Tax Optimization Research Articles

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.

Tax Evasion Between Tax Optimization at the Border of Legality, Tax Burden and Voluntary Compliance

Abstract Tax evasion operates beyond the boundaries of the jurisdictions, it develops across borders, and the extent of tax fraud as a phenomenon is differentiated according to the aspects and the rigours of legislation, as well as according to the economic environment of each country in part. Regardless of the level of development of the country in which it manifests, the effects of the fiscal fraud are destructive, affecting both the state budget, as well as the financial resources of the offenders’ commercial partners. The fiscal fraud has negative effects over the economic market, and one of the consequences is the social inequality from the perspective of the abuse and the predisposition of certain taxable subjects to fraud. Certainly, the phenomenon remains unraveled, the financial schemes being extremely complex, and the fraud mechanisms are some of the most laborious ones and in a permanent improvement, while the evaders keep finding new means by way of which they illegally attract financial resources. The fight against tax evaders is a difficult one, mainly because of the sometimes “deliberate” legislative “loopholes”, but also because of their ingenuity, which is often “one step” ahead of those who fight against tax evasion.

Analysis of the Modernization of the Tax Administration System in the Context of Optimizing Advertisement Taxes in the District Tax Collection Service Unit. Gambir 2021-2022

In the optimization of advertising tax, there still a lack of awareness among the public of taxpayers regarding the advertising tax, and some advertising tax participants either evade or delay their payment obligations. The development of a modernized administration system aims to establish an efficient bureaucracy, particularly to enhance tax revenue. The objective of this research is to examine the modernization of the tax administration system to optimize advertising tax in the tax collection service unit of Gambir Sub-District in 2021-2022. The author applies Diana. Sari’s theory of tax administration modernization, as discussed by Imam Juhadi, and incorporates Person Horoda’s theory of advertising tax optimization. This study adopts a descriptive qualitative research approach. In 2021, the revenue from advertising tax in the tax collection service unit of Gambir Sub-district reached a percentage of 72.71%, while in 2022, it reached 68.89% of its target. It can be noted that in 2022, there was a significant deviation from the predetermined target due to various reasons. Several challenges were encountered by both a officials and taxpayers in fulfilling their obligations.

Tax Optimization Through Transfer Pricing, Common & Manipulative Practices

When an associate enterprises transfer goods, intangible property then the prices at which the transfer takes place would be deemed as transfer price. The same has been defined as the Practice which is paid during a business transaction, which could be tangible property, goods or services between companies under which the price of the same can be controlled. The paper dwells into the ways through which multinational corporations use transfer pricing method to optimise their profits and at the same time use manipulative ways to evade tax.

Unraveling transfer pricing in construction sectors: Tax optimization, compliance, and environmental risk

This study highlights the consequence of tax optimization, regulatory compliance, and environmental risk index on the likelihood of transfer pricing in Indonesia's property, real estate, and building construction sectors. This study adopts a quantitative research approach, analyzing data from 19 companies in the property, real estate, and building construction sectors listed on the Indonesia Stock Exchange (IDX) between 2018 and 2021 (76 observations). This study contributes novelty by employing binary logistic regression to investigate the interaction of tax optimization, regulatory compliance, and environmental risk index on transfer pricing in Indonesia's property, real estate, and building construction sectors, providing valuable insights into the determinants of transfer pricing practices in these industries. The research employs multiple linear and binary logistic regression to examine the influence of tax optimization, regulatory compliance, and environmental risk index on transfer pricing likelihood. - Tax optimization and regulatory compliance significantly impact the likelihood of Transfer Pricing in the property, real estate, and building construction sectors in Indonesia. However, the interaction between tax optimization and the environmental risk index does not significantly influence transfer pricing likelihood. In contrast, the interaction between regulatory compliance and the environmental risk index does have a significant positive effect. The implications are that tax optimization may subtly influence transfer pricing in the studied sectors. Maintaining regulatory compliance appears to act as a deterrent, and a favorable environmental risk index may encourage transfer pricing practices in Indonesia's property, real estate, and building construction industries.

Effective means of legal regulation of foreign trade

The article proposes means of state-legal regulation of foreign trade, in particular legal, economic (in particular tax), political, financial and administrative instruments. The main shortcomings of the legislation are analyzed, which make it possible to effectively optimize taxation, carry out illegal export of capital and demand compensation from the budget. In order to avoid erosion of the tax base and profit shifting, a single object of taxation is proposed – value added, which is determined by the sum of factor incomes of the payers: wages fund and profit. Substantiated formation principle of the fair market value (price), which is equal to the sum of added value, VAT, charged on it, depreciation of means of production and costs, determined by the fair market value of goods/services, used in production. The established correspondence between the fair market price and the added value allows you to accurately determine the size of the tax base (VAT, personal income tax, profit tax and social contributions) and excludes any known methods of tax optimization. The amount of taxes paid determines the monetary equivalent of the added value and the increase in the sales price at each stage of production and distribution, which excludes the possibility of artificially reducing the tax base and/or transferring profits to jurisdictions with low taxes. The introduction of added value and its components as a single base of basic taxes and fees excludes weak capitalization and any other deductions from the tax base. The proposed definition of a single tax base significantly simplifies the administration of basic taxes and contributions and exhausts measures for the implementation of paragraphs 3, 4 and 5 of the BEPS plan.

TAX AUDIT TO ENSURE BUSINESS PROSPERITY: TRENDS AND PERSPECTIVES

The study identifies key trends impacting the business services industry in 2023, including the strong post-pandemic recovery of demand, increased demand for recruitment services, and increased funding for R&D. The research highlights the growing importance of tax audit in the business development process, as evidenced by the increasing share of advisory audit services and tax consulting in the global market. The study presents the global tax audit turnover, indicating its growth and popularity in the business services industry. The research examines the fastest-growing business services markets, with China being the fastest-growing market in terms of absolute and CAGR growth. The study discusses the dominance of accounting and audit companies in the top 10 list of leading companies in the business services industry, emphasizing the significance of audit, tax, and advisory services. The research emphasizes the need for tax audit services in the current business environment, where constant changes and increasing information turnover make it challenging for businesses to adapt. The research highlights the importance of tax audit in financial control for business owners and international companies operating in Ukraine, as well as its role in tax optimization and planning. The study identifies business trends that require auditors to be prepared to provide tax audit and tax optimization services, including the adoption of automation and artificial intelligence, personalized offers, and the adoption of value-based business models. The scientific novelty of the study lies in its comprehensive analysis of the current state and future trends in the business services industry, with a specific focus on tax audits. The study provides insights into the growing demand for tax audit services, the challenges and opportunities in the industry, and the potential for tax optimization and planning. It contributes to the existing literature by highlighting the significance of tax audits in ensuring business prosperity and offering recommendations for improving the organizational and methodological aspects of tax audits in the business services sector.

Персональний податковий менеджмент: теоретичні аспекти та практична реалізація

Abstract. Introduction. In modern economic literature, tax management is considered at three levels: macro-, microand sub-micro levels. Each of the levels has its subjects, object of management, structure, purpose, methods, tasks and tools. State and corporate tax management are actively researched by domestic scientists, while personal tax management is practically unresearched and needs a more thorough study of theoretical and practical aspects. Purpose. The purpose of this study is to determine the theoretical aspects of personal tax management and to study its practical implementation in our country. Results. The authors gave and analyzed the definitions of domestic scientists and proposed a number of clarifications. In particular, consider personal tax management not from the perspective of an individual citizen, but from the perspective of a household. Also, it is proposed to consider as an object not the management of personal income, but the management of the tax burden, which is calculated as the ratio of the amount of taxes paid to the amount of income. Based on the analysis of the definitions of domestic scientists, an own definition was proposed. In addition, a description of the main elements of the personal tax management system was given. Subjects, object, purpose, methods and tools, stages and blocks of personal tax management are defined. The main reasons for insufficient theoretical justification and practical application of personal tax management in Ukraine are described. Conclusions. As a result of the study, the authors came to the conclusion that personal tax management is an integral part of the financial literacy of the population and consists in the application of tax planning and tax optimization methods. The goal of personal tax management is to reduce the tax burden on the household and maximize their net income. Regarding the prospects for the development of personal tax management in Ukraine, taking into account the extremely unfavorable demographic situation, which has worsened even more due to the war and the crisis of the solidarity pension insurance system, it is extremely necessary at the state level to introduce various mechanisms for increasing the level of financial literacy of the population. The state should encourage households (including through tax instruments) to plan their future incomes, retirement by participating in non-state pension and health insurance, as well as effectively manage savings by using financial market instruments.

Productivity slowdown and tax havens: Where is measured value creation?

Based on French firm-level data, we evaluate the contribution of the micro-level profit-shifting –through tax haven foreign direct investments– to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the years following the establishment in a tax haven, with an average estimated drop by 3.5% in apparent labor productivity. To isolate the contribution of multinational enterprises' (MNEs) tax optimization to the decline in productivity, we then exploit the 2006 Cadbury-Schweppes decision of the European Court of Justice limiting the extent to which member States can counter European MNEs' tax planning strategies. We find that multinational groups benefiting from that loosening of the legal constraints do exhibit a lower labor productivity following that ruling. Finally, given these firms' weight, our results imply an annual loss of 5.7% in terms of the aggregate annual labor productivity growth.

Economic Justification of tax Planning

The application of tax planning by an economic entity will make it possible to release part of the funds from financial (including tax) liabilities and effectively use them in the reproduction process for modernization, reconstruction, improvement of technical conditions for the production of goods, works and services. Every structure of a successful business strives for profitable production, therefore tax optimization, methods and schemes of its application are topical issues. In the context of an annual increase in the tax burden, optimization for entrepreneurial activity is interesting not only for the existing companies, but also for novice businessmen and start-ups. The purpose of the study is to substantiate and develop practical recommendations for the implementation of tax planning. To achieve it, the following tasks and objectives were set: to study and generalize the views of Russian scientists in modern economic conditions; to develop approaches to improving the mechanism of tax optimization in order to perform the functions assigned to it, and above all, to influence the financial conditions of an economic entity through the possibility of tax optimization provided by legislation. In the course of the work, the following methods of classification were used: abstract-logical, monographic, analytical, logical approach, comparison and generalization, etc. The methodological and theoretical basis for the study was the works of representatives of Russian science, regulatory and legislative acts of the Russian Federation regulating the functioning of the tax system; official publications, as well as materials of scientific and practical conferences. The obtained results contribute to the identification of ways to improve the mechanism of tax planning by business entities.

Legal characteristics of aggressive tax planning

The article studies the problems of legal characteristics of tax planning. It is emphasized that there is no single approach to determining the balance of private and public interests in the field of taxation. This especially concerns situations where taxpayers try to optimize tax payments in a way that does not involve a direct violation of the law, but has signs of abuse of the right, which is characteristic of an aggressive tax planning. It is argued that the solution to this problem is important, since abuse of rights by taxpayers, using the imperfections of legislation, manipulation of differences in tax regulations of different states, as well as active use of low-tax jurisdictions in business schemes leads to huge losses in the budgets of many countries. It is pointed out that aggressive tax planning is not direct violation of the law, otherwise such actions would be qualified as tax offense. The positions of scientists regarding the definition of such a category as “aggressive tax planning” are presented in the article, as well as the author's position on this issue is highlighted. It is noted that the widest toolkit of tax optimization can be used in the implementation of international tax planning. In the past, one of the main, most common and effective methods of aggressive tax planning was the use of low-tax jurisdictions. However, the influence of this factor has been efficiently reduced by modern trends to counteract this phenomenon, in particular, the widespread introduction of anti-BEPS measures and automatic exchange of tax information. Other common tools of aggressive tax planning are listed, including transfer pricing. The negative consequences of aggressive tax planning for the state are described, related to the reduction of tax revenues to the budget, as well as the creation of an anti-competitive environment due to receiving unfair tax advantages. The main methods of combating aggressive tax planning both at the international and domestic level are disclosed. The main signs of aggressive tax planning are identified and the conclusion is drawn that in each specific case, the behavior of the taxpayer, which has signs of aggressive tax planning, should be evaluated for the presence of abuse of the law, which will allow the application of appropriate legal consequences for the purpose of protecting state and public interests.

Optimization of district heating system considering carbon taxes and subsidies based on energy policy stage goals

Climate change is one of the main issues that humanity will face in the upcoming decades. Low-carbon district heating is an important alternative for decarbonizing the heating sector against unsustainable higher carbon emission heating methods. Most available studies have concentrated on fixed or predetermined policies instead of attempting a numerical optimization of carbon taxes and subsidies in district heating. This study proposes the optimization of a district heating system in Northeast China considering carbon taxes and subsidies based on energy policy stage goals. Research shows that carbon taxes and subsidies have a certain impact on the change in district heating sources. With the increase in carbon taxes, heating from non-fossil energy sources is increasing, an area that can also be promoted with subsidies for non-fossil energy. Considering the total cost of heating enterprises, it is appropriate to set the carbon tax for district heating at $86. Similarly, considering government expenditure, it is suggested that construction subsidies be set at 10.5$/m2, 3.5$/m2, and36.5 $/m2 for air source heat pumps, biomass boilers, and ground source heat pumps. In addition, the obtained results can be used as guidelines for the heating industry to design more efficient district heating and focus research and development efforts on the most promising non-fossil energy heating technologies.

МОДЕЛЬ ОПТИМІЗАЦІЇ ПОДАТКОВОГО НАВАНТАЖЕННЯ НА СІЛЬСЬКОГОСПОДАРСЬКІ ПІДПРИЄМСТВА У КОНТЕКСТІ СТАЛОГО РОЗВИТКУ

The aim of the article is to develop an applied methodology for identifying promising areas of agricultural development in Ukraine, which is based on the optimization of the tax burden on the industry through the use of production and institutional function. The theoretical and methodological basis of the study is the concept of Laffer curve and methods of scientific knowledge (econometric methods of studying the impact of taxes on the economy, regression analysis). The study uses a methodological approach that allows to optimize the tax burden on agriculture, which increases the industry’s output at a significantly lower level of the tax burden. With the help of econometric modeling, the optimal values of the tax burden have been calculated; the main patterns of the impact of the tax burden on the economic growth of agricultural production have been determined. The modern development of agriculture within the framework of the concept of sustainable development should be aimed at achieving food security and slowing down global warming. In order to obtain opportunities for the real implementation of the declared sustainable development goals in practice, economic entities in the country’s agricultural sector must function effectively according to the criteria of socio-economic, environmental and financial efficiency. One of the most effective levers for achieving such components of efficiency in the current conditions of the development of agriculture in Ukraine is the optimization of the tax burden. It has been established that the indicators of the tax burden have a significant impact on the development trajectory of the industry and form opportunities for increasing the level of social protection of the population. To identify and model the impact of the tax burden on the development of agriculture and the possibility of achieving signs of sustainable development, it is proposed to use a four-factor production-institutional function. As econometric parameters of the functioning of the economic and production system of the agrarian sector, the level of wages, the volume of capital investments, land area, and taxes are chosen. The econometric parameters demonstrated by the elasticity coefficients of the selected factors made it possible to calculate the Laffer points of the first and second order, on the basis of which the level of the tax burden is justified, which contributes to the growth of agricultural production in the context of tax optimization. pressure on the industry. Further research should be aimed at developing a strategy for the development of agriculture in Ukraine

Perspectives on Tax Optimization: Opportunities and Challenges

Perspectives on Tax Optimization: Opportunities and Challenges

Methodology for assessing the effectiveness of the tax base among redistribution the largest taxpayers

Purpose: the article is aimed at presenting the author’s methodology for evaluating the efficiency of redistribution of the tax base within the consolidated group of taxpayers (hereinafter REAG) the construction of which is based on the determination of relationships and assessment of the degree for influence of tax deductions on the operating profit of the enterprise.Methods: in the part of the study of the tax base and REAG contributions, methods of applying statistical analysis were used, including the study of the structure and dynamics of tax payments of the enterprise. As part of the construction of the model, this article provides the correlation and regression analysis, providing for several stages related to the application of the specific tax regime of REAG as the significant factor of influence on the process of distribution of the taxable base of the organization. The data of public joint-stock company «Oil company «ROSNEFT» were used to assess the influence on the operating profit of the enterprise of the taxes paid. The graphical analysis was used to visualize the data.Results: in the course of the study, the degree of influence of the volume for sales of products, selling prices, decrease of the cost and changes in the sales structure on the volume of tax payments of the enterprise was assessed. These factors determine the effectiveness of the REAG’s tax regime, as they represent the company’s profit and therefore affect the amount of income tax. This dependence is reflected in the developed econometric model, which determines the share of each factor in the total income tax of the enterprise, which allows to optimize the tax base of the organization in the future.Conclusions and Relevance: the analysis revealed the need to improve the efficiency of income tax payment. In response, the methodology for improving the tax regime is proposed. Tax optimization measures include two directions: the process of redistribution of the tax base and the extension of the term for performance of tax obligations within the combined group (from earlier to later). These measures will reduce the risks of taxpayers.

International Tax Competitiveness: Between TAX Optimization and Tax Fairness

Goal – this work aims to examine tax competition between countries and the balance between tax optimization and tax fairness. The study focuses on the impact of tax competition on the allocation of foreign investment, capital mobility and the competitive advantage of the economy in the international arena, as well as on the analysis of entrepreneurs’ motivation for tax optimization and its effects on public revenues and tax fairness. Research methodology – the research methodology works on a review of the scientific literature on tax competition, tax and tax optimization. These criteria are analysed on the basis of the analysis of determinants of tax competitiveness and the interaction between tax policy and the economic sphere. Score/results – the results of the analysis of the literature synthesis confirm that the increase in tax competition between countries leads to the transfer of investment allocations and, in the end, contributes to the growth of the competitive advantage of the economy on the international arena. Entrepreneurs seeking tax optimization choose a jurisdiction with the effectiveness of tax applications, and the application has an impact on public revenues and on achieving tax justice. Originality/value – the added value of this work is a new perspective on tax competitiveness and the related issues of tax optimization and tax fairness. The work also includes recommendations for policy makers, businesses and society.

Productivity Slowdown, Tax Havens and MNEs’ Intangibles: Where is Measured Value Creation?

Based on French firm-level data over 15 years we evaluate the contribution of the microlevel profit shifting –through tax haven foreign direct investments to the aggregate productivity slowdown measured in France. We show that firm measured productivity in France declines over the immediate years following the establishment in a tax haven, with an average estimated drop by 3.5% in labor apparent productivity. We argue that this productivity decline, following a presence in a tax haven, is most likely explained by multinationals’ tax optimization, where domestic productivity is underestimated as profits are not recorded anymore in the home country. The fall in productivity is especially strong for firms that are intensive in intangible capital and is equivalent to 4.1% (versus 2.7% for low intangible intensive firms), reflecting the fact that these types of assets are more easily shifted across countries and facilitate tax planning. Our results additionally suggest that the mismeasurement has strong dynamic effects, as the decline becomes more important the longer the firm remains in a tax haven.Finally, given these firms’ weight in the economy, our results imply an 8% loss at the aggregate in terms of the level of the labor productivity throughout the whole sample period, which is equivalent to an annual loss of 9.7% in terms of the aggregate annual labor productivity growth.

Can Firm Size Moderate a Company's Tax Avoidance in Retail Trading?

Today, tax optimisation is part of the management practices of many corporations and is intended to leave more funds at the disposal of businesses that should rightfully be transferred to the government. Managers adopt tax avoidance tactics to boost post-tax profits to meet the shareholders' expectations. This study aims to assess the impact of profitability, leverage, and liquidity on tax evasion by companies in Indonesia's retail trading. Firm size is chosen as a moderating variable used to examine the effect of company resources on enhancing tax evasion measures. 21 retail trade companies served as the samples. 105 observational data points were collected over the research period from 2017 to 2021. This study utilised secondary data from the audited financial reports of all retail trading companies. The data analysis method uses Structural Equation Modeling (SEM) with a Partial Least Square (PLS) approach. The analysis showed that profitability, leverage and firm size have no significant effect on tax avoidance of retail trading companies listed on the IDX from 2017 to 2021. Firm size cannot moderate the impact of profitability and leverage on tax avoidance. Meanwhile, liquidity has a significant effect on tax avoidance. In addition, firm size can moderate the impact of liquidity on tax avoidance. Companies' efforts to avoid taxes may have a detrimental impact on their reputation. Based on this provision, companies should look for other ways to improve their financial situation without ceasing to pay taxes in full. Investors should consider the dangers and probable repercussions of tax-dodging strategies in highly liquid corporations. High-risk tax avoidance techniques may draw the attention of tax authorities and result in penalties or reputational harm. Investors should consider this risk before investing.

Tax optimization with a terminal value for the Lévy risk processes

In this paper, the surplus process (before taxes are deducted) for an insurance company evolves as a spectrally negative Lévy process with the usual exclusion of negative subordinator or deterministic drift. Tax payments are collected according to the very general loss-carry-forward tax system introduced in [20]. We consider an optimal tax problem taking into account both the expected discounted tax payments and the time value of ruin. The optimal tax value function and the optimal tax strategy are derived, some numerical examples are also provided.

Analysis of the Functioning of the Automatic Exchange of Information about Financial Accounts after Implementation of the Common Reporting Standard

The adoption of the Common Reporting Standard (CRS) by the OECD in 2014 raised many concerns. Banks were particularly obliged to implement many changes in order to properly collect and aggregate data on tax residence of their clients and correctly report them to the tax administration authorities. The aim of this article was to assess the functioning of the CRS, taking into account the benefits of implemented changes and critical voices regarding the functioning of the standard. The efficiency of the solution based on OECD data and a critical analysis of some aspects of the CRS were presented. The adopted research method was based on verification of official OECD documents and comparative analysis of data presented by the organization with the research conducted by scientific institutions and other private and public entities. According to the results of the research, the automatic exchange of financial information is not functioning optimally, and reforms need to be carried out. The additional revenues generated by the CRS are relatively low compared to the tax losses still generated by tax optimization.