Profit Tax Research Articles

A Comparative Study of the Performance of Machine Learning Models on a Tax Dataset of Yemen to Detect Levels of Tax Evasion

The performance of a classification model in machine learning is affected by many factors, such as the type of machine learning technology used. Accuracy varies from method to method. This paper presents a comparison between the performance of different models in terms of the machine learning technique used (e.g. KNN, NB, SVM, DT, RF, MLP). Based on the data provided by the Tax Authority of Yemen, which is related to the commercial and industrial profits tax, which consists of 760 attributes, after the preprocessing of data. The dataset partition technique used k-fold validation. The paper shows that the e Naïve Bayes (NB) classifier gave the highest result in accuracy and other measures. Then KNN, SVM, and RF gave the same results in accuracy 99.87%, but in SVM, KNN the results were also the same in the rest measures, while in RF models the rest measures were 97.91%,99.95%, and 98.91% in Recall, Precision and F-score in order. MLP gave 98.42 in accuracy with 66.62%, 64.21%, and 64.40 in the recall, Precision, and F-score, then DT gave 97.76% in accuracy with 57.006% ,99.24% and 72.41% in the recall, precision, and F-score.

Windfall Profit Taxation in Europe (and Beyond)

In 2022, the European Commission introduced, for the first time in its history, a windfall profit tax to be applied on “excessive” profits realized by qualified businesses operating in the “Oil and Gas” sector. Immediately after its implementation, questions arose as to its sustainability and its consistency with constitutional principles of the different member states regulating the domestic power to tax. To assess the consistency with the aforesaid rules, the article samples two countries, inside and outside the EU (Italy and Australia, respectively), and the historical precedents of the matter. Italy has been chosen due to the particularly stringent set of principles regulating the power of the legislature to tax, and Australia has been chosen because of the long-standing experience with superprofit taxes. In most of the scenarios analyzed, one common feature emerged: the complexity in defining the “Extra” nature of the profits and, consequently, the uncertainties in the calculation of the taxable base. In the case of Italy, for instance, the legislator had to intervene in several different moments to fine-tune the taxable base and restore certainty to the tax system. As a conclusion, while the taxation of extra profits should not per se be disregarded, its implementation demands a more robust and precise legal framework together with the understanding that the introduction of such a levy would be a one-way journey for the tax systems: windfall profits taxes would be here to stay.

Corporate profit tax, managerial delegation and multinational firm's transfer pricing

AbstractThis paper analyzes the transfer pricing decision of the multinational firm. There are differences in profit tax rates between home‐country and host‐country. The multinational firm determines the transfer price to its overseas affiliate and delegates the responsibility of deciding on the final sales to its affiliate manager. We find that: (1) The multinational firm will set a higher transfer price if its affiliate hires a manager. If the host‐country firm also hires a manager, the managerial delegation may lead to an asymmetry “prisoner's dilemma”. (2) When home‐country's tax rate is higher than that in the host‐country, multinational firm tends to set a lower transfer price relative to the marginal production cost. (3) When host‐country's tax rate is higher than that in the home‐country, an increase in the host‐country corporate tax rate decreases multinational firm's profit and the consumer surplus, while its impact on the host‐country firm's profit is non‐monotone; an increase in the home‐country tax rate decreases host‐country firm's profit, increases consumer surplus, but has a non‐monotone impact on multinational firm's profit.

The impact of tax optimization and temporary differences on earnings management: The case of Vietnam

The purpose of this paper is to study the effects of tax optimization strategies used by Vietnamese companies for earning management through the use of temporary difference between accounting and taxable profit. Following the model of Cindy (2021), we leverage quantitative methods, built models and tested the impact of 08 factors on earning management (EM), tax optimization (ETR), deferred tax asset (DTA), deferred tax liability (DTL), deferred tax expense (DTE), company size (SIZE), financial leverage (LEV), return on assets (ROA), cash flow from operating activities (CFO). The sample we selected were 113 industrial enterprises operating in multiple sectors listed on the Vietnam Stock Exchange in the period between 2016-2020. Empirical results our sample have shown that earning management (EM) may be affected by DTA, ROA, cash flow from operating activities, and financial leverage under various motives. This study also aims at illustrating that other indicators relating to differences between accounting and taxable profit do not leave any remarkable impacts on the model. This means that enterprises operating in the industrial sector do not use or rarely use those indicators to implement EM.

Income tax: the relationship between accounting and taxation

The present research focuses on the study of income tax through the lens of accounting and the lens of taxation by establishing the interdependence links that are formed. The taxation of entities' income and profits is a particularly important component of any tax system, but also of how it is determined, calculated, recorded, and reported (by accounting) for each entity. In this context, this research addresses the relationship between accounting and taxation with regard to income tax, starting from the principles on which it is based, the reporting period, and the regulatory framework.

KONVERGENCIJA ZEMALJA ČLANICA S UREDBOM VIJEĆA 2022/1854 : TEORIJSKI OKVIR OPOREZIVANJA IZVANREDNE DOBITI – SLUČAJ HRVATSKA

The paper uses a modern research approach to clarify the implications of current tax policy in the context of additional taxation of surplus profits. Although numerous exceptional circumstances can affect an apparent jump in profits, the law provided for only a few deductions to reduce the tax base, which places the Croatian legal framework in a limited and rigid circle of EU countries. The objective of this paper is to establish a theoretical framework for the analysis of the impact of additional taxation on surplus profits. The review and analysis of secondary data describe the national regulatory frameworks of publicly available reports for the EU27. Therefore, the paper attempts to provide answers to the research questions and determine the degree of compliance of the national frameworks within the past 48 days. Partial harmonisation effects have been identified and the possible use of proposals and solutions implies further qualitative and quantitative analysis of the potential and limitations of additional taxation and the possible impact on the overall economy, taking into account the fact that public empirical research on the perception of additional taxation is not available or does not exist in the Croatian framework. The discussion section provides an assessment of all exemptions and deductions for determining the tax base on windfall profits and the resulting impact on direct taxpayers with proposed solutions.

A hybrid entity structure for tax optimization of foreign direct investment in the U.S.

AbstractThis article develops a new strategy for the (tax) optimization of foreign direct investments in the U.S. This strategy is particularly favorable for natural persons. By using a foreign upstream hybrid partnership, a substantial tax optimization of the current taxation of profits as well as the taxation of capital gains can be achieved. In addition, current and final losses may also be offset cross‐border to a certain extent in the case of an exemption under treaty law. This tax structuring idea is presented by way of example and explained on the basis of the country constellation U.S./Germany.

Deferred taxes in financial institutions: A review of empirical research and the role of tax effects in regulatory capital. Part 2

Subject. This article examines the industry practices of the regulation of deferred taxes in financial institutions. Objectives. The article aims to analyze the significance of deferred taxes for financial institutions (banks, insurance organizations) and determine the role of tax effects in regulatory capital. Methods. The research is speculative. For the study, I used the dialectical method of scientific knowledge, the method of collecting theoretical and regulatory information, the method of formalization, as well as analysis, synthesis, observation, and comparison. Results. The article finds that the preventive nature of the accounting revaluation of deferred tax assets controls the probability of their recovery at the expense of future taxable profits, and therefore they should be included in the regulatory capital. It determines that a full reversal of the active deferred tax position is possible if the accounting assets generate income with the profitability necessary to cover the deductible temporary differences in excess of the balance sheet valuation of the assets. Conclusions and Relevance. At present, the theoretical basis of deferred taxation continues to remain undisclosed. Deferred taxes are an artificial information construct that refines the measurement of assets at fair value. Deferred taxes alone are not able to generate cash flow, they reconcile the tax flow with the financial flow in relation to the fair value of assets in order to show how much value the assets will generate taking into account the current tax situation. The results of the study can be useful to practitioners in the field of deferred tax accounting and banking management, as well as analysts and researchers whose activities are focused on accounting, taxation, and other persons concerned who study the theoretical and financial aspects of deferred taxes.

Theoretical Underpinnings and Practical Considerations in Taxing Excess Profits

This article critically examines the existing literature on taxation of excess or supernormal profits of large multinationals and calculates excess profits in India with special reference to the pharmaceutical sector. It concludes with policy recommendations on taxing excess profits using an allowance of capital employed approach.

South African Controlled Foreign Companies' Rules and the Digital Economy

South Africa's controlled foreign company ("CFC") rules were enacted more than two decades ago before most of today's business models existed. These are anti-avoidance rules that ensure the South African taxation of profits diverted offshore by South African residents. In terms of the CFC rules, the profits of a non-resident company may also be subject to tax in South Africa at the hands of its South African resident shareholder if such non-resident company is considered to be a CFC. Advances in technology developments and the use of information communication and technology ("ICT") have given rise to what is referred to as the digital economy. The term refers to economic activities hinged on the use of ICT and the internet. Digitalisation has made it possible for a business to carry on economic activity without the need for a multitude of offices, staff, equipment, and other resources. As a result, new business models like Uber and Shien have emerged. This paper argues that the current South African CFC rules have not kept pace with these new business models and do not effectively regulate the new business models and the digital economy. This paper recommends that the CFC rules be updated to address the digital economy and new business models by amending the rules, incorporating the provisions of Electronic Communications and Transactions Act 25 of 2002 into the rules, using country-by-country reporting, and even considering implementing a regime alternative to CFC rules.

International tax competition with rising intangible capital and financial globalization

The last three decades has witnessed: (a) a rise in the share of intangible capital, and (b) an increase in cross-country ownership of assets (financial globalization). We study the significance of these trends for international tax competition within a two-country model, where governments choose profit and income tax rates without committing to future policies and without international coordination. Higher share of intangible capital has led to lower profit taxes, while increased financial globalization higher profit taxation with the first effect being larger. The combined effects yield a 6% reduction in profit the tax rate and 0.55% gains in welfare (accounting for the transition).

The Deferred Tax and the Usefulness of Financial Information

The purpose of this Article is to determine whether the method of accounting for profit tax in Section 29 of IFRS for SMEs is appropriate. This objective was raised in the context of the international debate on this subject, since it is considered that it is costly for such companies to implement them. The theories analyzed deal with the usefulness of financial information and deferred tax. The method used was quantitative. Some statistical tools were used that helped to determine the distribution of the data and to obtain the equality of means. These tools were that of Shapiro Wilk and the W of Wilcoxon. The results found denote that in the small companies of Ecuador the change of regulations of the NEC Equatorian Accounting Standards to IFRS International Financial Reporting Standards are beneficial, therefore, it would be entering within the logic of the tax effect method as a profit tax registration model.

Federal Inland Revenue Services, Tax Systems and National Economic Development in Nigeria

The study examined the contributions of FIRS as one of the regulatory bodies to national economic development in Nigeria. The issue of harsh policies which becomes a noticeable threat to manufacturers (main tax payers) for relocating to neighbouring countries coupled with unfriendly tax policies approved by federal government and its attendants’ effects on the economy becomes the focus of the study It employs regression analysis to evaluate the relationship between FIRS’ tax policies to national development for the period of 12yrs (2011 - 2021). Real Gross Domestic Product (RGDP) was used as substitute for national development while Petroleum Profit Tax (PPT), Company Income Tax (CIT) and Custom and Excise Duties (CED) were employed as proxy for contributions of FIRS to tax policies. The findings of this study revealed that all explanatory variables have significant relationships with dependent variable respectively; PPT- 0.0383, CIT - 0.000 and CED - 0.000. The study concluded that there is significant relationship between FIRS’ tax policies to national development in Nigeria. Therefore, recommended that, since policies are meant for the well-being of citizens and progress of the economy, views and objects of tax payers must be well- integrated in the formulation of those policies and the need for constant feedback and review to suit the economy. Also, there is need for a more pragmatic FIRS institution approach to the control and management of evasion, tax avoidance and other illicit practices in the tax system, in order to take advantages of positive effect of taxes on the National Economic Development.

Are the Windfall Profit Taxes Introduced by Regulation 2022/1854 Compatible with the Objectives of the European Green Deal?

To alleviate the pressure on households and businesses in the European Union (EU) caused by the recent energy crisis, EU institutions and Member States have implemented exceptional measures aimed at reducing electricity costs for consumers, and redistributing excess revenue from the energy sector to end customers. At the EU level, these measures have been implemented through European Council Regulation 2022/1854 that establishes a temporary income cap for ‘inframarginal’ electricity producers and a temporary solidarity contribution on windfall profits in the oil, gas, coal, and refining sectors. This goal of this article is to analyse these measures in terms of their impact and alignment with the objectives of the European Green Deal. Specifically, it will examine whether the ‘windfall profit tax for energy providers’ can be considered an environmental tax. Since this does not appear to be the case, the study will also evaluate whether the remaining measures outlined in the regulation can compensate for or mitigate the lack of a true environmental component in the ‘temporary solidarity contribution’. It will assess whether the compensation mechanisms provided by the EU Regulation are sufficient for reconciling the social and redistributive objectives with the environmental objectives of the European Green Deal. Windfall profit tax, regulation 2022/1854, European Green Deal, temporary solidarity contribution, excess profit tax, environmental taxation.

The Solidarity Contribution on Excess Profits of Regulation 2022/1584: German Implementation and Constitutionality

This article gives an overview over the solidarity contribution of Regulation 2022/1584 with a focus on its implementation in Germany and provides economic background on the taxation of excess profits. In a second part, the competence of the EU is critically assessed, especially the applicability of Article 122 TFEU with its limited role of the European Parliament. Alternative competence norms are explored. Additionally, the competence under German law is explored. The third part scrutinizes, whether the solidarity contribution or similar excess profits taxes infringe the freedom of enterprise or occupation or equal treatment rights, both under European and German law. Finally, the retroactive application of the solidarity contribution is examined under EU and German constitutional law. Excess profits, windfall profits, merit order, EU competences, freedom of enterprise, equal taxation, retroactivity.

The Implementation of the Windfall Profit Tax for Energy Providers in Spain: Its Contested Compatibility With European and Constitutional Law

This contribution focuses (1) on the legitimacy of the temporary solidarity contribution approved by the Council Regulation (EU) 2022/1854, from a legal perspective considering the use of emergency law; and (2) the European law and jurisprudence in contrast with the Spanish implementation of the windfall profit tax on hydrocarbons providers to sort out its compatibility with the European law. The analysis carried out leads us to maintain some doubts about the legal mechanism used by the EU for its approval, as well as its compatibility with the fundamental freedoms of the EU. We are also critical of the Spanish implementation of the Temporary Solidarity Contribution. Both the Court of Justice of the EU and the European Court of Human Rights (ECtHR) will have the last word. windfall profits tax, energy tax, temporary solidarity contribution, EU tax policy, unanimity, qualified majority voting, Spanish temporary solidarity contribution, equality principle, non-discrimination, proportionality principle

МІЖНАРОДНИЙ ДОСВІД РЕФОРМУВАННЯ СИСТЕМИ ОПОДАТКУВАННЯ ДОХОДІВ У ПОСТПАНДЕМІЧНИЙ І ВОЄННИЙ ПЕРІОДИ

Узагальнено міжнародний досвід реформування систем оподаткування доходів у воєнних і поствоєнних умовах, зокрема, проведено порівняння підходів до реформування систем оподаткування доходів у США, Швеції, Данії, Франції і Великій Британії. Розглянуто приклади, які демонструють, що, попри той факт, що податки на багатство в багатьох країнах Європи і світу характеризувалися низькою бюджетною ефективністю (не приносили значних бюджетних надходжень і при цьому вимагали суттєвих адміністративних витрат), тактика оподаткування надприбутків широко практикувалася тривалий час навіть після закінчення війни, зокрема, у постпандемічний період і в умовах сучасної енергетичної кризи в країнах ЄС.Систематизовано основні погляди на оподаткування багатства фізичних осіб – не стільки як загрози відпливу капіталу і дестимулювання капіталовкладень, скільки як важливої складової податкової системи, що в поєднанні з іншими податками на доходи і майно сприяє відновленню рівномірності розподілу багатства і мінімізує можливості для податкових ухилень. Акцентовано увагу на застосуванні країнами ЄС податку на надприбутки як солідарного одноразового загальноєвропейського податку у відповідь на глобальну соціально-економічну кризу, спричинену негативними наслідками пандемії COVID-19 і зростанням цін на енергоносії через воєнну агресію РФ. Обґрунтовано ключові вимоги, яким має відповідати податок на багатство фізичних осіб, для його запровадження в Україні, що передбачає встановлення неоподатковуваного мінімуму на високому рівні, а також його поширення не лише на резидентів України, а й на громадян інших країн, що володіють активами на її території, з метою підвищення його прогресивності й бюджетної ефективності.

The fiscal and intergenerational burdens of brakes and subsidies for energy prices

We study the effects of different financing rules for untargeted energy price brakes and subsidies on intergenerational welfare in a large-scale overlapping generations model. The results indicate that, in comparison with a laissez-faire solution without any government interventions, debt-financed implementations of such measures are very detrimental for young and future generations. However, the taxation of windfall profits can significantly contribute to reduce the economic burdens of these generations; whereas, the positive effects on older generations are much less pronounced.

Deferred taxes in financial institutions: A review of empirical research and the role of tax effects in regulatory capital. Part 1

Subject. This article examines the industry practices of the regulation of deferred taxes in financial institutions. Objectives. The article aims to analyze the significance of deferred taxes for financial institutions (banks, insurance organizations) and determine the role of tax effects in regulatory capital. Methods. The research is speculative. For the study, I used the dialectical method of scientific knowledge, the method of collecting theoretical and regulatory information, the method of formalization, as well as analysis, synthesis, observation, and comparison. Results. The article finds that the preventive nature of the accounting revaluation of deferred tax assets controls the probability of their recovery at the expense of future taxable profits, and therefore they should be included in the regulatory capital. It determines that a full reversal of the active deferred tax position is possible if the accounting assets generate income with the profitability necessary to cover the deductible temporary differences in excess of the balance sheet valuation of the assets. Conclusions and Relevance. At present, the theoretical basis of deferred taxation continues to remain undisclosed. Deferred taxes are an artificial information construct that refines the measurement of assets at fair value. Deferred taxes alone are not able to generate cash flow, they reconcile the tax flow with the financial flow in relation to the fair value of assets in order to show how much value the assets will generate taking into account the current tax situation. The results of the study can be useful to practitioners in the field of deferred tax accounting and banking management, as well as analysts and researchers whose activities are focused on accounting, taxation, and other persons concerned who study the theoretical and financial aspects of deferred taxes.

ЮРИДИЧЕСКАЯ ХРОНИКА

The October Chronicle presents comments on the introduction of new types of taxes: excess profit tax and one-time taxes; the adoption of the Constitutional Court ruling on the correlation between a court decision to terminate a criminal case of private prosecution and the decision of internal affairs bodies to refuse initiating a criminal case; the introduction of additional administrative responsibility of social network owners and the adoption of the law on the regulation of economically significant organisations.