Investment Tax Research Articles

Financial and Legal Relations and Key Legal Categories in the Field of Megasience

The paper is devoted to the examination of some legal aspects of the legislative regulation of public relations in the field of large-scale international research infrastructures. The author identifies the features of public relations in the field of Megasience, examines various approaches to the definition of this category. In particular, it is determined that it is the rules of financial law that regulate the complex of public relations within which public financial activities are carried out in the field under consideration, namely: relations concerning financing at the expense of centralized funds (budgets) as well as using extrabudgetary sources for creating large-scale research infrastructures — unique scientific Mega-science installations; relations associated with the application of various tax incentives and preferences, investment tax credits by scientific and other organizations involved in the implementation of Megascience projects; financial control and supervision relations in the process of creation and operation of global research infrastructure facilities. The author makes proposals concerning the need to develop and adopt a special federal law of the Russian Federation regulating public relations in the field under consideration, as well as public relations in the field of international collaboration related to the implementation of international research activities based on Megascience facilities by the States Parties to such activities. The author gives possible definitions of key concepts applied in the field of Megasience.

Evaluating the feasibility of geothermal deep direct-use in the United States

This paper investigates the techno-economic feasibility of geothermal deep direct-use for heating, cooling, and thermal energy storage in the United States. The six 2017–2019 deep direct-use projects funded by the U.S. Department of Energy are reviewed and evaluated using the simulation tool GEOPHIRES, and results are compared with prior studies, existing geothermal district heating systems in Europe and the United States, as well as non-geothermal centralized and non-centralized heating, cooling, and thermal energy storage systems. Analysis indicates that deep direct-use feasibility varies widely, depending on subsurface characteristics, system design, and financial conditions. Project base case levelized cost of heat values ranged between $13 and $350/MWh; key drivers lowering the levelized cost of heat include higher reservoir temperatures, shallower reservoir depths, higher well flow rates, higher utilization rates, lower drilling costs, and lower discount rates. Incentives such as grants and an investment tax credit resulted in small improvements in project economics. Base case levelized cost of heat values for four projects fell within the range of levelized cost values for existing systems in Europe and the United States, and were comparable to values found in previous studies, including the 2019 GeoVision study. The lowest-cost projects for district heating had comparable levelized cost of heat values to existing fossil-fuel-driven district heating systems, and lower values than decentralized heating with natural gas boilers or heat pumps. Chilled water production with absorption chillers driven by a high-quality geothermal resource obtained attractive levelized cost of cooling values, in line with values from typical centralized cooling production facilities and lower than domestic decentralized cooling with air-conditioning units. Also, thermal energy storage is a potential deep direct-use application, where levelized cost of storage values can be obtained that are comparable to those of other thermal storage techniques such as borehole thermal energy storage and hot water storage tanks. Other aspects of deep direct-use, which are not captured in a standard levelized cost of energy metric, include the ability to decarbonize the heating and cooling supply, and provide reliability and resiliency to the energy infrastructure. These attributes are gaining increased attention and improve overall project feasibility. Finally, this paper identifies technical, market, policy, and social barriers for deep direct-use development in the United States, and provides potential approaches for reducing these barriers.

Investor Taxes and Option Prices

ABSTRACT We examine whether tax-sensitive investors play a significant role in options markets by examining whether option prices reflect investor taxes. Existing empirical option pricing literature ignores taxes. We exploit a unique setting where “index” options on the S&P 500 Index (SPX) and nearly identical “non-index” options on the exchange traded fund (ETF) tracking the S&P 500 Index (SPY) face different tax treatments. We find that higher investor taxes reduce option prices, indicating tax capitalization in options. We find consistent results when analyzing options around the investor tax changes enacted by the American Taxpayer Relief Act (ATRA) of 2012, and for options on stock indices other than the S&P 500 (e.g., Russell 2000). Altogether, our findings provide new evidence of an additional item—investor taxes—influencing option prices, suggesting that tax-sensitive investors play a non-trivial role in options markets and that taxes warrant consideration in broader options research. Data Availability: Data used in this study are available from public sources identified in the paper. JEL Classifications: H24; G12.

Who Gains from Place-Based Tax Incentives? Exploring Apartment Sales Prices in Qualified Opportunity Zones

Qualified opportunity zones, or o-zones, were established by the Tax Cuts and Jobs Act of 2017. This new place-based community development program encourages the investment of private capital into economically depressed areas through the use of tax incentives. With significant tax-induced demand, a small “investment box,” and a closing (now closed) window of opportunity for full tax benefits, conditions have been ripe for accelerating o-zone property prices. This study examines the policy’s effect on transaction prices for existing market-rate apartment properties located in census tracts that were designated as o-zones. It finds that certain segments of the apartment investment pool located in o-zones experienced significant price increases between 2017 and 2019. With material sales price increases, the benefits related to tax savings, at least in part, have effectively been transferred to the sellers of these properties. This finding acts as a cautionary reminder to taxable investors. While tax benefits are alluring, investment decisions should not rely on tax incentives alone. TOPICS:Real estate, legal/regulatory/public policy, performance measurement Key Findings ▪ Qualified opportunity zones, or o-zones, were established by the Tax Cuts and Jobs Act of 2017. This new place-based community development program encourages the investment of private capital into economically depressed areas through the use of tax incentives. ▪ With significant tax-induced demand, a small “investment box,” and a closing (now closed) window of opportunity for full tax benefits, conditions have been ripe for accelerating o-zone property prices. ▪ This study finds that segments of the apartment pool located in o-zones experienced significant price increases between 2017 and 2019, suggesting that the policy’s tax benefits, at least in part, have effectively been transferred to the sellers of these properties.

Building an Operational Solution Assistant System for Foreign SMEs in ROK

Foreign Direct Investment (FDI) is an important resource that helps accelerate the development of the country’s economy, add substantial funding to growth and facilitate technology transfer. Republic of Korea (ROK) is one of the world’s developed countries with dynamic economy, advanced science and technology. In recent years, the Korean government has continuously formulated tax policies, policies to support the business economy and import policies to support foreign businesses in Korea. The Pangyo Valley Creative Economy Valley is being groomed as a global startup hub in Asia. Small and medium enterprises (SMEs) in foreign countries are increasingly interested and eager to seek investment opportunities in the Korean market. Nonetheless, for these companies, language barriers and cultural and institutional differences make it more difficult and time-consuming to learn about the Korean market (such as investment trends, laws, visa policies, taxes and business establishment issues in Korea, etc.). In this study, we explored the process of searching information and seeking investment opportunities and built a business consulting and support application in the first stages of starting a business in ROK to increase effectiveness and save time, which is also an innovative business practice in Use-case ROK. We designed our Virtual Assistant system that can crawl and analyze data on foreign investments in ROK from open data resource websites (data.co.kr) and used analytic and aggregation techniques to explore trends in investments of foreign enterprises. We also researched the process of searching information and seeking investment opportunities for SMEs when investing in ROK, government support policies, laws and taxes as well as a number of other related issues. We built datasets and used Natural Language Processing (NLP) together with Natural Language Understanding (NLU) algorithms to build chatbot applications. Friendly framework for new developers to add and build up the dataset of AI Assistant is built by providing input intent data function, input Entity data function, input utterance data function as well as training and test function. In addition, we built a web-app connected to the server to visualize all the results of research so that SMEs owners can easily use and look for information on investments. Based on the research results, we can make recommendations to SMEs in keeping with the changing investment trends in ROK.

Improvement of accounting and taxation of investments in capital construction and improvement of non-current assets

The paper substantiates that investment in capital construction and improvement of facilities is the foundation of investment and innovation development of the country. It is proved that properly regulated terminology and regulatory framework, proper organization and high-quality methodological support for accounting and taxation of investments in capital construction and improvement of facilities will ensure reliable registration of objects of non-current assets, effective management of investment funds and identify reserves for increasing the return on invested capital. A methodological approach to accounting and taxation of investments in capital construction and improvement at the stage of forming their initial cost under IFRS, depending on the construction methods, is proposed, and the specifics of operations with investment real estate are determined, which will make it possible to account for and tax such business operations more fully, with a proper degree of detail. A system of tax incentives has been developed and justified, and a list of development drivers for the state has been defined regarding the possibility of ensuring the activation of construction processes in the national economy.

A panel data analysis of policy effectiveness for renewable energy expansion on Caribbean islands

Accelerating the rate of renewable energy deployment in Small Island Developing States is critical to reduce dependence on expensive fossil fuel imports and meet emissions reductions goals. Though many islands have now introduced policy measures to encourage RE development, the existing literature focuses on qualitative recommendations and has not sought to quantitatively evaluate and compare the impacts of policy interventions in the Caribbean. After compiling the first systematic database of RE policies implemented in 31 Caribbean islands from 2000 to 2018, we conduct an econometric analysis of the effectiveness of the following five policy interventions in promoting the deployment of RE: investment incentives, tax incentives, feed-in tariffs, net-metering and net-billing programs, and regulatory restructuring to allow market entry by independent power producers. Using a fixed effects model to control for unit heterogeneities between islands, we find evidence that net-metering/net-billing programs are strongly and positively correlated with increases in installed capacity of renewable energy - particularly solar PV. These findings suggest that the RE transition in the Caribbean can be advanced through policies targeting the adoption of small-scale, distributed photovoltaics.

INNOVATSION-INVESTITSION FAOLIYATNI SOLIQLAR VOSITASIDA RAG‘BATLANTIRISHNING XALQARO AMALIYOTI

This article describes international practice of tax regulation, viz: promotion of innovative and investment activisms of companies. New forms, positive and preferential aspects of tax benefits and preferences have been studied in the research framework. In particular, such features and stimulating objects of preference as tax credits, investment tax credits, research tax credits, have been closely explored. At the same time, the article presents a review of literature on the topic and a comparative analysis of the classification of schemes designed for stimulating innovation via taxation. Moreover, the feasibility of applying international experience of tax incentives in the context of Uzbekistan has been reviewed. In particular, the practices of applying reduced or differentiated tax rates, paying taxes in the future, reducing profits proceeded from commercialization of innovative produce is being put forward in view to encourage the innovative and investment activisms of companies through tax incentives, in place of the practice of providing tax benefits in the form of a full exemption for an indefinite period and against no conditions. The research has provided relevant scientific conclusions and proposals as well as practical recommendations.

Equalizing the Tax Treatment of Stock Buybacks and Dividends

This policy brief highlights flaws in the current federal tax treatment of stock buybacks and proposes to address those flaws by equalizing the tax treatment of buybacks and dividends. (We explore the proposal in greater detail in Hemel & Polsky, Taxing Buybacks, 38 Yale J. on Reg. 246 (2021), https://ssrn.com/abstract=3764112.) Stock buybacks allow foreign shareholders to avoid U.S. withholding tax on corporate cash distributions. Stock buybacks also allow U.S. taxable investors to reduce or eliminate shareholder-level tax on corporate cash distributions through a combination of deferral, loss harvesting, and stepped-up basis at death. Our proposal—based on an idea first suggested by Marvin Chirelstein a half century ago—would plug these gaps in the tax base by treating stock buybacks as imputed dividends. We explain the mechanics of the proposal and the principal design choices facing policymakers. We also estimate—conservatively—that the proposal would raise more than $500 billion over the 10-year budget window.

Angels and venture capitalists: Substitutes or complements?

We analyze the funding of start-up companies across financing rounds, focusing on the dynamic interactions between angel investors and venture capitalists. Using unique data from British Columbia, Canada, we show that angels and venture capitalists are dynamic substitutes. This substitutes pattern applies across the performance range of companies. It is less pronounced for serial angels. An instrumental variable analysis, based on available investor tax credits, suggests that the substitutes pattern is driven by company characteristics. Overall, the evidence points to the existence of parallel streams of angel and venture capital funding, with fewer transitions between streams than is traditionally assumed.

Improving the Business Case for CCS in the Electric Power Generation Industry

Supporting new, high impact energy and environmentally friendly initiatives has been a regular and important component of US tax policy. A production tax credit (PTC) of up to 2.3 cents per kWh (now reduced) was available for electricity generated by wind. Solar photovoltaic projects receive a 30% investment tax credit (ITC). These tax credits, along with state-level renewable performance standards, have significantly increased investments in renewables and supported their growth in the electricity generation sector. A similar opportunity now exists for supporting accelerated installation of large-scale Carbon Capture and Storage (CCS) in the US electric power generation industry. Section 45Q of the US tax code represents a first, but still insufficient, step for covering the costs of using CCS with electric power generation. It provides a $50 per metric ton (mt) tax credit for captured CO2 stored in geological formations and a $35 per mt tax credit for captured CO2 used and stored with enhanced oil recovery. However, the 45Q tax credits contain limitations, including-- a rapidly approaching “commence construction” deadline, limited years for claiming the tax credit, a tax credit level insufficient for economically viable installation of CCS by natural gas-fueled power plants, and little support for first-of-a-kind (FOAK), higher CO2 capture rate facilities. In a previous paper (Esposito, et al., 2019), the authors illustrated the basic arithmetic for assessing the economic viability of CCS in the electric power generation industry with availability of the Section 45Q tax credits, including an extensive look at the business case for installing CCS by coal-fueled power plants. This paper discusses a series of modifications to the Section 45Q tax credit, as well as additional steps, that would improve the business case for installing CCS on natural gas-fueled power plants. The paper addresses the following topics: • Extending the Commence Construction Date for the Section 45Q Tax Credit. Given a fast-approaching deadline, the paper provides a series of arguments for extending the “commence construction” date for eligibility for the Section 45Q tax credit. • Increasing the Time Period for Eligibility for the Section 45Q Tax Credit. The paper examines how the business case for CCS would be improved by increasing the time of eligibility for the Section 45Q tax credit to 20 years from the current 12 years. • Increasing the Value of the Tax Credit for Natural Gas-Fueled Power Generation. The overall CO2 capture costs at a natural gas-fueled plant are about 60% as much as at an equivalent generation capacity coal-fueled power plant. However, the volume of CO2 produced from a natural gas-fueled power plant is about 40% as much as from a coal-fueled plant. As such, the per-ton costs of capturing CO2 at a natural gas power plant are 1.5 times higher than the per-ton costs of capturing CO2 at a coal-fueled power plant. Since the Section 45Q tax credit rate was designed to approximately cover the cost of CO2 capture at a coal-fueled power plant, it needs to be increased by about 50% to cover the cost of CO2 capture at a natural gas-fueled power plant. • Providing Incentives for Higher Capture Rate, FOAK Plants. The paper also examines how a more robust set of incentives, including modified Section 45Q tax credits and other options, could help overcome the barriers facing first-of-a-kind (FOAK), high (95%+) CO2 capture rate plants. • Providing Section 48A Investment Tax Credits for Natural Gas-Fueled Power Plants. The paper examines how expansion of the eligibility for the Section 48A investment tax credit could support installation of CCS at natural gas-fueled power plants.

Mergers and acquisitions in Morocco: reality and perspectives

PurposeThe purpose of this article is to address certain gaps and contribute to enriching the literature on mergers and acquisitions (M&A) in Africa; describe the phenomenon taking into account the particularity of the country; address recommendations to public policies and investors and make this article a ground-breaking article on research into the phenomenon of the M&A market in North Africa.Design/methodology/approachWith description and an exploratory intention, the authors develop phenomenon driven research. As appropriate phenomenon driven research, the authors focus on characteristics of Moroccan M&A market. The authors use scientific investigation to provide descriptions and explanations of the phenomena in order to add a new perspective to the M&A literature in North African region. The authors work on the particularity of companies in Morocco, typology of M&A, geographic areas, socio-economic indicators, trade agreements, politics and culture.FindingsUnderstand that the phenomenon of domestic M&A is a phenomenon of big cities and knows the participation of small and medium enterprises. The political variable, the trade agreements and the socio-economic weight of the countries influence the cross-border M&A in to out. Sharing a border and common culture has no impact on cross-border M&A but the history of colonization has an impact.Research limitations/implicationsThe scientific contribution is first an extension of the neoclassical theory on the initiation of M&A operations. Throughout these 29 years of history, the existence of external shocks such as regulations has influenced the activity of M&A operations. Privatization, partial opening of sectors to foreign investment tax incentives have contributed to the realization of M&A operations.Practical implicationsThis paper also has an economic and practical contribution, as it informs about the absence of M&A operation in the agriculture and agri-food sector in Sub-Saharan Africa. This region recognizes a food shortage that will increase by 70–100% between 2010 and 2050 with a strong population growth. The authors also note that regulations, royal directives, influence the activity and geographic choices of M&A. The political variable remains decisive for the cross-border M&A activity between Morocco and Algeria, but encourages acquisitions in countries in West and Central Africa.Originality/valueM&A research in Africa is poor and suffers from several shortcomings; these barriers push researchers to produce fewer papers on this phenomenon. Through data collection, description and explanation, the authors tried to produce a paper focusing on the M&A phenomenon in a country in North Africa. To the authors’ knowledge, no article has dealt with this phenomenon in this country which is known for its strong M&A activity.

Influential Factors and Spatiotemporal Characteristics of Carbon Intensity on Industrial Sectors in China.

Based on the extended STIRPAT model and panel data from 2005 to 2015 in 20 industrial sectors, this study investigates the influential factors of carbon intensity, including employee, industry added value, fixed-assets investment, coal consumption, and resource tax. Meanwhile, by expanding the spatial weight matrix and using the Spatial Durbin Model, we reveal the spatiotemporal characteristics of carbon intensity. The results indicate that Manufacturing of Oil Processing and Coking Processing (S7), Manufacturing of Non-metal Products (S10), Smelting and Rolling Process of Metal (S11), and Electricity, Gas, Water, Sewage Treatment, Waste and Remediation (S17) contribute most to carbon intensity in China. The carbon intensity of 20 industrial sectors presents a spatial agglomeration characteristic. Meanwhile, industry added value inhibits the carbon intensity; however, employee, coal consumption, and resource tax promote carbon intensity. Finally, coal consumption appears to have spillover effects, and the employee has an insignificant impact on the carbon intensity of industrial sectors.

The Effect of Conservatism on the Relationship between Tax Avoidance and Investment

The Effect of Conservatism on the Relationship between Tax Avoidance and Investment

Measuring Financial Impacts of the Renewable Energy Based Fiscal Policy in Colombia under Electricity Price Uncertainty

This paper analyses the financial implications, from the point of view of an investor in renewable energy, which sells the energy for an uncertain price of electricity and decides to take advantage of the Colombian tax policy over the renewable energy. The policy, known as Investment Tax Allowance (ITA), encourages installation of renewable projects in a country traditionally dominated by hydro power. Price is modeled as a non-stationary autoregressive stochastic process with normally distributed error terms. Costs, and uncertain revenue and taxes are considered to assess the financial impact on a solar project when the policy is implemented. Since impact varies according to project ownership, two cases are evaluated: a generation company (GENCO-1) that only owns the solar project; and, an existent generation company (GENCO-2) that owns a portfolio of projects. Results indicate that if ITA is applied, it is likely that the GENCO-1 cannot take the full advantage of the incentive, as opposed to the GENCO-2. Although this policy might not satisfy planner objectives since it does not guarantee the construction of significantly high capacity of new renewable energy projects, it definitely represents an attractive mechanism to decrease tax obligations at the GENCO-2 level. Finally, a theoretical analysis shows that investment cost affects the mean of the present value; whereas tax rates impacts both its mean and standard deviation.

Investment Incentives as a Mediator in the Relationship between Macroeconomic Variables and Growth of Private Domestic Investment in Kenya

The objective of this study was to investigate the mediating effect of investment incentives on the growth of private domestic investment in Kenya using time series data for the period 1997 to 2018. To test for mediating effect, the study used (Baron & Kenny, 1986) approach which propose a four-step procedure in which several regression analyses were conducted and the significance of the coefficients examined. The results did not consistently support a full mediation hypothesis, given that the coefficients did not consistently change in magnitude and significance. Therefore, the study does not reject the null hypothesis that investment incentives do not meditate on the relationship between macroeconomic variables and the growth of private domestic investment in Kenya. The results of this study will benefit policy makers by providing them with data-based evidence that will guide them in making appropriate policies that encourage growth of private domestic investment in Kenya and institute proper management of private domestic investments to boost economic growth in Kenya. Keywords: Tax expenditure, Investment tax expenditure, Investment tax credit, Private domestic investment.

The Achilles Heel of Reputable VCs

This paper examines the impact of competition on the investment behavior and outcomes of venture capital (VC) firms with differing reputations. Following the introduction of investor tax credit programs that increase competition, reputable VCs decrease the number and size of their investments. The results are more pronounced in states with lower investment requirements and lower VC supply. Reputable VCs also reduce their syndicate size and shrink the time between financing rounds. They become less likely to partner with serial founders and their performance deteriorates. Our results suggest that increasing competition depresses returns for reputable VCs, hurting their incentive to invest.

Benefit-Cost Analysis of Federal and Provincial SR&ED Investment Tax Credits

There is a sound public policy case for subsidizing R&D. When firms perform R&D, they create knowledge that allows them to introduce new products, improve existing goods and services or reduce production costs. However, some of the knowledge created inevitably leaks out or spills over to other firms, allowing them to reap benefits from R&D without performing it themselves. These spillover benefits improve Canada’s overall economic performance, but firms do not consider them when deciding how much to invest in R&D, so a subsidy to encourage more R&D is the right policy response.

Benefit-Cost Analysis of Federal and Provincial SR&ED Investment Tax Credits

Benefit-Cost Analysis of Federal and Provincial SR&ED Investment Tax Credits

Depreciation allowances in South Africa

Since the 1980s, tax depreciation allowances are used less as instruments of macroeconomic stabilization and more as long-term measures to stimulate investment. This paper tabulates the types of accelerated depreciation allowances in South Africa and calculates the magnitude of these benefits in addition to standard across-the-board accounting depreciation by companies. Using anonymized tax assessment data from the South African Revenue Service, the analysis generates the aggregate and sectoral composition of tax depreciation and tax investment allowances for 2014–2017. An estimate is offered of the cost to the treasury of these tax expenditures, and the reduction in the statutory corporate income tax rate should these depreciation allowances be terminated.