and liquefied petroleum gas, underscoring the significant contribution these emissions make to both local and global environmental issues. The study highlights the substantial volumes of greenhouse gases produced and the current lack of economic regulatory mechanisms to manage them effectively. Comparative analysis of global environmental tax rates on CO2 demonstrates Ukraine's position as having the lowest rate, suggesting inadequate regulatory measures. Through methodical calculations, it was deter-mined that Odesa's total CO2 emissions for the year 2022 amounted to 1,089,421.9 tons. This resulted in an estimated environmental damage cost of $893,326 USD, which remains uncompensated due to regulatory shortcomings.The findings emphasize the necessity of integrating such emission data into environ-mental damage assessments and implementing robust economic instruments to regulate emissions. Additionally, the paper explores strategic approaches to enhance emission regu-lations, including the potential introduction of more stringent environmental taxes or cap-and-trade systems, and suggests ways to align these with international environmental stan-dards. The broader implications of such regulatory adjustments are discussed, particularly their role in facilitating sustainable urban development. This comprehensive analysis aims to provide policymakers and urban planners with an understanding of the environmental stakes involved and practical steps towards achieving sustainability in urban transportation systems. By comparing Ukraine’s policies to international standards, the research offers valuable insights into potential reforms that can drive the sustainable future for Ukraine. Keywords: transportation and logistics vehicles, environmental damage, sustainable development, greenhouse gases, emission regulation, environmental tax.

A Global Minimum Tax for Large Firms Only: Implications for Tax Competition

A Global Minimum Tax for Large Firms Only: Implications for Tax Competition

ВПЛИВ ПОДАТКОВОГО ЛАНДШАФТУ КРАЇНИ НА ПОДАТКОВЕ ПЛАНУВАННЯ ТНК В УМОВАХ ПРОЄКТУ BEPS

The article notes that in the context of globalization, multinational corporations exert an increasing influence on the economies of their home countries, host countries, and the overall state of international economic relations. The authors underline that tax planning is one of the TNC activities that grabs attention of the global public in terms of both its favorable and unfavorable effects. The article offers its own definition of the term «tax landscape», in which, unlike the existing ones, vertical, horizontal and temporal aspects are distinguished. The vertical aspect is presented as a synthesis of the supranational level of taxation and the national one; horizontal, as a system of tax rules and laws within a separate state; temporal, as a change in the main elements of taxation over time. It has been proven that at the current stage of formation of tax landscapes to characterize the supranational level, it is necessary to take into account the elements of taxation defined as part of the implementation of the international BEPS project: the global minimum tax, tax rates for surplus profits, and surplus profits as an object of taxation. The authors have been able to divide the studied countries into three groups depending on the level of direct taxation: high (United States, Canada and Australia), moderate (Great Britain, France, Italy, India, Germany and Switzerland), and low (China and Saudi Arabia). The first group (the United States) and the second group (the United Kingdom, Germany, France, Switzerland, and Italy) have been found to have the greatest tax losses as a result of «tax havens.» The level of direct taxation (profit and capital) in the countries of registration and countries of digital presence, the volatility of tax legislation, and compliance with the conditions of tax justice have been proposed as factors of the tax landscape to be taken into account by transnational corporations when developing tax planning strategies.

The Digital Economy, Global Tax Reforms and Developing Countries – an Evaluation of Pillar I and Art. 12b Un Model

The Digital Economy, Global Tax Reforms and Developing Countries – an Evaluation of Pillar I and Art. 12b Un Model

The Impact of Global Tax Greening on Environmental Regulatory Disclosure

The Impact of Global Tax Greening on Environmental Regulatory Disclosure

Power and Expertise in Global Tax Governance

Power and Expertise in Global Tax Governance

Kann die Europäische Union im globalen Steuerwettbewerb um Investitionen bestehen? Bestandsaufnahme und Handlungsempfehlungen

In recent years, the European Union has dedicated itself with great vehemence to the fight against international tax avoidance. The result of this policy is the restriction of tax structuring leeway while at the same time significantly increasing tax complexity, double taxation risks and potential legal uncertainty for companies in the European single market. Tax frictions in the EU therefore continue to exist, while international tax competition is likely to focus increasingly on the real economic activity and substance of companies in the face of declining scope for tax structuring and fundamental changes to the global tax system. This article structures these considerations and makes recommendations for an EU tax policy that meets the current challenges.

The Digital Economy, Global Tax Reforms and Developing Countries – An Evaluation of Pillar I and Art. 12B UN Model

The Digital Economy, Global Tax Reforms and Developing Countries – An Evaluation of Pillar I and Art. 12B UN Model

Measuring Illicit Financial Flows: New Data and Methods

A major source of illicit financial flows (IFFs) out of developing countries accrues from the under-invoicing of commodity exports. This erodes the tax base of resource-rich developing countries, and hence their capacity to mobilise domestic resources for development. The Sustainable Development Goals (SDGs), adopted in 2015, specifically call on states to reduce IFFs and enhance domestic resource mobilisation. Yet a weak capacity to assess the magnitude and drivers of the phenomenon has limited the ability of developing countries to effectively curb IFFs. This has been compounded by a lack of consensus over IFF definitions together with poor data and weak methods. Drawing on six years of interdisciplinary research into commodity trade–related IFFs, this chapter examines novel data sources and recent methodological advances that researchers and regulators can draw upon to better capture and eventually reduce IFFs. It situates such advances within the fast-expanding literature on domestic resource mobilisation, taxation and IFFs, focusing on three major channels; namely, trade mispricing, abusive transfer pricing and tax evasion through wealth offshoring. The chapter concludes by discussing the scope for improved data collection and evidence generation. This, together with global taxation reform, can greatly contribute to effectively enhancing domestic resource mobilisation in developing countries.

Information asymmetry in non-US stocks: The compounding and mitigating effects of tax havens and corruption

This study examines the role of a country's position as a tax haven and its corruption level in the information asymmetry of non-United States (U.S.) stocks listed on the New York Stock Exchange. Based on the findings, non-U.S. stocks from countries with more pronounced attributes of tax havens and corruption levels have a higher probability of information-based trading and lower market liquidity. Meanwhile, a deeper analysis into the individual attributes of tax havens reveals that the main drivers of these effects include weak anti-avoidance measures and legal complexities, with lesser effects from double tax treaties. In addition, the influence of a country's corruption level on information asymmetry primarily depends on its position as a tax haven, with the highest levels of information asymmetry occurring in jurisdictions that possess strong tax haven attributes and high corruption levels. The implication of the findings is that reducing the influence of global tax havens, especially in regions with high corruption levels, can enhance market liquidity, ultimately benefiting investors and contributing to the overall stability and efficiency of financial markets.

Tax Certainty in the Digital Economy in the Perspective of a Two-Pillar Program

The rapid development of the digital economy has brought new challenges to global tax administration, and traditional tax systems are facing numerous difficulties. As an important part of global tax reform, the "two-pillar solution" is of great significance in addressing tax issues in the digital economy. This paper first provides a brief overview of the two-pillar solution and its main contents. It then examines the issue of tax certainty in the digital economy, analyzes the importance of tax certainty for the digital economy, and the challenges it faces. Subsequently, policy recommendations are presented to address tax certainty issues in the digital economy, including international cooperation and coordination, improving tax data collection and information exchange, and promoting self-regulation and compliance in the digital economy. Finally, by analyzing the example of the EU digital tax proposal and the progress and implementation of international tax reform, the paper summarizes the importance of tax certainty in the digital economy, the prospects and challenges of the two-pillar solution, policy recommendations, and future prospects. This paper aims to provide ideas and references for researching tax issues in the digital economy and its solutions, in order to promote the reform and upgrading of the global tax system.

Asymmetric Effects of Tax Competition on FDI vs. Budget Balance in European OECD Economies: Heterogeneous Panel Approach

The global trends in taxation have generated a “race to the bottom” in capital income taxation, which is intended to be stopped by OECD through the introduction of a global minimum tax rate (15% of effective average tax rate—EATR). The question is whether the defined tax competition floor would have heterogeneous implications in different economies. The aim of this paper is to examine the long-term relationship between the EATR and FDI, and between the EATR and budget balance (BB) in European OECD economies in the period 1998–2021, using non-stationary, heterogeneous panels. According to the linear PMG model, a significant negative long-term relationship was revealed between the EATR and FDI and between the EATR and BB, while the error-correction parameters are significant and heterogeneous, showing that the speed of adjustments towards equilibrium is different across the analyzed economies. However, the nonlinear PMG results revealed asymmetry as the magnitude of the influence of an EATR reduction has a greater effect on FDI attraction and deficit deepening than an increase in the EATR on the opposite tendencies of FDI and deficit. Policymakers are facing a trade-off related to FDI attraction/budget deficit deepening when making decisions in relation to the EATR, and they are mostly oriented toward FDI inflow using EATR reduction in the analyzed economies.

Bulgaria Implements BEPS Pillar Two Rules, Leading to Effective Tax Cost Uplift for MNEs

In this note, the author describes and comments on the draft proposal for an amendment to the Bulgarian Corporate Income Tax Act to transpose the EU Minimum Taxation Directive (2022/2523). This reflects the OECD’s initiative to introduce a global minimum tax rate of 15% for large-scale groups (the Pillar Two solution). Bulgaria is one of the few EU Member States with a headline tax rate of less than 15% and, as such, the amendment will have a significant impact.

Outer Space: The Final Frontier of Taxation

As the pace of commercial space exploration quickens, the question arises: is the global tax framework equipped to handle the complexities tied to revenues from outer space? The very nature of these revenues, derived from a deemed sovereign-free source, clashes with traditional tax principles like the source and residence doctrines. While the Outer Space Treaty, accepted by the majority of countries, bars any claims of sovereignty in space and complicates taxation, countries like the United States and Luxembourg have introduced domestic laws granting their residents rights over resources retrieved from space. Additionally, emerging space industries bring to light challenges in areas such as transfer pricing and satellite taxation, highlighting the pressing need for international consensus on these intricate tax matters.