Profit Tax Research Articles

Full Federal Court Allows PepsiCo’s Appeal and Reverses Decision to Impose Royalty Withholding Tax and Diverted Profits Tax on “Embedded Royalties”

In PepsiCo, Inc v. Commissioner of Taxation, the Full Federal Court has allowed PepsiCo’s appeal against the decision of Moshinsky J at first instance, ruling that: (i) no portion of payments made to PepsiCo under an Exclusive Bottling Agreement by an unrelated bottler and distributor – for syrup concentrate for manufacturing soft drinks – was a “royalty” for Australian royalty withholding tax (RWHT) purposes and (ii) PepsiCo did not obtain a “tax benefit” by not paying RWHT and therefore was not liable to pay diverted profits tax (DPT). The decisions of the Full Court and the trial judge are the first to consider the Australian tax treatment of “embedded royalties” and the DPT rules (which were introduced in 2017) and include detailed reviews of the tax issues raised by the licensing of valuable trademarks and intellectual property.

Effects of royalty payment on petroleum profit tax evasion: evidence from the Nigerian non-renewable energy sector

AbstractThe impact of the tax regime on the non-renewable energy sector has been neglected in the current literature. The sector is reported to be at the heart of most oil and gas producing economies. Considering the immense contributions of this sector, the present study investigated the effects of royalty payments on petroleum profit tax evasion in Nigeria’s non-renewable energy sector. A survey, in the form of a questionnaire, was used to collect data from 312 oil and gas companies; while SPSS and PLS software were used to analyze the data. The results indicate that there is positive and significant relationship between tax rate, detection probability, and penalty, and petroleum profit tax evasion. Additionally, the result shows that there is a significantly negative relationship between royalty payment and petroleum profit tax evasion. The findings have significant policy implications for the non-renewable energy sector across the globe. The findings confirm the fact that higher tax rate, detection probability, and penalty, have a direct impact on petroleum tax evasion. The findings also call on policymakers to reconsider the level of royalty rates to a more reasonable level so as to reduce the extent of petroleum tax evasion among the oil and gas companies.

EFFECTS OF DISAGGREGATED TAX REVENUES ON ECONOMIC GROWTH IN NIGERIA (1995-2023): ARDL BOUND TEST APPROACH

<p>Tax revenue has been a great tool of fiscal policy harnessed toward the economic development of a nation. Its different components have collective effects on the economic growth of a nation. This study examined the effects of disaggregated tax revenue on Nigeria's economic growth from 1995 to 2023. The data was sourced from the Central Bank of Nigeria and the Federal Inland Revenue Service databases. This study examined the effects of disaggregated tax revenue on Nigeria's economic growth from 1995 to 2023. The data was sourced from the Central Bank of Nigeria and the Federal Inland Revenue Service databases. Employing multiple regression analysis within an Autoregressive Distributed Lag (ARDL) model, the study assessed the impact of Value Added Tax (VAT), Companies Income Tax (CIT), Petroleum Profit Tax (PPT) and Personal Income Tax (PIT) on economic growth. The diagnostic tests confirmed the model's validity, with unit root tests showing that all variables, except PIT, achieved stationarity after differencing. The findings revealed that each tax revenue component positively influences economic growth. Based on these results, the study recommends enhancing the legal and regulatory frameworks for businesses, including regular evaluations and updates of tax laws and stronger enforcement mechanisms. It also underscores the need to strengthen anti-corruption efforts, promote property rights, uphold the rule of law, and prioritise good governance to foster public confidence and ensure the effective use of tax revenues for economic development.</p><p><strong>JEL: </strong>C32, H20, H24, H25</p><p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/soc/0785/a.php" alt="Hit counter" /></p>

EU State aid and the tax allocation of multinationals’ profits

This contribution examines the impact of the EU prohibition of State aid over the tax allocation of multinationals’ profits. All EU Member States apportion the taxable profit of multinational groups in accordance with transfer pricing regulations based on the arm’s length standard, namely, following a market valuation rationale. Although apparently neutral, such a standard may lead to prohibited aid both at the level of its regulatory design and its enforcement. These issues have been recently exacerbated due to the assessment of the “tax rulings” cases, i.e. State aid proceedings opened against the granting of individual, unpublished rulings by certain Member States to some of the largest multinationals operating in the EU, recently reviewed by the ECJ. Unlike most of the scholarly literature, which has focused on the specific issues raised in these cases, this article aims to comprehensively analyse the issues raised by the said regulations when confronted with the EU State aid regime, in line with the latest jurisprudence in this field. The examination starts by defining the aim and contradictions of the arm’s length standard, which is necessary to build a proper reference framework against which deviations resulting in a selective advantage may be detected. Such derogations potentially resulting in prohibited aid may arise when assessing the scope of these regulations, the existence of specific regimes deviating from the arm’s length standard rationale, and in the context of individual administrative acts (e.g. tax rulings) deviating from the content of the applicable transfer pricing regulations.

A New Model Tax Convention for a World of Increasing Remote Work and Mobility of Individuals

Model Tax Conventions have been the subject of eternal and very heated discussions regarding corporate income taxation, particularly in the recent times as a result of the BEPS Project and its epilogue (the Pillars). However, very little attention has been paid to the challenges and risks posed to tax treaties by the generalization of remote work (a phenomenon that is on the rise, most notably after the 2020 pandemic) and the consequent increased opportunities for individuals to move across jurisdictions, temporarily or permanently relocate in new jurisdictions or even embark on a nomadic life. In the present paper, the author will attempt to provide an in-depth reflection on the impact that these phenomena may trigger in the application of tax treaties on the taxation of income of both individuals and linked entities. They will subsequently propose adjustments to the Model Tax Conventions such as reviewing the tie-breaker rules for resolving dual residency issues (article 4), reinterpreting or modifying the permanent establishment concept for the taxation of business profits (article 5), assessing the elimination of the independent personal services clause (article 14) and revising the rules on the taxation of employment income (article 15). In all cases, specific and near final proposals will be provided for the redrafting of the relevant articles.

Profit Tax as a Character of Regional Budget of Our Time

The authors develop approaches to tax decentralization based on the theory of imperfect institutions by T. Eggertsson, in terms of the critically important profit tax for regional budgets of Russia. We see the goal of our research in finding a balance between the action of formal rules and informal, social norms, technologies, and models for distributing the profits of the largest Russian companies as a tax base between the federal center of Russia and the regions depending on the actual location of employees and assets. The article is devoted to the action of a successful and unique formal rule of the tax institution for the Russian Federation – the formation of consolidated groups of taxpayers (CGT). The novelty of the article lies in the study of the phenomenon of transformation of the domestic system of paying profit tax in 2023 as a replacement of one formal rule (action of CGTs) with another formal rule – the introduction of a new excess profit tax for Russia. An empirical study of the regional distribution of payments of legal entities-payers of profit tax according to the formal rules of the CGTs from among the largest Russian companies registered outside Moscow was conducted. Based on the results of the study, a general conclusion was made about the acute contradiction of the current economic policy in Russia in the content of the tax institution: between the new informal social norm on territorial decentralization of the largest Russian companies and the opposite formal rules of tax centralization in terms of profit tax. In this regard, the current policy of coincidence of territorial and tax decentralization in terms of state-owned companies in China deserves attention.

Propuesta para desarrollar el turismo y actividades conexas en el área rural (Creación de empresas comunitarias en un enfoque de RSE)

Although there is a law to promote tourism, applying it is difficult due to the current contextual conditions in Bolivia. The objective of the research is to define some regulatory actions that should be developed to encourage the creation of productive community tourism businesses in the area rural, generating incentives for locals. The present work is qualitative descriptive, for this purpose the experiences developed in other countries are compared and based on consultation with experts and inspired by Corporate Social Responsibility (CSR), a proposal is developed that could respond to the peculiarities of this reality. The proposal establishesthe development of specific tax exemptions and a tax incentive from the use of the Corporate Profits Tax (IUE) in coordination between the community companies created and the communities based on their social control, with a differentiated treatment with external investors and in national parks in addition to a State that assumes different roles than those it has traditionally assumed in recent years.

PepsiCo Embedded Royalties’ (Intermediate) Win – Zoom-Out Lessons

In June 2024, the Full Federal Court of Australia ruled in favour of PepsiCo against the tax authorities, overturning an earlier decision. The case involved potential embedded royalties in beverage concentrate agreements, focusing on withholding tax and the diverted profits tax. Beyond the ruling, the case highlighted key international tax issues like substance over form, transaction recharacterization and the principal purpose test. The differing views among the three judges emphasized the complexity of these concepts, suggesting future disputes are likely.

Determinants of German firm’s adjusted effective tax rate

ABSTRACT This analysis examines firm-specific determinants of the effective tax rate of German limited liability companies. The effective tax rate is calculated by considering the local trade tax, corporate profit tax, and solidarity tax for 9,318 firms from 2020 based on the Orbis data base. Our findings demonstrate a inverse u-shape relationship between the effective tax rate and firm size. Furthermore, companies with major shareholders tend to have lower tax rates, while those with a supervisory board tend to pay higher tax rates on average. These findings are consistent with the theoretical considerations on tax aggressiveness.

Business taxes, management delegation, and growth

We examine the interaction between agency issues and business taxation in a growth model with an endogenous market structure. Agency issues arise from two types of management delegation: day-to-day production and research and development (R&D) activities. We calibrate the model to the US economy. A reduction in profit tax fosters business dynamics, R&D investments, and income growth in the short and medium term but hampers long-term growth. Lower-quality governance dampens short-term income gains and amplifies long-term growth losses. Additionally, we compare the effects of profit tax cuts with those from dividend and executive income tax cuts. Our analysis includes a welfare and inequality evaluation of profit tax reforms.

System of sources and principles of international tax law

In international cooperation on taxation, countries strive to achieve equality in international taxation and, thus, create the basis for a fair international tax system. Justice exists in an international system of taxation only when states allocate taxing powers among themselves in a manner consistent with dominant views of justice internationally. A fair international tax system will not exist until there is some international consensus on how countries should allocate taxing powers among themselves. International cooperation allows countries to improve the coordination of tax policy at the international level. We can talk about several types of coordination. For example, one type aims to make a country’s tax system more similar to others - in other words, to harmonize taxes. Other types aim to establish minimum or maximum tax rates to avoid double taxation of cross-border income streams, prevent transfer pricing, coordinate arrangements with competent authorities and limit harmful tax competition. The current official agreements mean business activities through a permanent establishment and give the source country the primary right to tax profits from this operation. The country of residence is obliged to exempt these profits from tax, at least to the extent that they were taxed by the country of source. A tax treaty also often provides for an exemption from taxation of the employee’s income from personal services provided the employee is in the country for no more than a specified period of time and the compensation is received by a non-resident employer without a permanent establishment. The treaty usually reduces or eliminates withholding tax on at least some items of investment-type income, such as interest, dividends, rents and royalties, that are not attributable to business carried on through a permanent establishment. The tax treaty also provides that the country of residence can tax capital gains.

Taxation of MNE profits in an R&D driven economy: Beneficial tax havens and minimum taxes

AbstractResearch and development (R&D) by multinational enterprises (MNEs) generates substantial positive cross‐country spillovers. With R&D incentives primarily provided by the MNEs' host countries, these nations bear the entire cost of incentivising R&D but only reap a fraction of the benefits, resulting in inefficiently low R&D incentives and investment from a global perspective. Allowing MNEs to shift their profit to a tax haven shelters the firms' profit from foreign taxation and increases the net returns to R&D without reducing the domestic tax base. In this setting, tax havens can be welfare beneficial because they help to internalise the positive cross‐country spillovers of R&D. The optimal effective minimum tax balances a reduction in wasteful profit shifting and more efficient R&D incentives for MNEs. Regardless of the welfare effect of R&D, a strictly positive minimum tax is optimal for each country. Uncoordinated minimum taxes may be excessively high, if R&D investment has a strong impact on productivity. Under certain circumstances, IP boxes are a welfare‐improving substitute for tax havens.

The INFLUENCE OF REVENUE, OPERATIONAL COSTS, GROSS MARGIN, PROFITABILITY, DEBT TO EQUITY RATIO (DER) ON CORPORATE INCOME TAX EXPENSES IN COAL MINING COMPANIES LISTED ON THE BEI ​​FOR THE 2019 - 2022 PERIOD

The international world in recent months has been shocked by a pandemic, namely an outbreak of a disease caused by a virus called corona or better known as Corona Virus Diseases-19 (Covid-19). The sector that was also affected by the outbreak of the pandemic in 2020 was the mining sector, one of which was coal mining. Sales volume is closely related to controlling operational costs, because operational costs show how the company generates its sales volume. Operating costs are a number of costs that must be incurred by a company to support the operations or activities carried out by the company. Gross profit margin is a ratio used to measure the amount of gross profit percentage on net sales. Profitability ratio is a ratio used to measure a company's ability to generate profits from its business activities. Good performance is aimed at generating maximum profits for the company through successful management. Debt to equity ratio is a type of leverage ratio. Debt to equity ratio is a ratio used to find out how much part of each rupiah of capital is used as debt collateral. In calculating income tax, profit is an important component that determines the size and size of the income tax burden. The tax rate is used as multiplication by taxable profit. The method used is quantitative descriptive. The object of this study is a Coal Mining Company listed on the Indonesia Stock Exchange with 11 companies with the technical analysis used is multiple linear regression using the F test and the t test. The variables used in this study are the variables bound by Corporate Income Tax Burden (Y), the independent variables are Revenue (X1), Operating Costs (X2), Gross Margin (X3), Profitability (X4) and Debt to Equity Ratio (X5). The results of the study show that both simultaneously and partially the independent variables are Revenue, Operating Costs, Gross Margin, Profitability and Debt to Equity Ratio have an influence and significantly on the Corporate Income Tax Burden.

The effect of taxation on Moroccan FDI in African countries: an empirical analysis using panel data

ABSTRACT The paper aims to analyse the impact of taxation policies in African countries on Moroccan foreign direct investment (FDI) using panel data from 29 African countries spanning the period 2005–2021, employing the Estimated Generalized Least Squares estimation method. The findings suggest that high total tax, profit tax, and other tax rates deter Moroccan multinational enterprises (MNEs) from investing in African countries. Conversely, fiscal incentives and reduced tax rates positively influence Moroccan FDI in African countries. Additionally, the results indicate that a high score for tax payment and tax rates positively influences Moroccan FDI in African countries, implying that high-quality taxation policies encourage Moroccan MNEs to invest in African economies. Furthermore, the study finds that the GDP of African economies positively moderates the effect of taxation on Moroccan FDI behaviour. This suggests that the larger the market size of a country, the less severe the negative impact of taxation on FDI.

EFFICIENCY OF ACCOUNTING CONSULTING IN IT COMPANIES AND THE CURRENT DEVELOPMENT OF INFORMATION TECHNOLOGY

The primary focus of this scientific article is to comprehensively examine the nature and potential growth of accounting consulting within the realm of IT enterprise management. Specifically, the research aims to uncover the theoretical principles and real-world implications of accounting consulting and to evaluate its influence on the financial stability and efficacy of an enterprise. The current trends, advantages and disadvantages of using information technologies in the modern world, their development and application in agriculture are substantiated. Having analyzed the data on the structure of the consulting market in Ukraine by segments, it is found that accounting consulting occupies a prominent place in the market of consulting services in Ukraine and is one of the important elements of doing business in the modern world. The article examines how actively companies use IT technologies and innovative solutions, as well as the provision of accounting advice by various consulting companies, both foreign and domestic. It is noted that the activities of IT companies are considered to be very specific compared to other types of services. This fact is confirmed by legislative acts not only in Ukraine but also in other countries of the world and Europe. The article considers the peculiarities of the taxation system, rules of profit taxation and certain types of benefits for IT companies, problems of licensing of accounting consulting companies, as well as services provided by consulting firms. The authors suggest ways of developing consulting companies in Ukraine. It is predicted that in the future, accounting consulting in the IT sector will continue to integrate modern technologies and will focus on analytics and strategic management.

Taxes and Health Infrastructural Development in Nigeria

This study investigated the effect of taxes on health infrastructural development in Nigeria. The objectives of the study among others were to determine the effect of company income tax on health infrastructural development in Nigeria, evaluate the effect of petroleum profit tax on health infrastructural development in Nigeria. Four research questions and four hypotheses were formulated as a guide for the study. This study adopted ex post facto research design and secondary data were collected from the National Bureau of Statistics, Federal Inland Revenue Service (FIRS), Central Bank of Nigeria (CBN) and Federal Ministry of Finance. The study was for forty-one (41) years from 1982 to 2022. This study utilized descriptive statistics, unit root test and ordinary least square regression method of data analysis with the aid of E-View 12. The findings of the study were that company income tax is statistically positive and significant on health infrastructural development in Nigeria, customs and excises duties is statistically positive and significant on health infrastructural development in Nigeria, petroleum profit tax is statistically negative and significant on health infrastructural development on health infrastructural development in Nigeria is statistically negative and insignificant, and value added tax is statistically negative and insignificant on health infrastructural development in Nigeria. Hence, study concluded that the federally collected taxes influence health infrastructural development in Nigeria. From 1982 – 2022. Consequently, the study suggested amongst others that, government should intensify efforts at developing the level of health infrastructure in the country through optimal tax revenue mobilization because, the study affirmed that company income tax and customs and excise duties positively and significantly impact on health infrastructural development in Nigeria.

Taxes and Road Infrastructural Development in Nigeria

This study examined the taxes and road infrastructural development in Nigeria. The specific objectives of the study among others were to determine the relationship between of company income tax on road infrastructural development in Nigeria, ascertain the relationship between petroleum profit tax on road infrastructural development in Nigeria. Four research questions and four hypotheses were formulated as a guide for the study. This study adopted ex post facto research design. The population of the study was conducted on Federal Republic of Nigeria under the National Bureau of Statistics, Federal Inland Revenue Services, Central Bank of Nigeria (CBN) and Federal Ministry of Finance. The study period covered was forty-one (41) years spanning from 1982 to 2022. This study utilized Descriptive statistic, Unit Root Test and Ordinary Least Square Regression method with the aid of E-View 12. The findings of the study showed a positive and significant relationship between company income tax on road infrastructure in Nigeria; customs and excises duties positively and significantly affects road infrastructure in Nigeria; petroleum profit tax negatively and insignificantly affects road infrastructure in Nigeria and finally, value added tax negatively and insignificantly influence road infrastructure in Nigeria is statistically negative and insignificant. The study concluded that taxes such as company income tax, custom and excise duties affects road infrastructural development in Nigeria for the period spanning from 1982 – 2022. Therefore, the study suggested amongst other that, government should intensify efforts at developing the level of infrastructure in the country through tax payers’ revenue because, this study affirmed that company income tax and customs and excise duties positively and significantly affects road infrastructure in Nigeria

THE MODEL OF LOCAL SELF-GOVERNMENT OF THE REPUBLIC OF ARMENIA IN THE CONTEXT OF INTERNATIONAL EXPERIENCE / ՀՀ ՏԵՂԱԿԱՆ ԻՆՔՆԱԿԱՌԱՎԱՐՄԱՆ ՄՈԴԵԼԸ ՄԻՋԱԶԳԱՅԻՆ ՓՈՐՁԻ ՀԱՄԱՏԵՔՍՏՈՒՄ

The aim of the research is to analyze international experiences in territorial administration, comparing them with the local self-government system of the Republic of Armenia (RA), highlighting both similarities and areas for improvement. This article focuses on studying international models of territorial administration and their relevance to the context of RA. We examine various models of local self-government, their management methods, and the primary sources of community revenue formation, conducting a comparative analysis. Additionally, we explore the local self-government system in RA, examining the methods of revenue generation and highlighting its unique aspects. Within the study, we emphasize the need and significance of modernizing revenue sources within communities. We provide recommendations considering areas for improvement within communities and emerging development trends. These recommendations include the introduction of a new type of tax, the hotel tax, as well as deductions from income tax, profit tax, environmental tax, and royalties.

An Extensive Examination of Taxation as an Accelerator for Economic Growth in Nigeria

This study looks at how taxes affect Nigeria's economic development. A time series dataset from 1996 to 2021 was estimated using a short run Autoregressive Distributed Lag [ARDL(2,1,0,0,0)]. The dataset was collected from FIRS. The impacts of Value Added Tax (VAT), Company Income Tax (CIT), Personal Income Tax (PIT), and Petroleum Profit Tax (PPT) on Nigeria's Gross Domestic Product were particularly examined in this study. The findings showed that while personal income tax and value added tax have a short-term negative impact on economic growth, corporation income had a considerable beneficial impact on Nigeria's economic expansion. In addition, petroleum profit tax has positive but insignificant effect on economic growth in the long run. Therefore, striking the right balance between tax rates, economic incentives and compliance is crucial. The Laffer curve theory provides valuable insights into finding the optimal tax rate that maximizes revenue. This can be done balancing the incentives for economic activity against the burden of taxation, finding the optimal rate varies depending on various economic factors and the taxpayer behaviour. The study suggests that offering targeted tax incentive for investments, innovation, and entrepreneurship. These incentives can include tax breaks for specific sectors, research and development activities, and job creation initiatives.

Taxes and Entrepreneurship in Former Communist Countries

Abstract This paper analyzes the influence of the fiscal framework on entrepreneurship, seeking to quantify the magnitude of this influence. It starts by reviewing the main findings of the literature, showing that, while there is consensus that both tax levels and the bureaucracy that surrounds tax payments have a negative effect on entrepreneurship, there is no unanimity regarding which of the two have a stronger effect. It then continues with an empirical approach, which resides in estimating an OLS regression of two measures of entrepreneurship activity (the number of enterprises that are newly created during one year, and the total number of enterprises that exist in one year in a country) on three fiscal explanatory variables (profit tax levels, labor tax levels, and the time spent to pay taxes), using a panel sample of 27 post-communist countries across a period of 15 years. Empirical results suggest that both tax levels and the bureaucracy that surrounds tax compliance have a negative effect on entrepreneurial activity. The level of the profit tax exerts the strongest negative influence on both the number of newly created enterprises, and the total number of enterprises that exist in a country, while the level of the labor tax exerts a negative, albeit weaker influence, which is significant only for the total number of enterprises. The time spent to pay taxes (expressed as the number of hours per year) returns the lowest coefficient, yet it has a statistically significant negative effect on both the number of newly created and the total number of enterprises.