Investment Tax Research Articles

THE ROLE OF TAX POLICY IN THE DEVELOPMENT OF INNOVATIVE ECONOMY

Vazha Verulidze 
 E-mail: vazha.verulidze@bsu.edu.ge 
 Professor of Batumi Shota Rustaveli State University 
 Batumi, Georgia
 https://orcid.org/0000-0003-1752-8955
 
 Abstract: This paper presents the role of the innovative economy, typical for the modern world, against the background of the global economy and the challenges existing in conditions of fierce competition, and tax mechanisms for stimulating innovation activity in Georgia.
 From the point of view of maintaining sustainable development of the economy, the stimulation of innovation activities by the state has acquired a special role. As the experience of countries with developed economies shows, stimulating an innovative economy can be result-oriented only if the regulatory mechanisms are used by the state in a coordinated manner, namely, both financial and credit and tax mechanisms will operate simultaneously, since only tax mechanism, despite its important place, cannot provide motivation for entrepreneurial entities to introduce innovations in products or services.
 Promoting innovation is important for achieving competitive advantages and long-term development of strategic industries, therefore state support for innovation is especially relevant for developing countries.
 The paper evaluates the tax policy instruments directly relating to the stimulation of innovative activity and successfully used in both developed and developing countries, reviews the norms supporting innovative activity in the tax legislation of Georgia, namely, the scientific-research, design and development service expenses related to the earning of gross income subject to deduction and investment tax credit, i.e. accelerated depreciation reducing the cost of purchasing new equipment. 
 In the study process, attention is focused on the extent to which the benefits related to the promotion of innovations provided by the tax legislation affect the activities of entrepreneurial entities. As a result of the analysis of relevant indicators, it is substantiated that the modernization of certain sectors of the economy is proceeding at a slow pace, which indicates the insufficient effectiveness of tax norms introduced to stimulate the development of an innovative economy.
 In the current situation, when the tax legislation cannot properly provide stimulation of the innovative development of the economy and in this way gain a competitive advantage by the entrepreneurial entities, both in the domestic and international markets, it is appropriate to refine it for the accelerated modernization and development of the economic sectors.
 The paper presents conclusions and recommendations on measures to be implemented by the state, which will promote the stimulation and development of innovative activities of entrepreneurial entities.

Factor Investing for Taxable Investors

Factor Investing for Taxable Investors

Five grand challenges of offshore wind financing in the United States

Offshore wind energy has the potential to play a critical role in fostering a renewable energy transformation in the United States. This owes to its massive technical potential, strategic location near densely populated coastlines, and—relative to onshore wind and solar—high capacity factors and consistent production. The Biden Administration's target to build 30 GW of offshore wind capacity by 2030 (from 0.04 GW today) requires the creation and swift development of a new industry that interlinks the wind and power industries with the maritime sector. Critical to its success is financing. While financial capital is abundant, deploying it for offshore wind faces major challenges. We identify and describe five grand challenges affecting offshore wind finance in the U.S. Failing to address these challenges may put deployment targets at risk. The challenges include (1) Early years financing: navigating the complexities, timing mismatches, and high costs of projects in the development phase; (2) Policy support for project financial solvency: addressing the uncertainty and systematic transfers of tax credits away from offshore wind, characteristic of the U.S. Investment Tax Credit; (3) Workforce development: building a skilled workforce for an emerging market; (4) Transmission and integration barriers: upgrading the power grid to reliably support large scale offshore wind integration; and (5) Floating wind development: financing the development and scale-up of floating offshore wind technologies. The second challenge has already been solved to a large extent by the Inflation Reduction Act.

A dynamic partial equilibrium model of capital gains taxation

We analyze a multi-period model of capital gains taxation with endogenous prices. Relative to an economy without taxation, a capital gains tax tends to lower prices and increase returns. Abstracting from tax redistribution policies, we find that a taxable investor's welfare falls, a nontaxable investor's welfare rises, and, depending on the tax rate, social welfare may either rise or fall. The taxable investor's tax-timing option increases social welfare but may either increase or decrease tax revenue. Tax rebates for capital losses have little effect on welfare or tax revenue. Implications for empirical asset pricing are identified.

ASSIGNED ASSET VALUE AND INVESTMENT TAX DEDUCTION: DEFERRED TAX ACCOUNTING PROBLEMS

The paper deals with methodological and theoretical aspects of accounting for investment tax deduction and assigned value of the asset in terms of rules and regulations of international standards and national standards of the United States (US GAAP). The problem of imperfection of IAS 12 «Income Taxes» in the part of accounting of deferred taxes at initial recognition of the asset is raised. The peculiarities of valuation at fair value when tax effects are included in the amortized value of the asset are disclosed. The calculation of the assigned value of the asset and deferred tax for investment tax deduction, as well as their accounting on accounting accounts is substantiated. The results of the work can be useful in improving national accounting standards and developing corporate accounting policies, as well as in the framework of related theoretical research. As promising directions in the field of the research topic can be highlighted a comparative analysis of the Russian investment tax deduction with the American investment tax credit; and methodological approaches to accounting for the latter in the U.S. in the 1960s.

Modelling the impact of renewable energy investment on global carbon dioxide emissions

The adversities of climate change facing the world highlight the importance of reducing the rise of global carbon emissions (CO2E), which is a top priority for policymakers and researchers. Renewable energy is hailed as a remedy to the rise in global CO2E. However, there are persistently low levels of global renewable energy investment (REI). This study, therefore, examines the linear and non-linear effect of REI (measured by solar, wind, small hydropower, geothermal, biomass, marine, and biofuel energy investment) on CO2E using a global dataset from 2004Q1 to 2018Q1. The study also examines the economic growth mechanism through which REI influences CO2E. Using the Ordinarily Least Squares model, the findings show that all the measures of REI significantly increase CO2E from the linear analysis. However, the non-linear analysis showed that solar and wind energy investment have a statistically significant inverted U-shaped relationship with CO2E while small hydropower and biofuel energy investment have a statistically significant U-shaped relationship with CO2E. Thus, solar and wind energy investment reduce CO2E only after attaining a threshold of investment with the threshold value of solar and wind energy investment being 28.125 (representing about $1.64 trillion) and 26.308 (representing about $266.3 billion), respectively. Also, the threshold value of small hydropower and biofuel energy investment beyond which they increase CO2E are 20.071 (representing about $520.9 million) and 22.8 (representing about $7.978 billion), respectively. Finally, solar, wind and geothermal energy investment indirectly reduce CO2E by increasing green economic growth while the reverse exists for biofuel energy investment. Solar and wind energy investment is, therefore, recommended for attaining carbon neutrality targets. Policymakers should incentivize production tax credits, investment tax credits, feed-in-tariffs, subsidies, affordable loans, and research and development to drive solar and wind energy investment.

Tax benefits as a basic component of the investment tax expenditure management system in the region

The article investigates tax and budget components of the investment tax expenditure management system in the region with a focus on tax benefits and tax powers of the authorities. The information base of the study is the federal and regional legislation, publications in scientific journals, open data of the Ministry of Finance of the Russian Federation, and the Government of the Rostov Oblast. Following general scientific methods of knowledge were used as a methodological basis: comparison, systematic logical and semantic analysis, synthesis of theoretical and practical materials. It allowed to substantiate expediency of significant changes in tax component of the investment tax expenditure management system. The definition of tax exemption, which has not changed during the 25-year period, has been clarified. Tax powers of public authorities of the Russian constituent entities on property and profit taxes of organizations have been expanded. The abandonment of tax costs assessment has been carried out by their supervisors in favor of software product of the Federal Tax Service of Russia developed jointly with the Ministry of Finance of Russia. The results of the study can be used by the authorities when developing proposals to improve tax and budget legislation.

Pricing and green inventory decisions for a supply chain system with green investment and carbon tax regulation

This paper proposes an integrated inventory model of a supply chain system consisting of a single manufacturer and single buyer under stochastic demand. The model considers carbon tax regulation to reduce supply chain operations' emissions. To comply with this regulation, the manufacturer invests in green production technologies and replaces the existing (conventional) facility with a green facility. Thus, the manufacturer can benefit by implementing a hybrid production system involving the simultaneous operation of a conventional and a green facility. The green facility requires higher production costs than the conventional facility, but its emissions are lower. The demand is stochastic and the average demand rate is influenced by the product selling price and green investment level. The goal of this research is to determine the optimal delivery lot, number of shipments, safety factor, selling price and investment level in order to optimize the joint total profit. An efficient algorithm is proposed to solve the problem and a numerical example is provided to demonstrate the applicability of the proposed model. A sensitivity analysis is performed to evaluate the impact of the model's key parameters on its behavior. The results show that green investments made by the manufacturer can effectively reduce the total emissions generated from the supply chain and increase the product's selling price. Furthermore, a hybrid system operated by the manufacturer is proven to control costs and emissions, especially in situations in which the replacement of production facilities must be performed gradually based on the available investment budget.

System of Tax Incentives in Research and Business Development: An Analysis of the Recent Case Law of Portuguese Tax Arbitration

The main objective of this work is to analyse the understanding of the tax authority regarding the application of the tax benefit in support of research and development in professional societies and whether this understanding complies with the legal provision. Additionally, to understand the sense of the recent decisions of the arbitral court in this matter. For this purpose, the study applies the legal research methodology. Several legal sources have been analysed, such as the personal income tax law, the corporate income tax law, the investment tax law, administrative doctrine and the jurisprudence of the Portuguese arbitration court. The study shows that the tax authority has been assuming anunderstanding that does not fit in the legislation currently in force and administrative doctrine concerning tax benefits for the research and development of professional companies. The public authority limits the tax deduction to these entities, and this limitation would not apply in the case of commercial, industrial or service companies. Moreover, the Portuguese arbitral court recently confirmed this discriminatory understanding and agreed with this view. Thus, case law contributes significantly to the clarification of the application of the law.

Impact of oil rents, oil prices, and investment taxes on renewable energy consumption and investment: An investigation

The aim of this paper is to explore the relationship between oil rents and renewable energy consumption and to provide evidence on the significance of the effects of oil prices and investment taxes on renewable energy investment. Two different panel data samples were used: six variables for 44 countries were utilized to prove that oil rents’ are an independent variable causing renewable energy consumption, and five variables for 10 countries were utilized to prove that higher oil prices and higher investment taxes lead to higher levels of renewable energy investment. For both samples, the Granger causality test, unit root test, correlation matrix, fixed and random multiple regressions, Hausman test, and panel cointegration test were performed. The paper adds to the narrow literature on the determinants of renewable energy consumption, mainly oil rents. It also provides further evidence on how higher investment taxes can lead to higher renewable energy investment. The findings confirm that “oil rents” directly affect the variations in renewable energy consumption and that investment taxes directly affect renewable energy investment as they lead to a higher selling price of oil-dependent products. However, no correlation was found between renewable energy investment and oil prices. Taxes are an effective instrument for changing people's and businesses' behaviour. Given the numerous advantages of renewable energy consumption and investment, governments must make plans and create regulations and laws to compel a gradual transition from non-renewable to renewable energy using consumption and investment taxes and other behavioral incentives.

The impact of corporate governance on implicit taxes

Implicit taxes reduce the pre-tax return rate due to investment tax preferences, contrasting with direct, explicit taxes paid to the government. This paper explores implicit taxes in Brazilian publicly traded firms within the differentiated Corporate Governance segments of [B]3 from 2011 to 2021. Using a focused methodology that tests two hypotheses, the study demonstrates that firms in these segments bear a higher implicit tax burden and have their explicit tax benefits supplanted by implicit ones. Results specifically reveal that companies in differentiated segments experience lower pre-tax investment returns than others, pointing to weakened tax management levels. This concise analysis underscores the complex relationship between implicit and explicit taxes and corporate governance practices, necessitating further research for comprehensive understanding.

The impact of corporate governance on implicit taxes

Implicit taxes reduce the pre-tax return rate due to investment tax preferences, contrasting with direct, explicit taxes paid to the government. This paper explores implicit taxes in Brazilian publicly traded firms within the differentiated Corporate Governance segments of [B]3 from 2011 to 2021. Using a focused methodology that tests two hypotheses, the study demonstrates that firms in these segments bear a higher implicit tax burden and have their explicit tax benefits supplanted by implicit ones. Results specifically reveal that companies in differentiated segments experience lower pre-tax investment returns than others, pointing to weakened tax management levels. This concise analysis underscores the complex relationship between implicit and explicit taxes and corporate governance practices, necessitating further research for comprehensive understanding.

Investor Tax Credits and Entrepreneurship: Evidence from U.S. States

ABSTRACTAngel investor tax credits are used globally to spur high‐growth entrepreneurship. Exploiting their staggered implementation in 31 U.S. states, we find that they increase angel investment yet have no significant impact on entrepreneurial activity. Two mechanisms explain these results: crowding out of alternative financing and low sensitivity of professional investors to tax credits. With a large‐scale survey and a stylized model, we show that low responsiveness among professional angels may reflect the fat‐tailed return distributions that characterize high‐growth startups. The results contrast with evidence that direct subsidies to firms have positive effects, raising concerns about promoting entrepreneurship with investor subsidies.

Windfalls? Costs and benefits of investment tax incentives due to financial constraints

We find that financially unconstrained firms claim temporary investment tax incentives more frequently than their constrained counterparts. Notably, these extensive claims from unconstrained firms do not lead to an incremental total investment beyond pre-claim levels; instead, these firms appear to treat the tax cut as a windfall, increasing their cash holdings in subsequent years. In contrast, constrained firms increase their investments relative to pre-claim levels when they manage to claim tax incentives. Our analysis draws from a 2014 tax reform in Japan which introduced both an investment tax credit and bonus depreciation, available for nearly three years. We use a proprietary tax return survey that provides data on tax incentive claims across both public and private firms. Our findings highlight a novel tradeoff of investment tax incentives: while stimulating investments among financially constrained firms upon claiming tax incentives, they also disproportionately allocate tax benefits to unconstrained firms, not necessarily resulting in the intended investment stimulation.

The environmental influence of national savings in D-8 countries: Empirical evidence using an ARDL model.

Extensive theoretical and empirical evidence supports the crucial role of savings in driving a nation's economic growth and development. However, previous studies have not considered their potential environmental implications. This study aims to explore the influence of savings and remittances on the Developing-8 countries (D-8) from 1989 to 2019, using the panel autoregressive distributed (ARDL) model. The findings reveal that national savings and remittances, in the long run, help mitigate environmental degradation in the D-8 countries but energy use and population growth stimulate carbon dioxide (CO2) emissions. In contrast, economic growth does not significantly affect these countries' environmental quality in the long run. However, none of the explanatory variables have any significant relationship with CO2 emissions in the short run. Therefore, policymakers in the D-8 countries are strongly encouraged to prioritize the enhancement of national savings across the three economic agents to maximize the positive effects of savings on environmental quality. Government savings can be increased by reducing deficits and borrowings, while corporate savings can be encouraged by implementing investment tax credits and promoting research and development. Additionally, governments can embark on public enlightenment campaigns on financial education and provide incentives to encourage household savings.

Стабильность условий предоставления налоговых льгот как принципиальная основа режима инвестиционной деятельности в Российской Федерации

This paper covers aspects of the legal nature of stabilisation with regard to investment tax incentives. The relevance of the research is related both to the current macroeconomic difficulties and the corresponding need to encourage investment activity, and to the latest trends in jurisprudence and lawmaking. This article will examine the effect of the tax “stabilisation clause” in the use of investment tax incentives. The article will substantiate the thesis that stabilisation applies to any investment incentive due to the fact that the invariability of investor support measures follows from the constitutional regulation of the operation of law over time. It will also define the content of a legitimate reasonable expectation, which is ensured through the stability of tax benefits.

THE IMPACT OF PREFERENTIAL TAXATION ON THE STIMULATION OF INVESTMENT PROCESSES IN UKRAINE IN THE CONTEXT OF THE EXPERIENCE OF EU MEMBER STATES

In modern conditions, one of the main tasks of the fiscal mechanism is to create favorable conditions for maintaining and activating investment processes at the micro level. Thanks to tax incentives as a leading element of the fiscal mechanism, the state influences the amount of financial resources that are at the disposal of taxpayers − legal entities and individuals - and can be used for investment. Therefore, the purpose of the study was to evaluate the use of tax incentives to ensure the investment development of enterprises and households in EU member states and in Ukraine; to conduct SWOT analysis of investment tax incentives, and to find opportunities to further improve their management. The study substantiates the content of tax incentives and the conditions of their use to activate investment processes at the micro level. The experience of EU member states in the use of different ways of tax stimulation of investments of legal entities and individuals has been generalized. The tax incentives introduced in Ukraine have been considered and the key problems of their existence have been described in the context of stimulating the investment activity of taxpayers. SWOT analysis of investment tax incentives has been carried out, which helped to identify the positive and negative impact of the external and internal environment on their implementation. The necessity and principles of management of investment preferential taxation have been established. It has been proposed to improve the management of the provision of investment tax incentives in Ukraine based on the experience of the EU member states. The authors argue that the purposeful use of tax incentives stimulates the investment activity of households and economic entities. Therefore, the use by Ukraine of the experience of the EU countries to solve the problems of providing tax incentives to individuals and legal entities will eventually lead to the intensification of investment processes at the micro level. The research was conducted as a logical process, covering two main stages - theoretical and empirical. The theoretical stage of the research consisted in the collection, systematization and generalization of facts regarding the impact of preferential taxation on the investment activities of enterprises in the EU countries and in Ukraine. The authors considered the domestic and European practice of using tax benefits to ensure the investment development of enterprises and households. The experience of EU member states regarding the use of various methods of tax incentives for investments of legal entities and individuals has been summarized. The article considers the tax benefits introduced in Ukraine and the key problems of their existence in the context of stimulating the investment activity of taxpayers. The empirical stage of the study included a SWOT analysis of investment tax incentives and the search for opportunities for further improvement of their management. According to the results of the SWOT analysis, the positive and negative influence of the external and internal environment on the implementation of tax benefits was revealed.

The Impact of Preferential Taxation on the Stimulation of Investment Processes in Ukraine in the Context of the Experience of EU Member States

In modern conditions, one of the main tasks of the fiscal mechanism is to create favorable conditions for maintaining and activating investment processes at the micro level. Thanks to tax incentives as a leading element of the fiscal mechanism, the state influences the amount of financial resources that are at the disposal of taxpayers − legal entities and individuals - and can be used for investment. Therefore, the purpose of the study was to evaluate the use of tax incentives to ensure the investment development of enterprises and households in EU member states and in Ukraine; to conduct SWOT analysis of investment tax incentives, and to find opportunities to further improve of their management. The study substantiates the content of tax incentives and the conditions of their use to activate investment processes at the micro level. The experience of EU member states in the use of different ways of tax stimulation of investments of legal entities and individuals is generalized. The tax incentives introduced in Ukraine are considered and the key problems of their existence are described in the context of stimulating the investment activity of taxpayers. SWOT analysis of investment tax incentives was carried out, which helped to identify the positive and negative impact of the external and internal environment on their implementation. The necessity and principles of management of investment preferential taxation are established. Improvement of the management of providing investment tax incentives in Ukraine is proposed on the basis of taking into account the experience of EU member states. It has been proven that the purposeful use of tax incentives stimulates the investment activity of households and economic entities, so Ukraine’s use of the experience of EU countries to solve the problems of providing tax incentives to individuals and legal entities will eventually lead to the intensification of investment processes at the micro level.

A sustainable pollution control fuzzy production inventory model with imperfect and breakable items through Pontryagin Maximum principle

In present world the major cause of global warming and climate change are emission of carbon and greenhouse gas. Governments and policymakers around the world want to put their best efforts to control the pollution and climate change to save our environment. To reduce greenhouse gas emissions Government and policymakers takes carbon tax policy on carbon emission. Also in real world uncertainty is a pervasive phenomenon. Humans have a significant ability to make logical decisions based on uncertain information. For this purpose, we are developing a pollution control fuzzy production inventory model with imperfect and break-ability items under preservation technology investment and carbon tax policy. In this model, the break-ability rate is dependent on inventory level as the break-ability rate of breakable items depends on the collected stress of inventory stock level. Here the unit production cost is dependent on raw material cost, wear-tear cost and development cost. Carbon emission is controlled by investing in carbon reduction technology and a fraction of product items are imperfect. In this study demand of the product depends on selling price and inventory stock level of product. Finally, this optimal control problem solved by using Pontryagin Maximum principle and the optimal results are illustrated graphically and numerically using MATLAB software. Subsequently, some sensitivity analysis is investigated as the impact of parameters on total profit.

Do Environmental, Social and Corporate Governance Practices Enhance Malaysian Public-Listed Companies Performance?

This study examines whether there is a positive relationship between Environmental, Social and Governance (ESG) disclosure and financial performance, as measured by Tobin’s Q. Using a sample of 59 listed firms under the FTSE4Good Bursa Malaysia (F4GBM) Index from 2014 to 2021, our panel regression analyses show: First, ESG has a significant positive impact on company performance. Second, Social Disclosure (SOC) positively impacts financial performance. As a policy suggestion, the government must have a complete mechanism to monitor and promote the ESG blueprint. In addition, the government should develop programmes that are pro-ESG by giving tax exemption to firms that implement ESG strategies, for example, increasing the publicity of the Green Investment Tax Credit (GITA) to promote the development of green technology in Malaysia.