Tax Law Changes Research Articles

Deferred Taxes and 2017 Tax Law Changes: A Teaching Case

This paper presents a teaching case for use in either intermediate financial accounting or one or more different tax classes. The case deals with the impact of the 2017 tax law changes (Tax Cuts and Jobs Act) on deferred tax calculations for financial reporting. It includes the change in how net operating losses (NOLs) will affect deferred taxes. Students are given the opportunity to think critically about the tax law changes and how they affect financial reporting for taxes for 2017 and years beyond.

Implementation of accounting in the system of integrated business structures

The object of research is the European integration of Ukrainian accounting. One of the most problematic places is the insufficient compliance of Ukrainian accounting with international standards, which prevents Ukraine from integrating into the global financial space. Empirical research methods (observation, comparison, generalization), theoretical research methods and the analytical method are used. The paper discusses in detail the differences between the Provision (standard) of accounting of Ukraine and the International standards of financial reporting and accounting of other states. These differences create significant obstacles to doing business and prevent the implementation of accounting in the system of integrated business structures. The necessity of bringing state accounting and the basic principles of its construction with international standards is substantiated. This is necessary for the correct implementation of business integration structures in the system in order to ensure its effective functioning and obtain significant competitive advantages in the modern market environment. Changes in accounting should entail changes in tax and civil law, since the transition of Ukrainian accounting to international standards will become an important link in the integration of the Ukrainian economy into European and world economy. To justify the need to bring state accounting and the basic principles of its construction with international standards, the author proposed the following steps to solve this problem: – bringing into compliance the Provision (standard) of accounting of Ukraine with the International standards of financial reporting and accounting of other states; – ensuring adequate interpretation and compliance with the provisions of the Provision (standard) of accounting in Ukraine; – obtaining an audit opinion on the compliance of financial statements with the requirements of International Financial Reporting and Accounting Standards of other states.

Examining the Immediate Effects of Recent Tax Law Changes on the Structure of Executive Compensation

As part of the “Tax Cuts and Jobs Act” (TCJA), Congress repealed a long-standing exception that allowed companies to deduct executives’ qualified performance-based compensation in excess of $1 million. The reason for the change was to reverse a shift in executive compensation away from cash compensation and towards performance pay, which Congress believed led executives to focus on short-term results rather than the long-term success of the company. The purpose of this study is to test the efficacy of this provision as part of the TCJA. Across a battery of tests, including a difference-in-differences design that exploits the staggered time-series implementation of the deduction limit, we find little evidence that the average firm changed the level or structure of CEO compensation after the TCJA as Congress intended. Overall, our findings suggest this change was ineffectual as enacted. Our results have implications for future policymakers who endeavor to adjust pay inequality or managerial myopia through tax laws targeted at executive compensation.

529 College Savings Plans under the TCJA: Evaluating Age-Based Portfolios

The enactment of the Tax Cuts and Jobs Act of 2017 (TCJA) introduces some of the most sweeping tax law changes in more than 30 years and enhances the flexibility investors have when using 529 college savings plans for more than just qualified higher education expenses. Investors can now use funds from these accounts to pay for qualified K–12 tuition expenses without being taxed or penalized on the earnings associated with the distributions at the federal level. While this new provision may make 529 college savings plans more attractive, investors may now need to reevaluate their investment holdings in these plans especially if they are using age-based portfolios and are planning for pre-undergraduate education expenses, post-graduate education expenses, or are considering using a combination of in-state and out-of-state 529 college savings plans to achieve their education planning goals. TOPICS:Portfolio management/multi-asset allocation, fundamental equity analysis

Will the Public Service Loan Forgiveness Program Ever Forgive Any Loans?

There is a sharp tension between the expectations that hundreds of thousands to millions of persons have regarding their right to eventually have their student loan debts forgiven under the Public Service Loan Forgiveness program, starting this fall, and the legitimate public concerns regarding the large future costs and regressive incidence of the PSLF program’s benefits. The Trump Administration has recently proposed prospectively abolishing the PSLF program for future Direct Loans. Whether or not this proposal is adopted, given the large costs of the program (which I estimate will eventually rise to $12 billion/year or more as an estimated 200,000 people/year or more will eventually seek debt forgiveness), and given the skewed incidence of its benefits in favor of mid-career doctors and lawyers, I think that there will eventually be a more aggressive push by the Administration or members of Congress for retroactive elimination of the program, or at least for a retroactive tax law amendment to include this forgiven debt as taxable income under IRS Code Section 108 as is now done for debts forgiven under the other income-based loan forgiveness plans. As a matter of positive law this article considers several contractual arguments as well as a couple of Constitutional arguments that opponents of such retroactive statutes could offer. The contractual arguments include an express loan terms argument, an implied covenant of good faith and fair dealing-based argument, a promissory estoppel argument, and an unconscionability argument. Some of these arguments against retroactive PSLF program repeal have considerable merit, at least for some Direct Loan borrowers who can make certain fact-specific showings. The Constitutional arguments include the substantive due process issue that would presented by a tax law change that would have retroactive impacts extending back a decade or more. Opponents of such tax legislation might be able to get some traction on the substantive due process issue under Bowen v. POSSE (1986). They also can offer a plausible Takings Clause argument against a tax law change if the courts take the (unlikely) step of regarding the PSLF program’s tax exemption for forgiven debt as a contractual commitment, rather than as only a revocable privilege. Apart from this legal analysis the article does not take a strong normative position on these issues. I do, however, suggest that as a matter of policy a compromise that would arguably fairly balance the interests at issue here may be to continue the PSLF program, but also to retroactively repeal the tax exemption for forgiven debt so as to recapture approximately one-quarter to one-third of the benefits of debt forgiveness, and do so in a modestly progressive manner. Such a compromise should probably also include some provision for spreading the payment of those taxes over at least several years in order to avoid unduly burdening these persons with a “tax bomb” effect.

Publishing Matters

In this essay Kenner meditates on the past, present, and future of university publishers and scholarly publishing. He reflects in particular on the financial pressures resulting from changes in tax laws that have contributed to the decline of the scholarly monograph, and he considers as well the pressures generated by the development of online publication. He further tells cautionary tales, from his own experience, that underscore how important it is that the public stewards of scholarship and literature at academic presses not make hasty decisions about what titles to publish and what to prune from their backlists.

DO STOCK MARKETS WITNESS INSTANTANEOUS REACTIONS TO CHANGES IN DIVIDEND TAX LAWS : EVIDENCE FROM INDIA

In this paper, we examine whether the dividend tax law changes in India in 2002 cause any instantaneous stock price reactions. Using high frequency data, we devise a novel method to segregate the impact of a particular stimulus from a series of stimuli. We show that investors did not react instantaneously to the dividend tax law changes. We examine four alternative explanations for this result: first, the demand for dividend paying stocks by tax-advantaged investors is matched by the supply from tax-disadvantaged investors. Second, markets are not efficient to depict any instantaneous reaction. Third, our methodology cannot isolate the effect of a single announcement made as part of a series of announcements. Lastly, there is a time lag before we witness investor reactions. Our results rule out all four alternative explanations. We conclude that dividend taxes are not an important criterion for investors to effect instantaneous stock price reactions.

Do stock markets witness instantaneous reactions to changes in dividend tax laws: Evidence from India

In this paper, we examine whether the dividend tax law changes in India in 2002 cause any instantaneous stock price reactions. Using high frequency data, we devise a novel method to segregate the impact of a particular stimulus from a series of stimuli. We show that investors did not react instantaneously to the dividend tax law changes. We examine four alternative explanations for this result: first, the demand for dividend paying stocks by tax-advantaged investors is matched by the supply from tax-disadvantaged investors. Second, markets are not efficient to depict any instantaneous reaction. Third, our methodology cannot isolate the effect of a single announcement made as part of a series of announcements. Lastly, there is a time lag before we witness investor reactions. Our results rule out all four alternative explanations. We conclude that dividend taxes are not an important criterion for investors to effect instantaneous stock price reactions.

Price Isn’t Everything: Behavioral Response around Changes in Sin Taxes

Taxes change behavior. But how does this change arise? In traditional economic models, change is achieved through the price channel: assuming all else is held constant, taxes increase prices and thus decrease demand. However, the assumption that all else is held constant may be violated in the course of a legal change, in part because the process by which laws are changed often involves the provision of information, attempts at persuasion, and the deployment of alternative dissuasive tools. We examine violations of this assumption in a particular policy domain: discouraging smoking with cigarette taxes. We document a marked increase in related media coverage, lobbying efforts, place-based smoking restrictions, and anti-smoking appropriations in the time period surrounding a tax law change. The intensity of these factors is directly associated with decreases in cigarette consumption in a manner that could be confused with price effects. Our results suggest that price effects may have a surprisingly small role in the behavioral response that occurs around tax law changes.

Taxing Billionaires: Estate Taxes and the Geographical Location of the Ultra-Wealthy

We study the effect of state-level estate taxes on the geographical location of the Forbes 400 richest Americans and its implications for tax policy. We use a change in federal tax law to identify the tax sensitivity of the ultra-wealthy?s locational choices. Before 2001, some states had an estate tax and others didn?t, but the tax liability for the ultra-wealthy was independent of their domicile state due to a federal credit. In 2001, the credit was phased out and the estate tax liability for the ultra-wealthy suddenly became highly dependent on domicile state. We find the number of Forbes 400 individuals in estate tax states fell by 35% after 2001 compared to non-estate tax states. We also find that billionaires? sensitivity to the estate tax increases significantly with age. Overall, billionaires? geographical location appears to be highly sensitive to state estate taxes. We then estimate the effect of billionaire deaths on state tax revenues. We find a sharp increase in tax revenues in the three years after a Forbes billionaire death, totaling $165 million for the average billionaire. In the last part of the paper, we study the implications of our findings for state tax policy. We estimate the revenue costs and benefits for each state of having an estate tax. The benefit is the one-time tax revenue gain when a wealthy resident dies, while the cost is the foregone income tax revenues over the remaining lifetime of those who relocate. Surprisingly, despite the high estimated tax mobility, we find that the benefit exceeds the cost for the vast majority of states.

FINANCIAL EQUALIZATION IN THE CONTEXT OF DECENTRALIZATION REFORM OF POWER: PROBLEMS AND PERSPECTIVES

Introduction. With the conduction of the reform of decentralization of power in Ukraine in the model of financial equalization, the emphasis is placed on aligning budgets on incomes with the use of separate equalization tools by expenditures. The introduction of the new alignment system involves a number of problems. Purpose. Solving the problems of financial equalization in Ukraine in the conditions of modern reforms and finding the ways of its improvement. Results. The investigation of features and instruments of financial equalization in the context of conducting modern reforms in Ukraine has made it possible to identify issues that do not contribute to the reduction of vertical and horizontal budget imbalances, but also increase them. The main problems of financial equalization of local budgets are allocated, namely: inconsistency of incomes with expenditure powers of local budgets; instability of local budget revenues over time due to frequent changes in tax and budget laws of the state; violation of the transparency of transfer of transfers; a lack of clear separation of expenditure powers between the levels of government and others. The modernization of the modern equalization system should be aimed at creating equal financial opportunities for the sustainable development of individual territories and the country as a whole, providing macroeconomic stability and economic growth, promoting the improvement of quality of public services and their compliance with the developed state standards. Conclusions. There are proposed the directions of perfection of the modern system of financial equalization in the part of changes in the procedure for enrollment of personal income tax to local budgets by the place of residence of the person, and not by the place of employment; changes in the approaches of calculating the index of tax capacity; a reasoning of the necessity of development and approval of new state service standards for the social sectors.

Wealthy donors have high expectations, looking for impact from groups they support

The 2018 U.S. Trust Study of High Net Worth Philanthropy, published in partnership with the Indiana University Lilly Family School of Philanthropy, shows that charitable giving continues to be important to wealthy Americans, with most increasing their giving even in light of changes in tax laws that have diminished some of the financial benefits of personal philanthropy.

Stability of taxation should become the key principle of taxation policies

Systemic shortcomings that impede the observance of the principle of stability of taxation are considered in the article. Examples of violation of the principle of stability when making changes in tax laws are given. There is a negative tradition of adopting changes to the tax laws together with the state budget for the relevant year in Ukraine. Recently, it is usually not done in the Law on the State Budget, but it is done in a separate law, which is usually adopted in a package with the Law on the State Budget.Compliance with the principle of stability in tax law and taxation policies should be ensured in the light of the following. There is need of demonstration of compliance by the legislative and executive authorities with the principle of the rule of law. Due to the physical impossibility of taxpayers to get acquainted with changes in tax laws in very short time, due to traditionally large volume of these laws, such situations violate the constitutional right of individuals to know their rights and obligations. In order to ensure the highest quality of the texts of laws, it is expedient to accept taxation bills without any deviations from the generally accepted procedure, without recognizing them as urgent and without including them in various types of "packages", when members of the parliament are not able to read in detail and propose and consider amendments to the bill.There is the need to apply organizational and technical measures of taxing certain taxes (for example, setting up and reconfiguring cash registries, computer programs for automating accounting and reporting, updating blanks, etc.). So, in case of significant changes in the tax mechanism, it takes a certain amount of time to adjust this measures.In order to respect the principle of stability, the tax policy should be based on the following approaches. Subjects of the legislative initiative have no right to draft and submit to the Parliament bills envisaging amendments to the Tax Code with their entry into force contrary to the principle of stability established by the Tax Code (without observing the minimum 6-month transition period). Parliament should not adopt such bills, in case of their receipt. In case if such a bill should be adopted, it should be amended in order to enter into force the next year after the planned fiscal year. In case of adoption of such amendments by the parliament, the controlling bodies should consider the relevant changes to be effective only from the next fiscal year. In the event of a dispute regarding the entry into force of the tax law changes, the dispute must be resolved in favor of the taxpayer via the maximum favorable for the taxpayer tax regime.The author proposes to include the principle of stability of taxation to the rules of the Constitution of Ukraine.

Profit Shifting Before and After the Tax Cuts and Jobs Act

In recent years, profit shifting by multinational companies has generated substantial revenue costs to the U.S. government. The Tax Cuts and Jobs Act (TCJA) changed the climate for profit shifting in several important ways: the lower U.S. corporate rate should lower the incentive to shift profits away from the United States, while “territorial” tax treatment (of some income) and the removal of tax upon repatriation should raise the incentive to shift profits abroad. In addition, two novel base protection measures, the GILTI and the BEAT, aim to reduce profit shifting. This paper discusses tax law changes under the TCJA, considering the nature of their effects on profit shifting. The paper also evaluates the effects of the global minimum tax (GILTI) on the location of taxable profits. Once adjustment to the legislation is complete, estimates suggest that the GILTI should reduce the corporate profits of U.S. multinational affiliates in haven countries by about 12 to 16 percent, modestly increasing the tax base in both the United States and in higher-tax foreign countries. Of note, a per-country minimum tax would generate much larger increases in the U.S. tax base; a per-country tax at the same rate reduces haven profits by 23 to 31 percent, resulting in larger gains in US revenue.

Interpretative complexity and tax law changes: the taxation of corporate expenses in Portugal

PurposeAutonomous taxation of expenses (ATE) is a special and contentious feature of corporate income taxation in Portugal. By taxing of an expanding set of corporate expenses, it has caused many conflicts between the Portuguese tax authority and corporate taxpayers. Many of these conflicts emerged from the legal interpretation of ATE’s clauses, while others derived from frequent, and difficult to apply, legislative changes. The purpose of this paper is to focus on the following research question: does the recent evolution of the rules on ATE show an efficient process of making and interpreting tax law in Portugal? The authors intend to analyze the process of making and changing ATE’s rules, as well as to study how interpretative complexity increases conflicts between tax authorities (TA) and taxpayers.Design/methodology/approachThe methodology used is a mix of the legal research method, namely, doctrinal methodology, with an analysis of jurisprudential and arbitration trends in litigation rulings, blended with the case study analysis of ATE in Portugal. Arbitration rulings will have a particular relevance to the analysis.FindingsThe main conclusion is that, urged by the need of revenues, and sensitive to the TA’ argument of ATE’s loopholes, the government hastened to close them. However, given the procedure adopted, new legal questions aroused, creating additional layers of complexity for companies, courts and tax auditors. Constitutional issues were highlighted by companies based on the prohibition of retroactive application of tax laws.Research limitations/implicationsThe paper has a conceptual nature and its conclusions cannot be automatically extended to other tax controversies or processes of amending tax laws. However, for the legal and accounting professions it offers valuable lessons in law interpretation and political lobbying to change tax laws. Also, in the international tax scene, some countries also introduced ATE, with potential for similar problems.Practical implicationsRegarding ATE’s streamlining, the process recently observed in Portugal was not, in authors’ view, managed in the best way, leaving a significant number of difficulties to be solved by courts. The change in ATE’s legal framework could have been more carefully managed, avoiding costly and time consuming disputes, in order to minimize compliance costs.Originality/valueThe paper contributes to the literature because this Portuguese experience, while highlighting the difficulties in making tax law, can be seen as a lesson on how to improve these processes, avoiding time and costs for business, TA and courts. Moreover, arbitration is a way of solving tax disputes that has been gaining ground in Portugal. In this respect, the paper also contributes to a better perception of the tax arbitration scenario in anEuropean Union country. It is also important for the accounting profession, whose members have often to deal with tax topics and the interpretative complexities they originate.

Tax Reform Made Me Do It!

This paper examines corporations’ actions, and statements about actions, following the tax law change known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine four different outcomes — bonuses (or other actions that benefit workers), announcements of new investments, share repurchases, and dividend announcements. We find that 4% of public firms in our sample announced in Q1 2018 they would pay some portion of their tax savings toward workers. In terms of investment, we find that 22% of the S&P 500 firms in our sample mentioned in earnings conference calls that they would increase investment because of the TCJA. We find a general increase in share repurchases following the passage of the TCJA, but the increase is extremely concentrated in a small number of firms. We find only nine firms that announced a new share repurchase plan explicitly attributed the new plan to the TCJA. In regression analysis, we find that both political and economic variables explain TCJA-linked announcements. The analysis suggests that firms with greater expected tax savings from the TCJA are those most likely to announce payments to workers and plans to increase investment. Firms with a Political Action Committee that donates more to Republican candidates are also more likely to announce benefits to employees.

Incentive Elements of Household Savings in the Hungarian Tax System

<p><em>Of the regulatory systems, the tax system is one of the most important instruments for the government to encourage savings. Although tax systems are relatively stable, in fact, they are constantly changing. Taxes and their rates, as well as changes in other factors, serve to implement different tax policies. The primary purpose of the tax system is to redistribute income and enforce fairness to achieve effective results. Changes in tax laws can influence long-term savings decisions either positively or negatively. </em></p><p><em>I analized the </em><em>incentive elements of household savings in the Hungarian tax system which </em><em>applicable today and </em><em>the discounts that could be used in the past. I collected other discounts which has contact with tax system and helps long term savings. </em></p><p><em>The Hungarian state offers three possibilities of self-help for pension purposes in the personal income tax system, which are voluntary pension fund, retirement savings account and pension insurance. I compared these possibilities and analized by different point of views. Furthermore, they support health insurance and mutual funds, from 2014 onwards the government merged the discounts. In my opinion, governments play an important role in creating economic prosperity in countries.</em></p>

Taxation, corporate governance and dividend policy in Brazil

Purpose This study aims to analyze the influence of taxes and corporate governance on the dividend policy of Brazilian companies. Design/methodology/approach The authors identify the changes of the tax legislation in Brazil in the period 1986-2011 and check their effect on corporate dividend policies for preferred and common shares. The authors use panel data Probit and Tobit estimation to verify the probability of companies to pay dividends under different tax regimes. The final sample comprises 672 companies, 1,159 traded stocks and 30,134 observations Findings The authors’ results suggest that changes in the tax legislation have a significant influence on dividend payments. Also, firms do not follow target payout ratios, but dividends are moderately dependent on past payments. Dividend payouts are affected by stock voting rights, privatization and dividend deductibility. Changes in regulation that reduce the agency problems among shareholders affect positively payout ratios. Practical implications For managers, maximizing shareholders’ value requires taking into account the consequences of the taxation when designing financial policies for the firm. For investors, stock portfolio selection should take into account payout behavior and how changes in dividend taxation affect stocks’ value. For policymakers, the effects of changes in the tax code on corporate behavior are of utmost importance to stimulate private investment and economic growth. Originality/value There are several tax law changes in Brazil within the period analyzed, creating a good opportunity to study the effect of taxation on dividend policy and its dynamics over time.

Interactive Teaching of Risk Management in the Russian Construction Industry

As one of the strategic sectors of the Russian economy, the construction industry plays a special role in the economy of the state. The industry is sensitive to a variety of systemic and project-based risks. The construction industry as a whole bears the risk of painful responses to global or local economic conditions such as inflation, constriction of capital, financial system collapse, changes in tax law, etc. Construction managers and engineers can benefit from familiarity with globally tested methodologies of enterprise risk management (ERM) so they can apply these principles and techniques to the companies and projects they manage, as well as contribute to the health of the construction sector and the economy. Research and practice in industries and professions across many developed economies have demonstrated the enhanced effectiveness of experiential, interactive teaching techniques generally, and specifically in the development of risk management insights and skills. This paper will (i) review ERM as a recognized discipline, describing techniques for identifying and quantifying the impact of various categories of risk; (ii) show that ERM is a critical skillset in the Russian construction industry; and (iii) provide illustrations of and theoretical support for various interactive teaching techniques which enhance the development of insights and skills in risk managers and industry leaders. These interactive pedagogical techniques can be effective in either academic settings or within professional training programs.

Ensuring Compensation Committees Understand the Impact of the Excise Tax on Provider and Executive Compensation

The tax law changes that Congress enacted and the President signed into law in late December 2017 included a new employer-paid excise tax that applies to annual compensation above $1 million provided to certain of the highest paid employees of most tax-exempt organizations. The excise tax may also apply to severance paid to a broader group of employees. The law requires these organizations—and as a result, their boards or compensation committees—to understand the basics of the law as well as the process by which executives and employees are identified and their compensation and severance is reviewed. This article discusses the key concepts of the excise tax and helps guide committees on the steps in the process that committees should take, so that they are in a position to understand if—and when—the excise tax could apply.