Preferential Tax Treatment Research Articles

Tax Reforms and the Decline of the London Stock Market: The Untold Story

234 Various reasons have been put forward for the declining global relevance of the London equity market. Reform proposals and changes already implemented target some of the major problems identified as reasons for the stock market’s decline. Surprisingly, tax related explanations for the current state of the UK stock market are largely absent from the discourse. This paper argues that the preferential tax treatment of the dividend income of UK pension funds and insurance companies introduced in the early 1970s and repealed in the mid 1990s first contributed to the UK stock market’s growth by implicitly subsidising financing via equity and encouraging the flow of the funds of these investors into the market, and subsequently led to the market’s decline as a result of the outflow of the funds of the two major classes of institutional investors: UK pension funds and insurance companies. The key implication of this argument is that omitting tax as a major factor in the decline of the UK stock market risks ending up with reforms that can, at best, do little to change the current situation.

IP box effects in the gaming industry

PurposeThis paper aims to verify how the intellectual property (IP) box affects firms’ effective tax rate, growth and innovation activity outcomes related to intellectual property rights.Design/methodology/approachImplementing the innovation box regimes into the tax system intends to encourage firms to engage in more innovative activities. In UK, Italy and Poland, the IP box tax relief was introduced in 2013, 2015 and 2019, respectively. In return, companies may reduce their tax rate to increase their investment and innovativeness. With a panel model approach – system GMM and DiD with multiple time periods – it analyses data from the Orbis database for 2011–2019 of 673 firms from the gaming industry in 11 countries and hand-collected data on intellectual property rights protection. The authors study public and private companies from the gaming sector in leading European markets and all three countries that protect intellectual property rights of software (Japan, South Korea, the USA).FindingsRecent reforms enable gaming companies to use preferential tax treatment for IP-related income and significantly impact a firm’s revenue growth.Practical implicationsNevertheless, European gaming firms require time to leap the gap to the growth and innovativeness of countries that protect software.Originality/valueThe authors show that the IP box stimulates gaming firms to protect IP via wordmarks, figurative marks, trademarks and software patents that bring effects in five years. Despite the critics against IP box, the authors prove its lagged efficiency, especially in profitable and larger firms.

Where does opportunity knock? On doors that voted for the executive

The Trump Tax Bill of 2017 gave U.S. state governors a one-time opportunity to select an exogenously fixed number of census tracts for preferential tax treatment. We model a governors’ choice of tracts to maximize competing goals of mobilizing voters, rewarding co-partisan legislators, and alleviating poverty. We estimate the likelihood that an eligible tract is selected as a function of both the economic characteristics of the tract and the political characteristics of the governor and the relevant state and federal legislators. Our results show that the executive accountability engendered by eligibility for reelection is weakened by the dual constituency hypothesis.

Who Benefits From Homeowner Tax Preferences?

This paper relies on estimates from a microsimulation model to analyze the distributional impacts of the preferential tax treatment of owner-occupied housing by race and income. Compared to other homeowner tax advantages, which are more equally distributed than tax burdens, the mortgage interest deduction is more unequally distributed than tax burdens. Although current tax policy is more progressive than a tenure-neutral tax policy that treats homeowners and renters the same, a tenure-neutral tax policy yields larger reductions in after-tax income inequality. Among median-income households, white households receive a larger share of homeownership tax benefits than Black households, relative to each racial group’s share of the overall tax burden. Residential location explains the largest portion of the racial gap in the imputed rent exclusion, while household income explains the largest portion of the racial gap in the mortgage interest deduction and capital gains tax exclusion.

Factors affecting acceptance of electric two-wheelers in India: A discrete choice survey

Government of India has adopted policies to grow the share of electric vehicles (EVs) to ‘de-carbonize’ India's transport sector and reduce import dependence for oil. For the lower-middle income economy two-wheelers play a significant role in the private vehicle market. This paper focuses on the effectiveness of some of the demand incentives; roles of infrastructure, market visibility; and peer effects on acceptance of electric two-wheelers in India. It utilizes a discrete choice survey to collect responses from Indian residents. Respondents in six different choice scenarios chose between two categories of petrol vehicles and an EV. Results from the random-parameter logit model indicate that price, refueling time, availability of infrastructure, vehicle taxes, and fuel prices are significant determinants of two-wheeler choice. Further, estimates suggest that consumers are willing-to-pay INR 567 to save in fuel cost by INR 1 per 100 kms, INR 997 for every percentage point reduction in taxes, INR 316 to save an additional minute of charging time, and INR 879 to increase the charging infrastructure by an additional percentage point. Government policies involving price subsidies, preferential tax treatments and improvements in infrastructure should continue. Differential pricing of petrol and electricity can also make electric two-wheelers more attractive.

The impact of preferential farmland taxation on local public finances

Preferential taxation of farmland, which typically takes the form of use-value assessment (UVA), is a staple of local property tax systems in the United States. Under UVA, farmland is taxed according to its hypothetical value in permanent agricultural use, as opposed to its full market value, which may include capitalized future development returns that have yet to be realized by the landowner. A common criticism of UVA is that the preferential tax treatment of farmland adversely affects local property tax revenues, with other landowners footing the bill. We leverage the staggered timing of UVA adoption across states to estimate how these policies have affected various sources of local government revenue. Results broadly indicate that UVA adoption led to net reductions in property tax revenue, which were offset by transfers from state to local governments. At the state level, we find suggestive evidence that transfers were funded through increases in state-levied tax revenues, including sales taxes and corporate income tax rates, and reductions in state highway spending.

Rethinking How We Score Capital Gains Tax Reform

We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the composition of capital gains has shifted in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. Third, focusing on capital gains tax collection may understate fiscal spillovers from decreasing the preferential tax treatment for capital gains. Fourth, additional base-broadening reforms, like eliminating stepped-up basis and making charitable giving a realization event, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise $1 trillion more revenue over a decade than other estimates suggest. Given the magnitudes at stake, scorekeeping procedures employed in evaluating capital gains should be made more transparent and be the subject of external professional debate and review.

Assessing consumer valuations of future costs versus purchase prices in Japan's auto market

To tax vehicles such that market distortions are minimized and environmental goals are promoted, policymakers must determine whether consumers correctly assess automobile prices versus future costs of ownership. Drawing from data spanning 2006 to 2015 for Japan's new car market, we apply the aggregate random coefficients logit model to estimate consumer demand with rich substitution patterns. We find that Japanese consumers primarily focused on fuel costs and future registration taxes followed by vehicle purchase prices. This finding implies that promoting eco-friendly vehicles requires Japanese policymakers' attention to fuel and vehicle registration taxes. This finding also suggests that salient features of preferential tax treatment in the auto market distort consumer preferences toward future costs. Counterfactual experiments under a fixed amount of tax revenue reveal that raising fuel taxes improves average fuel economy more than registration taxes do at the expense of broader social welfare.

Financial professionals and the formation of proprietarian ideology

Financial professionals and the formation of proprietarian ideology

Subsidiary Governance and Corporate Tax Planning: The Effect of Parent-Subsidiary Common Directors and Officers

ABSTRACTTop executives of the parent company often take positions as the directors and officers (D&Os) of subsidiaries. These parent-subsidiary common D&Os have better access to subsidiary information and can exert more influence over subsidiary operations. Therefore they can better identify tax-planning opportunities and coordinate tax arrangements. Using the mandatory disclosure of top executives' subsidiary positions for Chinese listed firms, we find that effective income tax rate is lower for firms with common D&Os. The tax-saving effect is stronger for firms with more intangible assets and with related-party transactions involving subsidiaries. The effect is also stronger when common D&Os have positions in economically significant subsidiaries and the subsidiaries entitled to preferential tax treatment and when common D&Os are involved in daily subsidiary operations. To our knowledge, this paper is the first to study the role of subsidiary governance in general and common D&Os in particular in corporate tax-planning.

Beyond Borders: Uncertainty in Supragovernmental Tax Enforcement and Corporate Investment

ABSTRACT Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms' location and investment choices. However, we have limited evidence regarding the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (E.C.) abruptly began investigating the tax-ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions in U.S. multinational enterprises' subsidiary investments within, firm input purchases from, and aggregate investment of U.S. firms flowing to targeted state aid countries. Specifically, for U.S. multinational enterprises' subsidiary investments, we find fixed assets declined by 1.7 percent of total assets, or $7.6 million per subsidiary. JEL Classifications: M41; M48; H25; H26.

Cash holdings, tax policies, and institutional environments of innovative enterprises

We discover a positive association between a firm's innovativeness and its cash holdings using data from 11,653 innovative enterprises in 51 non-US economies. This relationship is even stronger now that patent boxes have been implemented, which provide preferential tax treatment for patent income. Additionally, creative multinationals that face increased repatriation taxes amass larger total cash holdings. The positive innovativeness–cash relationship is more pronounced in countries with higher R&D tax credits, less developed financial markets, stronger governance, stronger shareholder rights, more technicians, better infrastructure, and greater investment freedom, as well as in industries with fiercer competition and longer innovation cycles. Innovative organizations with greater cash on hand invest more in research and development and generate more patents. In general, our findings shed light on the factors that contribute to the massive wealth buildup in creative enterprises globally.

ДЕРЖАВНА ПІДТРИМКА ДІЯЛЬНОСТІ ПІДПРИЄМНИЦЬКИХ СТРУКТУР АГРАРНОГО СЕКТОРУ УКРАЇНИ

In the article it is shown the results of summarizing of the features, methods, and tools of state support for business structures of the agricultural sector in Ukraine. It is established that the main form of state support is preferential tax treatment and implementation of state targeted programs, covering budget financing of programs and activities aimed at the development of certain industries, partial compensation of interest rates on commercial banks, partial compensation of purchased agricultural machinery. As a result of the analysis of public expenditures in support of the agricultural sector of Ukraine, it was found that the actual amount of funding does not meet the legal norm in the amount of 1 % of GDP. It should be noted a significant overall reduction in public spending to support the agricultural sector of Ukraine in 2020 year compared to the previous 2018–2019 years. At the same time, there is a reorientation of state support: expenditures on livestock and processing of this industry are significantly reduced, while expenditures on cheaper loans and partial compensation for the cost of purchased agricultural machinery are increasing. Given the problems of the agricultural sector, the main areas of the state support and stimulation of agricultural entrepreneurship should be: creating an effective mechanism for the financial support of agricultural enterprises in the context of budget grants and public investment; development of the programs to ensure the renewal of fixed assets and logistical re-equipment of agricultural enterprises through the introduction of innovations; protection of the domestic agricultural producers through a balanced export-import policy.

Innovative firms’ cash holdings, tax policies, and institutional environments

AbstractBased on 21,653 innovative firms from 61 non‐U.S. economies, we find a positive relationship between a firm's innovativeness and cash holdings. This relationship is stronger after the implementation of patent boxes that provide preferential tax treatment for patent income. Moreover, innovative multinationals facing higher repatriation taxes accumulate higher total cash holdings. The positive innovativeness–cash relationship varies with institutional environments and is more pronounced in countries with higher R&D tax credits, less developed financial markets, better governance, stronger shareholder rights, more technicians, better infrastructure, greater investment freedom, and in industries with fiercer competition and longer innovation cycles. Innovative firms with higher cash holdings invest more in R&D and generate more patents. Overall, our findings provide insights into the driving forces underlying the large cash accumulation in innovative firms worldwide.

Preferential tax treatment – a political or economic tool?

ABSTRACT This paper investigates whether the scope of preferential tax treatment depends on the political strength of the incumbent mayor. A dataset on real estate taxes in Polish municipalities in 2005–17 is used. More tax revenues are foregone in municipalities governed by politically weak mayors, albeit the uncovered relationship has limited economic significance. It is tentatively found that the preferential tax policy has a slightly negative, if any, effect on municipal revenues. As such, it is rather a political than an economic tool. Less popular mayors offer higher reductions towards natural persons and in the form of tax rate reductions.

Scientific & research services: problems of elimination of administrative and tax restrictions in the EAEU single market

The subject. The article analyzes the legal rules of the Eurasian Economic Union (hereinafter ‘EAEU’) Member States that may potentially create barriers for access to the single market for services in the field of scientific research through establishing requirements for state registration (accreditation, licensing, etc.) of a scientific research participant. These procedures of registration (accreditation, licensing, etc.) may be relevant for the purposes of receiving the preferential tax treatment. The authors consider possible ways to overcome these obstacles. The aim of this paper is to identify typical obstacles remaining at the level of EAEU Member States’ national legislation and preventing respective participants from an access to the scientific research single market. The authors dare to identify the appropriate means of overcoming these obstacles. The methodology. The authors apply formal logical and comparative legal methods as well as analysis, literal and systematic interpretation of the domestic legal rules of the EAEU Member States and the EAEU legal framework. The main results, scope of application. The results of a comparative legal analysis of the EAEU Member States’ legislation illustrate that certain obstacles to access to the market of research services still remain within the framework of the legal systems of the EAEU Member States. Such obstacles in particular, are related to the requirements for research subjects to undergo the registration or accreditation procedure in order to receive recognition of their activities as scientific ones. Moreover, there are interconnected barriers, which consist, for example, in the requirement to not just incorporate a scientific research subject in the jurisdiction where the services should be provided, but also to register the results of the respective research activities, in particular, for the purpose of exempting these activities from VAT taxation. These barriers impede cross-border research services performance and in some circumstances do not comply with the principles of the EAEU single market of services. Conclusions. The identified barriers to cross-border scientific research can usually be overcome by directly applying the EAEU Treaty, in particular, the provisions defining the rules of the services’ single market (paragraph 38 of Annex 16 to the Treaty). The EAEU Member States’ national legislative provisions require clarification in terms of extending the national regime to scientific research subjects incorporated within other EAEU Member States.

Policy Forum: The Australian Experience with Preferential Capital Gains Tax Treatment—Possible Lessons for Canada

This article compares the preferential tax treatment of capital gains in Australia and in Canada, with a view to determining whether there are any lessons from the Australian experience that may be of relevance to Canada. The tax treatment of capital gains is similar in the two jurisdictions in that both apply a 50 percent inclusion rate or the equivalent. Several aspects of the taxation of capital gains in Australia might be considered cautionary from the Canadian perspective. The Australian experience indicates that winning support for an increase in the capital gains inclusion rate can prove difficult, as demonstrated by the unsuccessful proposal by the Australian Labor Party, during the 2019 federal election campaign, to effectively raise the inclusion rate to 75 percent.

Rethinking How We Score Capital Gains Tax Reform

We argue the revenue potential from increasing tax rates on capital gains may be substantially greater than previously understood. First, many prior studies focus primarily on short-run taxpayer responses, and so miss revenue from gains that are deferred when rates change. Second, the composition of capital gains has shifted in recent years, such that the share of gains that are highly elastic to the tax rate has likely declined. Third, focusing on capital gains tax collection may understate fiscal spillovers from decreasing the preferential tax treatment for capital gains. Fourth, additional base-broadening reforms, like eliminating stepped-up basis and making charitable giving a realization event, will decrease the elasticity of the tax base to rate changes. Overall, we do not think the prevailing assumption of many in the scorekeeping community—that raising rates to top ordinary income levels would raise little revenue—is warranted. A crude calculation illustrates that raising capital gains rates to ordinary income levels could raise $1 trillion more revenue over a decade than other estimates suggest. Given the magnitudes at stake, scorekeeping procedures employed in evaluating capital gains should be made more transparent and be the subject of external professional debate and review.

OPTIMIZING THE CHOICE OF TAX REGIMES BY BUSINESS ENTITIES

The article is devoted to the abolition of the tax regime from 2021 in the form of the single tax on imputed income. Some of the requirements imposed by the state for each tax regime providing preferential tax treatment, excluding the standard taxation scheme, were presented. The taxation regimes that can be chosen by small businesses in view of the abolition of the single tax on imputed income were proposed.

Специальные и льготные налоговые режимы как способы существенного стимулирования цифровых инноваций

Специальные и льготные налоговые режимы как способы существенного стимулирования цифровых инноваций