Tax Depreciation Research Articles

Investment and depreciation tax shield under spatial competition: The case of the Greek hotel sector

Investment and depreciation tax shield under spatial competition: The case of the Greek hotel sector

Accelerated depreciation tax policy and multiple-product firms’ export behaviour: evidence from China

ABSTRACT Using the 2014 accelerated depreciation tax policy (ADP) in China as a quasi-natural experiment, this study examines ADP’s impact on multiple-product firms’ export behaviour. Using data on Chinese A-share listed multiple-product companies from 2011 to 2016, we find that ADP enhances export product quality and reduces the unit price of export products by increasing enterprise innovation, accelerating ‘machine replacing labours’, and realizing the ‘economies of scale effect’. Notably, these effects are pronounced in cost-based competence firm. These findings provide developing countries with insights into the use of ADP to encourage high-quality export development.

Rising allowances, rising rates — Can growth arise through business income tax reform despite government debt limit?

The system of business income taxation consists of two instruments, namely a statutory tax rate and a depreciation allowance on investment. We will show in this paper that by acting on both instruments simultaneously it is possible to achieve both a growth and a fiscal net revenue target even in cases when a trade-off prevails when each instrument is used individually.As will be shown in the paper, depreciation allowances have a more favorable trade-off between growth and net revenue in the long run compared to statutory business income tax rates. Thus, by rising depreciation allowances and the statutory tax rate at the same time, it is possible to both increase growth and fiscal space.In a model simulation calibrated to the German economy and tax system, an increase of the tax depreciation rate for all investments from 10% to 25% leads to a more than 2 percent GDP increase and more than 6 percent higher private investments in total. Whereas GDP and investment rise steadily over time, the government budget becomes negative in the short run. In the long run, the sign of the fiscal budget effect is determined by the indexation of government consumption to GDP. However, according to our findings, slight adjustments in the statutory business income tax rate could balance out these deficits and generate additional fiscal space.

법인세 인하가 기업 투자를 촉진하는가: 조세조정 토빈q 모형을 사용한 실증분석

This paper is to investigate the effect of corporate income tax on business investment by using panel data of Korean companies between 1983 and 2022. This paper estimates tax term in the tax-adjusted q model before and after economic crisis.
 The tax term estimation between 1983 and 1997 shows that the effect of corporate income tax rate on investment was strong before Korean financial crisis. Corporate income tax cut promoted significantly business investment. The estimation between 1998 and 2010 after Korean financial crisis shows that corporate income tax cut promoted moderately business investment. But the estimation between 2011 and 2022 shows that the effect of corporate income tax rate on investment is insignificantly small. Corporate income tax cut promote barely business investment after global financial crisis in 2008.
 Empirical results in this paper provide the new perspective on the corporate income tax policy. The Effect of the corporate income tax cut policy on business investment decreases rapidly as tax rate decreases and tax rate cut reduces the effect of tax incentive policy, such as investment tax credit and depreciation savings on investment.

A Comparison of Bulgarian Accounting and Tax Depreciation Methods with Select EU Member States

This note, after surveying the provisions of select EU Member States, outlines the specifics of tax depreciation rates for different kinds of assets in Bulgaria. Further, it compares tax depreciation to the depreciation schemes applied by companies following their own accounting policies. Special attention in the analysis is given to the effect of having differing depreciation schemes for tax and accounting purposes.

How Do Tax Incentives Affect Firm Value? Evidence from China

Using a unique Chinese quasi-experiment of corporate tax policy changes in 2014, we examine the effectiveness of introducing accelerated depreciation as a corporate tax incentive on improving firm value. The results show that, relative to control firms, treatment firms that received the accelerated depreciation tax treatment experience significant improvement in total factor productivity (TFP) both immediately and in the long term. We also find that the enhanced firm value is achieved through optimized capital structure and increased level of innovation. We further find that the beneficial effects are more pronounced in state-owned enterprises (SOE), firms with high labor intensity, financial constraints, high growth, and locations in high marketization provinces. Our research uniquely contributes by providing evidence of the microeconomic benefits of corporate tax policies in an emerging market.

Tax Shield and Firms Value of Quoted Manufacturing Companies in Nigeria

This study investigated the effect of tax shield on firms’ value of selected manufacturing companies in Nigeria from 2012 to 2021. The dependent variable of this study was firm value which was proxied by Tobins Q, while the independent variables were debt tax shield, depreciation tax shield and charitable donation tax shield. The research design adopted for the study was ex post facto, secondary data were employed, three hypotheses were tested and purposive sampling technique was used. The data for the study were analyzed using ordinary least square regression technique and the statistical tool package used was SPSS Version 20. From the result of the analysis, it was found out that debt tax shield, depreciation tax shield and charitable donation tax shield have significant effect on market value of selected manufacturing firms in Nigeria. Hence, it was concluded that tax shield could be used to optimize the value of manufacturing firms’ in Nigeria. Based on the outcome of this study, it was recommended among others that management of manufacturing firms should consider increasing debt financing, invest more in non-current asset, take advantage of charitable donation as means to enhance corporate image and maintain a proper mix of tax shield in the firm thus bringing overall benefit to shareholders and prospective investors.

Conceptual conformity of deferred tax accruals: evidence from Germany and the United Kingdom

ABSTRACT This article argues that it is more appropriate to model the relation between deferred tax accruals and subsequent tax payments using a first-difference model rather than the levels model employed in the extant literature. We then use the difference model to assess the conceptual conformity of deferred tax accruals by testing if changes therein predict changes in tax payments. Using a combined sample of British and German firms we report conceptual conformity for deferred tax liabilities but not for deferred tax assets. By allowing UK and German firms to have different relations between deferred tax accruals and tax payments, we investigate the impact of country-specific factors, including the taxation system, on this predictive ability. We find conceptual conformity for deferred tax liabilities in both countries but report conceptual conformity for deferred tax assets only for German firms. Finally, we find that the introduction of the Accounting Law Modernization Act (Bilanzrechtsmodernisierungsgesetz (BilMoG)) in Germany in 2010 has brought the relation between changes in deferred tax accruals and changes in future tax payments of German and UK firms much closer together. Currently, the only notable difference between UK and German firms related to deferred tax liabilities pertains to the lag between changes in deferred tax liabilities and changes in tax payments that we attribute to differences in the tax depreciation rates of each country.

Development of a BIM-Enabled Automated Cost Segregation System

The cost segregation study is a tax planning strategy employed to optimize cash flow by redefining real estate assets as personal property and land improvement, enabling accelerated tax depreciation. However, conventional cost segregation practices suffer from limitations, such as time-consuming procedures and high associated costs, which hinder their effectiveness. To overcome these challenges, this paper presents an innovative strategy that integrates Building Information Modelling (BIM) to develop an automated cost segregation system. The research aims to optimize the workflow by developing a BIM model and using 5D BIM to perform a cost segregation study by categorizing building elements under a Modified Accelerated Cost Recovery System (MACRS). This workflow aims at minimizing the time and financial resources expended with traditional methodologies. The proposed workflow enables precise identification and separate depreciation of building components, resulting in significant tax deductions that would otherwise be unattainable. The results indicate that performing cost segregation with BIM leads to a significant increase in depreciation amounts, particularly during the initial six years, while also raising the net present value of depreciation by 45%. The integration of BIM technology facilitates effective management and sharing of cost segregation data among stakeholders, enhancing collaboration and decision-making throughout the project lifecycle. Owners can optimize cost management and financial planning, identifying tax-saving opportunities and improving cash flow. General Contractors (GCs) can leverage the system during the bidding process, enhancing their competitiveness and project acquisition potential. Future research can explore the integration of cost segregation modules from BIM with asset management tools, enabling improved facility and fiscal management of building components. Such integration holds promise for enhancing the construction and real estate industry’s overall efficiency and performance.

The tax incentives and corporate cash holdings: Evidence from a quasi-natural experiment of an accelerated depreciation tax policy for fixed assets

Based on a quasi-natural experiment of an accelerated depreciation tax policy (ADP) for fixed assets in China, we examine the impact of the ADP on corporate cash holdings. Using a multiperiod difference-in-differences model with a sample of Chinese A-share listed firms from 2008 to 2020, we document that firms subject to the ADP exhibit lower cash holdings compared to firms not affected by the policy. The effect is more pronounced for young firms, profitable firms, and firms with less R&D investment. According to our mechanism analysis, the ADP mitigates a firm's financing constraints and financialization and therefore, a firm does not need as much as cash holdings as they did before the implementation of the ADP. The mechanism test results suggest that the ADP lowers the precautionary and speculative demand for cash. The analysis of economic consequences shows that the reduction of cash holdings significantly enhances firm value. Our research results suggest that the ADP is a good policy for firms.

The impact of an accelerated depreciation tax policy on employment: Evidence from China

We examine the impact of an accelerated depreciation tax policy (ADP) on employment. As a tax incentive policy, we expect an ADP to impact firm behavior significantly, but its effect on employment remains uninvestigated. Leveraging the two-stage implementation of an ADP in selected industries in China in 2014 and 2015 and using a difference-in-differences research design, we find that: 1) the ADP significantly increases employment, which is consistent with the output effect hypothesis; and 2) the ADP increases firms’ labor demand, mainly by stimulating investment in fixed assets and easing their financial constraints. Additional analysis suggests that the impact of ADP on employment is more salient for small firms, non-state-owned firms, and high growth firms, and skilled labor employment, indicating that the ADP is more effective for firms with high financial constraints and hiring skilled labor to accompany the increase in capital investment.

Determinants of S.M.E.s capital structure in the Visegrad group

In this article, we investigate the capital structure determinants of the Visegrad group, namely the Czech Republic, Slovakia, Hungary, and Poland for small- and medium-sized enterprises (S.M.E.s) from 2011 to 2018. We compare the capital structures of S.M.E.s across all mentioned countries and define how these may impact capital structure choices. The results show S.M.E.s in these countries determine their capital structure in similar ways and all the factors analysed in this study (except for growth opportunity) provide robust explanatory power for companies across all four countries. We find that profitability, liquidity, firm size, assets structure, and non-debt tax (depreciation of total assets) have a significant negative impact on capital structure for all four countries. Our study should be of interest to policymakers and companies who want to optimise their capital structure in order to improve company performance.

Tax incentive and firm investment: Evidence from the Income Tax Revenue Sharing Reform in China

AbstractHow to stimulate enterprise investment is a dilemma facing most countries, and tax incentives are frequently used as a solution. This study explores how China's Income Tax Revenue Sharing Reform affected enterprises' fixed asset investment (FAI). This reform did not modify the nominal tax rate or depreciation allowance directly but changed the effective enterprise income tax (EIT) rate via switching tax administration indirectly. And the change in the effective EIT rate should affect firm investment. This paper uses a regression discontinuity (RD) design to conduct a quasi‐natural experiment of the reform in 2002 based on an enterprise‐level dataset from the Annual Survey of Industrial Enterprises (ASIE). After the reform, the effective EIT rate (ETR) of enterprises collected by the State Administration of Taxation (SAT) was 11% lower than that collected by the Local Administration of Taxation (LAT). FAI improves by 0.7% for every 1% decrease in ETR. Tax avoidance is a key channel for the ETR to affect FAI. The FAI of smaller companies, non‐state‐owned enterprises (SOEs) and companies with high size‐age (SA) indexes has responded more significantly to the change in ETR brought about by reform.

Capital Structure and Its Determinants—A Comparison of European Top-Rated CSR and Other Companies

Corporate social responsibility (CSR), ethics, and sustainability have become an inseparable part of the discourse of modern business. Applying linear regression and comparison of intervals of beta-coefficients, we focused on the mediating role of CSR in the relations between capital structure and its determinants. Examining the sample of European large caps, we observed that CSR companies are significantly more leveraged than non-CSR ones. The influence of the corporate income tax rate and depreciation and amortization on leverage does not differ significantly between CSR and non-CSR companies. Moreover, tax shields seem to be insignificant for both CSR and non-CSR companies. However, we should stress that, for depreciation and amortization, the beta coefficient has a different significance in the model of CSR companies, compared to the model of non-CSR companies. Also, the difference between the models regarding the relations of leverage and asset tangibility is worth noting. Non-CSR companies with a higher proportion of fixed assets have lower leverage. This result was not confirmed for CSR companies. The hypothesis that CSR replaces the role of collateral cannot be confirmed. Available cash influences leverage negatively in both models, supporting the pecking-order theory. This result is much stronger for non-CSR companies compared to CSR ones. This study found fewer statistically significant differences between CSR and non-CSR companies regarding capital structure determinants than were expected.

Tax incentive and corporate financial performance: Evidence from income tax revenue sharing reform in China

How to stimulate corporate performance is a crucial issue of general concern in all countries. This paper examines how China’s Income Tax Revenue Sharing Reform in 2002 affects corporate financial performance. Unlike general tax policies that directly adjust the nominal tax rate or depreciation allowance, this reform indirectly affects the effective Enterprise Income Tax (EIT) rate by switching tax administration, thereby affecting corporate financial performance. We use a firm-level data-set from Annual Survey of Industrial Firms (ASIF), and test the impact by using a quasi-natural experimental design through regression discontinuity design (RDD). We find that after the reform, the effective EIT rate (ETR) of enterprises collected EIT by State Administration of Taxation (SAT) was 10% lower than that of enterprises collected EIT by the Local Administration of Taxation (LAT). If the ETR reduces by 1%, corporate financial performance, more specific, Return on Asset (ROA), increases by 1.7%. There are two available channels: increasing fixed asset investment (FAI), and alleviating external financial constraints. Additionally, the impact can be weakened for locally SOEs, large firms, firms with low SA index and those in less competitive industries.

Comparative Assessment of Capital Income Taxation in Azerbaijan, Kazakhstan, Georgia, and Belarus

The marginal effective tax rates (METR) are determined in Azerbaijan, Kazakhstan, Georgia, and Belarus. The METR have high sensitivity from the tax depreciation rate, profit tax and interest rates for all countries. Sensitivity of the METR from inflation is high in Georgia and Belarus but is less in Azerbaijan and Kazakhstan. The calculations show that the current tax burden in Belarus is higher than in other countries (excluding debt financing). The current tax depreciation rate does not provide additional incentives for investment activity in these countries. The calculations are approximate, but they show that the tax depreciation rate depends on the inflation rate to create additional incentives for marginal investment. Georgia has the highest opportunities to increase investment activities by decreasing the real interest rate. Kazakhstan has greater tax advantages in manufacturing than Azerbaijan.

Evaluating Japan's corporate income tax reform using firm-specific effective tax rates

This study evaluates Japan's corporate tax reforms in the 2010 s by estimating the effective average tax rate (EATR) and effective marginal tax rate (EMTR), common methods for international comparisons, using data on Japanese firms. Japan lowered its statutory tax rate while it expanded the tax base. This study analyzes the differing effects of the tax rate reduction and depreciation method reform by conducting simulations to represent the effects of each reform on the EATR and EMTR. Japan's tax reform in the 2010 s reduced both EATR and EMTR by lowering tax rates. The reform of depreciation methods had little effect on EATR and raised EMTR, but had a limited effect on companies with eligible depreciable assets. The overall effect of the corporate income tax reform is that the effect of the tax rate reduction exceeded that of the depreciation method reforms, and thus the EMTR also declined.

Uproszczenia wybranych zasad (polityki) rachunkowości w mikro- i małych jednostkach w Polsce – regulacje prawne i błędy poznawcze

Objective: To assess the impact of two factors – legal regulations and cognitive errors among decision-makers – on the choice of simplifications in the accounting policy of micro and small entities.Research Design & Methods: Content analysis of disclosed accounting policy among micro and small entities in Poland was done in order to uncover simplifications the entities made in their accounting policy. Sampling was done using the Orbis Europe database; the sample size was 100 units.Findings: Only half of the eligible companies prepare abridged financial statements. Moreover, entities apply simplifications to which they are not entitled: restrictions on the application of the prudence principle and unconditional application of tax depreciation rates to the measurement of fixed assets are not allowed for the companies surveyed.Implications / Recommendations: This research shows that those responsible for accounting policy, when deciding on the scope of the simplifications, employ cognitive biases – including status quo bias, primacy effect and confirmation bias – resulting from heuristic thinking.Contribution: The contribution’s originality is based on the results of an empirical study of simplifications in the accounting policies of micro and small entities and the explanation of these results through the lens of decision-makers’ cognitive errors. Conclusions drawn from the research can be used both by legislators in reviewing legal regulations, and by managers charged with shaping accounting policy and applying simplifications.

Toward global comparability in renewable energy procurement

<h2>Summary</h2> Prices from the competitive procurement of renewable energy are increasingly used for the comparative evaluation of financial and technology performance. Comparing prices from auctions or power-purchase agreements at their face value is often not meaningful, particularly across jurisdictions or over time. Differences in support regimes and the market, tax, and regulatory environment can make a like-for-like comparison convoluted and result in misleading conclusions. Here, we estimate project revenue and value holistically for eight global offshore wind projects. Using a cash flow model, we consider applicable support regimes; market sales; and the monetized value of tax incentives, depreciation, and transmission. We find considerable variation in the absolute levels and relative composition of project revenue and value, which must be considered for deducting costs from procurement prices. The resulting metric enables decision makers and research to compare the total cost of procurement on an equal footing and supplements established cost metrics.

COVID-19 and deferred tax reversals

Purpose This paper aims to examine the financial statement impact resulting from the tax depreciation on buildings that was reinstated on 25 March 2020 as part of the New Zealand Government’s coronavirus (COVID-19) tax support package. The COVID-19 pandemic and the tax relief created an accounting response to map the environment to accounting reports, reversing previously recognized deferred tax liabilities and increasing reported income as a result. Design/methodology/approach This is an exploratory and descriptive study to understand the accounting response and impact on companies’ financial statements following a COVID-19 tax relief to support businesses in a dire financial situation as the effects of COVID-19 took hold. Findings First, the accounting response provided the appropriate mapping from the COVID-19 environment to accounting reports. Second, the financial statement impacts are material, especially for companies with extensive holdings of buildings that are held for use. Third, while the accounting relief was immediate, the economic (cash flow) support does not occur until a year later. Research limitations/implications The financial statement impacts are based on a subset of NZX 50 companies with the available information at the time of writing. However, they do not compromise the external validity of the findings because the tax depreciation relief applies to other listed companies, unlisted public and private companies, trust, partnerships and individuals. Practical implications The New Zealand Government could have been more helpful to businesses by allowing an immediate depreciation deduction in the 2020 year as opposed to implementing it from 2021. Further, it could have legislated a backlog depreciation deduction from 2010 – when the depreciation on buildings was disallowed – to 2020. Originality/value This paper documents the evolution of the accounting for deferred taxes when the New Zealand Government withdrew the tax depreciation in 2010, how NZ IAS 12 evolved as a result of that event and now the reversal effect with the reinstatement of the tax depreciation during COVID-19. The paper also blends in the accounting responses and considers whether they are opportunistic or efficient.