Tax Deductions Research Articles

Intra-Group Financing: Analysis of the Coexistence of the Arm’s Length Principle with the General Anti-Abuse Rules

The deduction of interest expenses for corporate tax purposes has attracted the attention of tax policymakers and multinational enterprises owing to concerns about base erosion and profit shifting. Prior to the transposition by Member States of the Anti-Tax Avoidance Directive that established a minimum standard, national rules to limit the tax deduction of interest expenses and anti-abuse rules to tackle perceived aggressive tax planning lacked uniformity and consistency at EU level. This resulted in legal disputes, especially in cross-border intra-group financing cases when transfer pricing based on the arm’s length principle is also applied. The Court of Justice of the European Union has set general guidelines and an interpretative framework. However, the opinion of the Advocate General in the X BV case (C-585/22), suggesting a departure from the Lexel case (C-484/19), raises significant concerns. In the authors’ opinion, this approach could lead to an overreaching application of the GAAR even to arrangements subject to the arm’s length principle that, based on economic rationality and substance, is intended to treat in the same way cross-border intra-group and third-party structures and transactions.

New emerging market economies and the roles of energy use, financial development and socioeconomic aspects

AbstractIn recent years, emerging market economies have consistently achieved growth rates above the world average. In this study, the nexus among economic growth, energy consumption, industrialization, financial development, trade openness, and urbanization were tested over the period 1995–2019 for selected emerging countries (Colombia, India, Indonesia, Kenya, Malaysia, Mexico and Poland). The main findings of this study are as follows: The results showed that energy consumption, industrialization, and financial development positively affected economic growth for the entire panel. While trade openness negatively affected economic growth, urbanization was statistically insignificant. The Dumitrescu and Hurlin causality test results indicate bidirectional causality between energy consumption and economic growth. Economic growth and energy consumption are the causes of industrialization. Thus, it can be concluded that a low-cost energy supply will help maintain economic performance with incentive policies such as tax deductions and credits provided for producers in the examined countries.

A Tax Deduction for Home Office Expenditure: The Interpretation of and Proposed Removal of the Exclusive-Use Requirement in Section 23(b) of the Income Tax Act

Hybrid and remote working opportunities have become more prevalent, leading to an increase in attempts to claim income tax deductions for home office expenditure. SARS disallowed over R1.8 billion of the R2.9 billion home office tax claims in the 2021/2022 tax year. Unfortunately, efforts to lobby government to relax the requirements of section 23(b) of the Income Tax Act 58 of 1962 have not been met with legislative response. Section 23(b)'s exclusive-use requirement is particularly troublesome. Given the lack of legislative response, this article considers whether the exclusive-use requirement may be interpreted in a manner that would assist more taxpayers to claim a home office deduction. This article argues that the exclusive-use requirement does not require taxpayers to set aside an entire room to be able to claim home office expenditure. Unfortunately for taxpayers, it also finds that "exclusively" is not reasonably capable of bearing a meaning other than "solely" and that absent the application of the de minimis non curat lex rule, any private use of the home office space is fatal to the deduction of home office expenditure. The limited application of the de minimis non curat lex rule to dismiss insignificant private use offers no solution to taxpayers who live in modest homes and who necessarily work in mixed-use spaces. It also considers SAIT's proposal to tie the exclusive-use requirement to working hours through an interpretative argument and argues that it is unlikely to succeed. This article ultimately concludes that it appears as though taxpayers will find little relief from the exclusive-use requirement through interpretive arguments and must increase their efforts to lobby for legislative amendments instead. However, caution is required because SAICA's proposal that the exclusive-use requirement be removed through legislative amendment could trigger unintended consequences.

Financial Literacy, Public Accountability, Information Transparency and Financial Performance Responsibility in Zakat Management at Baitul Mal Aceh Agency

This research aims to determine the influence of financial literacy, public accountability, information transparency and responsibility on the financial performance of zakat management at Baitul Mal Aceh Agency. This research uses the financial literacy variable as the main variable which is believed to have a better influence on improving financial performance. The use of financial literacy variables becomes important along with the implementation of zakat as a tax deduction as regulated by the Ministry of Finance of the Republic of Indonesia. Through financial literacy, Baitul Mal Aceh Agency can improve, especially regarding zakat management. This research also uses good governance variables, which include public accountability, information transparency and responsibility. Baitul Mal Aceh as a public sector organization is obliged to prioritize the principles of good governance in order to increase public trust in zakat management in Aceh.

Tax regulation of innovation activities

Under the current Western economic sanctions, one of the most important tasks facing the state is to increase the level of innovation in the national economy. Investment and innovation activity has a direct impact on the volume of production potential and, as a consequence, on the formation of budget revenues. The subject of the study is the use of methods of tax regulation of innovation in the regions. The purpose of the article is tax incentives for investment activities by the methods provided by the Tax Code of the Russian Federation (hereinafter referred to as RF, Russia) in federal districts using the example of value added tax, corporate property tax, and corporate profit tax. The following methods аre used in the study: analysis and synthesis, generalisation, grouping, the tabular one. The information base for the research are the Tax Code of the RF, reports of the Federal Tax Service of Russia on these taxes. The work examines foreign and domestic experience in applying methods and benefits to stimulate innovative business activity. The study has found that in the regions, at an extremely low level, they take advantage of the opportunities provided by the Tax Code of the RF in pursuing innovation policy, in particular, in conducting research and development, using the methods of accelerated depreciation of fixed assets, and investment tax deductions. The analytical data and conclusions obtained during the study can be used in the practical activities of regions and economic entities.

Enhancing small business success through effective tax management and policy optimization

The examination of fiscal practices and challenges faced by small businesses underscores the pivotal role of effective tax management in their success and growth. Tax deductions, which allow businesses to reduce taxable income by subtracting certain expenses, are essential tools that help alleviate financial pressures. Despite their potential benefits, many small business owners struggle due to insufficient tax planning and the need for meticulous financial record-keeping. The reviewed studies reveal a significant need to optimize tax policies to support small business development. For instance, proposals such as the Standard Business Deduction (SBD) aim to simplify the tax process by providing a fixed amount that can be claimed above the line, reducing the need for detailed expense tracking and potentially lowering compliance and enforcement costs. Additionally, recommendations for improving accounting practices highlight the importance of simplifying and standardizing accounting requirements to meet informational needs and enhance efficiency. Further research indicates that tailoring tax policies to specific sectors, such as agriculture, can address the unique challenges faced by small businesses in these areas. Effective tax planning and a well-organized accounting system are crucial for maximizing tax benefits and enabling productive investment in business growth. Overall, the intersection of business structure, tax systems, and accounting organization is critical for the effective operation of small enterprises. Future research should focus on refining these areas to provide solutions that support the sustainable development and prosperity of small businesses.

Homestead Tax Deductions and Home Values: The Case of Washington DC Versus Maryland

In Washington DC, homeowners benefit from a generous homestead property tax deduction, which significantly reduces their property tax burden. This deduction specifically exempts a substantial portion of home assessment values from taxation. To understand the causal effects of this policy on home values, this article examines the impact of an increase in DC homestead tax deductions. The increase was implemented as a policy decision to index the homestead deduction to the Consumer Price Index starting from 2013. In the absence of a comparable property tax policy change in Maryland around the relevant years, we utilize this policy based natural experiment and compare the home value increases in the census tracts along the DC-Maryland border. Our findings reveal that this policy led to an economically and statistically significant increase in estimated home value in DC tracts compared to neighboring tracts in Maryland. Moreover, our results indicate that this effect is even more pronounced in neighborhoods with a majority Black population, thereby highlighting the potential redistributive implications of such tax policies.

Exploring the impact of renovation subsidies on housing markets – evidence from the Swedish property market

PurposeThe primary aim of this research is to examine the effects of the Renovation, Conversion, and Extension (ROT) tax deduction for renovations on the scope and quality of renovations and its subsequent impact on house prices across various Swedish municipalities.Design/methodology/approachThis study utilises a two-way fixed effect instrument variable (IV) spatial Manski approach, analysing balanced panel data from 2004 to 2020 at the municipal level (290 municipalities) in Sweden. The methodology is designed to assess the impact of the ROT subsidy on the housing market.FindingsThe study reveals that the ROT subsidy has significantly influenced house prices, with noticeable variations between municipalities. These differences are attributed to the varying amounts of tax reductions for renovations and the extent to which property owners utilise these subsidies.Research limitations/implicationsThe research is limited to the context of Sweden and may not be generalisable to other countries with different housing and subsidy policies. The findings are crucial for understanding the specific impacts of government subsidies on the housing market within this context.Practical implicationsFor policymakers and stakeholders in the housing market, this study highlights the tangible effects of renovation subsidies on property values. It provides insights into how such financial incentives can shape the housing market dynamics.Social implicationsThe research underscores the role of government policies in potentially influencing equitable access to housing. It suggests that subsidies like ROT can have broader social implications, including the distribution of housing benefits among different income groups and regions.Originality/valueThis study contributes original insights into the field of applied real estate economics by quantitatively analysing the impact of a specific government subsidy on the housing market. It offers a unique perspective on how fiscal policies can affect property values and renovation activities at the municipal level in Sweden.

Eligibility of Litigation on Re-assessment for Separate ‘Tax Amount’ Reducing the Tax Amount to be Paid and Related Issues ― Focusing on Deduction of Input Tax under the Value-Added Tax Act and Loss Carryover under the Corporate Tax Act ―

Eligibility of Litigation on Re-assessment for Separate ‘Tax Amount’ Reducing the Tax Amount to be Paid and Related Issues ― Focusing on Deduction of Input Tax under the Value-Added Tax Act and Loss Carryover under the Corporate Tax Act ―

Assessing the Impact of the 2017 Tax Reform on College Athletic Donations Related to Ticket Sales

The Tax Cuts and Jobs Act (TCJA) of 2017 affected many traditional tax deductions for a variety of organizations. One that went under the radar for many, except those in the college sport ecosystem, was the removal of a deduction for donations related to college sport ticket sales. Developed from the Technical and Miscellaneous Revenue Act of 1988, IRC §170(l) provided individual taxpayers the ability to claim 80% of the amount paid over the value of tickets to college athletic events as a charitable contribution. TCJA eliminated this itemized deduction, which concerned several university athletic directors about the long-term effects of this change on their program’s revenue generation. This article assesses the history of the development and application of IRC §170(l) and determines whether these contributions should have been allowed as a charitable deduction overall. The article also examines the impact of IRC §170(l) after TCJA’s implementation, finding the athletic directors’ collective feared impact of reduced contribution revenues was not significant based on available data. Donors appear motivated by more than just the tax benefit, and the removal of the deduction did little to affect overall contributions.

Passthrough Entity Tax Scandal

Three dozen states have enacted laws since 2018 that are designed to provide passthrough entity owners with an unlimited federal tax deduction for state and local business income taxes. These “passthrough entity tax” regimes respond to the December 2017 federal tax law, which imposed a $10,000 cap on the state and local tax deduction. The new state laws generally allow passthrough entities to opt into paying an entity-level state income tax in exchange for a dollar-for-dollar benefit on their owners’ state personal income tax returns. The optional tax has proven to be immensely popular among passthrough entity owners across the country. But there is a problem with the passthrough entity tax concept: under the plain text of the Internal Revenue Code, the workaround does not work. The December 2017 law clearly precludes passthrough entities and their owners from deducting state and local income taxes beyond the $10,000-per-individual cap. And the legislative history of the December 2017 law—read in context—aligns with the statutory text. Surprisingly, the IRS has chosen to permit passthrough entity owners to utilize the workaround anyway. The IRS has not provided a plausible legal rationale for its position, but no one has standing to challenge the IRS’s position in court. Meanwhile, the IRS’s decision to allow the workaround is likely to cost the federal government more than $50 billion by the end of 2025, with most of the federal tax benefits flowing to passthrough owners with incomes of $1 million or more. In effect, the IRS has created a special tax preference—unauthorized by Congress—for hedge fund managers, law firm partners and other passthrough entity owners. And the Biden administration, notwithstanding its professed commitment to tax fairness, has acquiesced in this massive giveaway to the rich. The Biden administration and the IRS should reverse course immediately and apply the $10,000 state and local tax deduction cap to passthrough entity owners. As long as they permit passthrough entity owners to take advantage of the workaround, the Biden administration and the IRS will be abdicating their duty to enforce the law.

Exploring confidence in financial planning topics among care partners of persons living with dementia.

Care partners of persons living with dementia perform significant financial planning in partnership with the person for whom they care. However, research is scarce on care partners' confidence and experiences with financial planning. The purpose of this study was, first, to quantify care partners' confidence across different financial planning topics. We sought to understand whether income, education, relationship type, and years of experience are related to care partners' level of confidence in financial planning. Second, we sought to better understand the reasons for these confidence ratings by examining care partners' experiences of financial planning. We conducted an online survey that asked a combination of quantitative and qualitative questions to understand care partners' confidence and experiences with financial planning. Participants were nationally recruited care partners of persons living with dementia. Multivariate linear regression was used to understand different subgroups' levels of confidence in each financial planning topic. Inductive thematic analysis was used to understand qualitative data. The financial planning topics in which participants (N = 318) felt the least confident were: options when there is not enough money to provide care; tax deductions available to cut care costs; and sources of money from government programs for which the care recipient is eligible. Differences in confidence were observed among care partners with lower incomes, less experience, and caring for a parent. Qualitatively, participants described the challenges of care budgeting and protecting personal finances; confusion about long-term care insurance and accessing resources; and, among confident care partners, reasons for this sense of preparedness. These results underscore the need for tailored interventions and technologies that increase care partners' confidence in specific aspects of financial planning, including long-term care insurance, available financial support, and what to do when money runs out.

Optimal redistributive charity

AbstractThis paper analyzes optimal redistributive charitable giving in a Mirrleesian framework. The status motive behind charity, the stigma from receiving donations, and transaction costs all work to decrease the optimal marginal subsidies on redistributive charity. Because the existing empirical evidence of these effects (when available) is highly uncertain and context‐dependent, the range of possible outcomes is large, and even includes the possibility that charitable giving should be taxed rather than subsidized. In a natural benchmark case, the optimal tax treatment of charitable giving is consistent with a simple tax credit, whereas pure tax deductions are never part of the optimal policy.

A SALT on real estate? Housing market and migration responses to the limit on the state and local tax deduction

AbstractThe 2017 Tax Cuts and Jobs Act placed a $10,000 limit on the deductibility of state and local taxes (SALT) for federal tax purposes. This policy change likely increased the cost of home ownership for some households in high‐tax areas. We examine whether these costs were capitalized into the local housing market through slower growth in housing prices. Motivated by the argument that the SALT cap caused some taxpayers to relocate, we also examine whether the cap influenced interstate migration patterns. The cap led to a sizable reduction in home price growth but had no discernable impact on state‐to‐state migration.

Effects of the Global Minimum Tax on Income Tax Incentive Framework in Indonesia

In this article, the authors analyse Indonesia’s tax incentives to lure investments and its commitment to adopt the GMT. Such adoption could potentially reduce a company’s effective tax rate to under 15%, possibly diverting revenue from Indonesia to other jurisdictions. The article suggests that the GMT’s introduction in Indonesia will influence various tax incentives, primarily those based on income, including tax holidays, tax allowances, super tax deductions, discounted rates and regional development incentives. Post-GMT, the government plans to introduce the qualified domestic minimum top-up tax to safeguard national revenue during GMT’s roll-out and the qualified refundable tax credit to maintain Indonesia’s competitive investment environment following GMT’s implementation.

DAMPAK PENERAPAN TARIF PAJAK EFEKTIF RATA-RATA (TER) TERHADAP PERHITUNGAN PAJAK PENGHASILAN PASAL 21 WAJIB PAJAK ORANG PRIBADI KARYAWAN TETAP PADA PT. ANUGRAH SEKAYU

This descriptive research is aiming to analyze the impact of implementing TER on the calculation of PPh 21 WPOP for permanent employees at PT. Anugrah. The analysis technique is conducted by comparing calculation of PPh 21 WPOP based on tariffs 17 UU-HPP 7 of 2021 with TER based on PMK 168 of 2023. The secondary data is in the form of all income and calculation of PPh 21 for 32 WPOP permanent employees of PT. Anugrah. The results of this research show the calculation of PPh 21 WPOP a month for 32 permanent employees by applying TER is Rp 3,888,343, while the PPh calculation based on the article 17 rate is Rp 4,242,485. There is a difference in excess income tax deduction of Rp 354,142 a month. Implementation of TER can save taxes. It reduces tax burden and makes calculation process simpler and easier, so PMK regulation 168 of 2023 can reduce WPOP taxes, which is expected to increase awareness and voluntary compliance of WPOP. Apart from that, tax regulations have positive impact in increasing the amount of tax revenue. For this tax overpayment/withholding, request can be submitted for compensation.

The effect of place of living on social acceptance of shared PV projects in Switzerland

In Switzerland, solar power has the greatest potential to further advance the energy transition. As conventional rooftop PV excludes a large share of citizens from personally contributing to climate change mitigation, shared PV (photovoltaics) projects offer a more inclusive alternative, e.g. also for urban residents who are less likely to have the option to install solar panels on their own roof. Thus, investigating people’s preferences depending on the degree of urbanity of their place of residence is crucial to determine socially acceptable PV project designs. Using original Swiss survey data (N = 3000) and applying conjoint analysis, different preferences both depending on respondents’ place of living as well as for different dimensions of social acceptance are found. Most notably, big city residents are generally most in favour of such projects but they exhibit the lowest willingness to actually invest. The conjoint experiment showed that, regarding the DVs of project rating and project choice, only the reimbursement by credit vouchers significantly improved project acceptance for big city residents. This also holds true for rural residents, where, in addition, tax deductions (reimbursement), traffic infrastructure, large consumer roofs (location) and electricity provider were also positively evaluated. For the DV specifying the amount of PV modules bought, no project attribute level managed to significantly increase this number, for which only investment-reducing factors were identified: Residents from big cities invest less when a PV project is located in a skiing area or when the investment is made at an information event. For rural residents, large consumer roofs as a location decrease the scale of an investment. These factors should therefore be avoided when planning a shared PV project in order to maximise investments. Fulfilling respective preferences (i.e. according to projects’ place-based target group) may prove relevant to enhance social acceptance of shared PV projects.

Unlocking the Link Between Firm Level Factors and Capital Structure: "An Industrial Analysis"

This study investigates the influence of firm level factors on capital structure. The determinants of the study are profitability, liquidity, cash gap, cash productivity of asset and firm valuation that effect the capital structure. The population used is the construction sector of Pakistan and the cement sector was selected as the sample size for period of 2016 to 2021. The random effect model is operated as data analysis technique to empirically examine the relationship of variables. The findings show that all predictors influenced the capital structure. The results obtained infer that profitability and cash gap are positively associated with capital structure. Whereas, liquidity, cash productivity of assets and firm valuation is negatively related with capital structure. The two fundamental theories of capital structure, trade-off theory and pecking order theory are used in this study. It emphasizes the significance of probability in determining the capital structure decisions as increased debt usage can lead to tax deductions due to interest payments. The aim is to enhance the company's profits, which in turn will raise the company's worth through optimal selection of capital structure. Our study recommends that companies in construction sector should increase their profitability and manage cash gaps efficiently to leverage positive impact on capital structure and to regularly evaluate form valuation to ensure it aligns with capital structure decision.

Exploring Tax Strategies: Leverage and Firm Size Effect in Manufacturing Firms

The purpose of this study is to examine how leverage and firm size affect tax evasion in manufacturing companies that are listed on the Indonesia Stock Exchange (IDX) between 2021 and 2023. The lawful use of tax laws to lower tax obligations is known as tax avoidance. This practice has a substantial impact on state revenue, particularly in Indonesia where tax receipts are rising but the tax ratio stays low. Secondary data from financial reports of industrial firms is used in this study. By calculating business size using the natural logarithm of total assets and assessing leverage using the debt-to-asset ratio (DAR), it applies quantitative research approaches. The research results show that leverage has a significant influence on tax avoidance, where firms with higher levels of debt tend to carry out more tax reduction strategies because of the tax deduction from interest expenses. In contrast, firm size does not show a significant effect on tax avoidance, indicating that both large and small firms adopt similar tax avoidance measures. Managerial implications These findings emphasize the importance of regulatory oversight of corporate leverage and considering firm size in designing tax policies aimed at minimizing tax avoidance practices.

Prospects for the use of preferential taxation of individuals to achieve environmental sustainability in Russia

Within the framework of this article, the issue of achieving sustainable development goals is problematized, special attention is paid to the study of the possibilities of preferential taxation to ensure environmentally responsible behavior of individuals, as a significant facet of a proactive approach to solving environmental problems. The importance of the participation of the state and society in achieving the goal through the provision of tax preferences is emphasized. To achieve this goal, the following tasks were solved: the place of environmental responsibility in the system of general responsibility of individuals was studied; the role and methods of the state in the system of encouraging environmentally responsible behavior and consumption of the population are outlined; An assessment is made of the prospects for the use of environmental preferences in the taxation system for individuals. The study revealed that at the same time, environmental tax instruments are practically not used in Russia at the moment. Directions for the development of environmental tax preferences are proposed through the dissemination of the practice of applying zero tax rates for transport taxes, the introduction of environmental tax deductions, and the adjustment of investment tax deductions for taxes for individuals.