Tax Rules Research Articles

Evaluating the Subject to Tax Rule in Nigeria: Implications, Challenges and Strategic Considerations Amid Global Tax Reforms

The OECD’s two-pillar solution addresses the tax challenges of digitalization, with the Subject to Tax Rule (STTR) and GloBE Rules ensuring minimum taxation. This article explores the application of the STTR in Nigeria, assessing its potential for generating revenue while considering the high costs of implementation and the country’s strategic alternatives.

"Tax optimization" and its difference from "tax planning"

The article clarifies the content and relationship between the concepts of «tax optimization» and «tax planning». The criteria for distinguishing these concepts are determined. It is established that tax planning is a multi­stage process which includes both strategic forecasting and careful organization of tax liabilities at each level of business. The main goal of this process is to be able to shape the structure and form of the business in such a way that they are optimal from the taxation point of view. Tax planning primarily determines the choice of a business entity’s strategy. Tax planning is defined as an important element of a company’s strategic management aimed at long-term and comprehensive management of tax liabilities. Tax optimization is an important process aimed at adapting the taxpayer to the peculiarities of the current tax system in order to choose the most profitable and efficient taxation regime. This process is not limited to the passive application of tax rules, but involves the active management of tax liabilities within the limits of legally permissible techniques, means and methods. Tax optimization is not only the ability to choose the most favorable conditions from those offered by the legislator, but also the ability to predict and adapt to changes that may affect the tax burden in the future. Tax optimization as a legal tool for reducing the total tax burden is considered exclusively within the framework of legal actions of the taxpayer. A distinctive feature of tax optimization as compared to tax planning is its focus on achieving short- and medium-term goals of a business entity by directly using the opportunities provided by tax legislation. Tax planning, on the other hand, is an element of strategic management aimed at achieving the long-term strategic goals of a business entity. Tax optimization is aimed at developing the most favorable model for fulfilling tax obligations by a business entity without changing the economic substance of business transactions. This approach allows the taxpayer to flexibly adapt to changes in the tax environment, while maintaining the sustainability of financial results and reducing tax costs. Tax optimization is not just a tool for reducing the tax burden, but also an important element of tax planning.

Lost jobs, new jobs and optimal tax-transfer reforms

AbstractAutomation and globalisation imply deep changes in the labour market. An important policy issue is whether and how the tax-transfer rules should be reformed to help coping with those changes. While the prevailing response has consisted of more sophisticated designs of mean-testing and targeting, we also witness an increasing interest in policies inspired by simplicity. Using a combination of behavioural microsimulation and numerical optimization, we look for a (social welfare) optimal tax-transfer rule within a flexible class where total household disposable income is a 4th-degree polynomial in total household taxable income plus a constant. We use a model of household labour supply that makes it possible to account for equilibrium constraints and evaluate the effects of changes of the labour demand scenario. Beside the (observed) Status quo scenario, we consider two alternative stylized cases: the “Jobless” scenario and the “Polarised” scenario. We simulate and compare the social welfare attained by the current tax-transfer rules under the three scenarios and the social welfare attained by the different polynomial optimal tax-transfer rules identified in each scenario. We present results using the 2015 EU-SILC data sets for France, Germany, Italy and Luxembourg. The polynomial optimal rules are social welfare superior to the current ones in all the countries and under all the scenarios and—with the exception of Luxembourg—are close to a Universal Basic Income (or a Negative Income Tax) plus a not-too progressive tax rule (close to a Flat Tax).

EU State aid and the tax allocation of multinationals’ profits

This contribution examines the impact of the EU prohibition of State aid over the tax allocation of multinationals’ profits. All EU Member States apportion the taxable profit of multinational groups in accordance with transfer pricing regulations based on the arm’s length standard, namely, following a market valuation rationale. Although apparently neutral, such a standard may lead to prohibited aid both at the level of its regulatory design and its enforcement. These issues have been recently exacerbated due to the assessment of the “tax rulings” cases, i.e. State aid proceedings opened against the granting of individual, unpublished rulings by certain Member States to some of the largest multinationals operating in the EU, recently reviewed by the ECJ. Unlike most of the scholarly literature, which has focused on the specific issues raised in these cases, this article aims to comprehensively analyse the issues raised by the said regulations when confronted with the EU State aid regime, in line with the latest jurisprudence in this field. The examination starts by defining the aim and contradictions of the arm’s length standard, which is necessary to build a proper reference framework against which deviations resulting in a selective advantage may be detected. Such derogations potentially resulting in prohibited aid may arise when assessing the scope of these regulations, the existence of specific regimes deviating from the arm’s length standard rationale, and in the context of individual administrative acts (e.g. tax rulings) deviating from the content of the applicable transfer pricing regulations.

Inter-Nation Equity And The Regulation of Tax Competition via the Global Minimum Tax Rule: A Case for Improvement

The Organization for Economic Co-operation and Development (OECD) is an institution that influences policymaking in international tax law, and it is changing the international tax architecture to deal with tax competition by encouraging countries to adopt a global minimum tax rule. This emerging rule – called Pillar Two in international tax circles – is inadequate for dealing with poverty and inequality in an asymmetrical global context. The rule is premised on the notion and argument that tax competition is a problem for international tax law. Notwithstanding, there is existing research and evidence to show that tax competition can also be a solution to the enormous challenge of poverty and inequality as it can have a redistributive effect. This is a valuable factor amid the inefficiently asymmetrical global society with extreme poverty in many countries and enormous wealth in a few others.This article submits that the Pillar Two minimum tax rule – the Global Anti-Base Erosion (GloBE) Rules encompassing the income inclusion rule (IIR), undertaxed payment/profit rule (UTPR), and qualified domestic minimum top-up tax (QDMTT) – should incorporate inter-nation equity to prevent exacerbating global inequality and poverty. Pillar Two intensifies these for at least two reasons: (1) it restricts the positive redistributive effects of tax competition on an inefficiently asymmetrical global society, and (2) it encourages tax competition more suited for high-income countries (HICs) and less suited for those that are low-income countries (LICs). There is latitude to incorporate a differentiated principle deriving from inter-nation equity into this new Pillar Two rule designed to regulate tax competition globally. This proposal requires that the emerging rule be disenabled in certain circumstances to enable LICs to choose whether to apply the rule without being worse off. The article’s proposal seeks to allow LICs room for effective tax competition needed to attain sustainable development goals.

Tax Challenges Arising from Digitalization: Evaluating the Taxation Models Proposed by the European Commission and the OECD

The world has entered a period of deep transition with rapid and phenomenal development of innovations. The rise of the digital economy has dramatically changed the global business environment, creating new challenges for the tax system. Newspapers and magazines are being replaced by the Internet, and trade in material goods – by digital services. The digital economy eliminates the barriers of time, space and distance. The server where the transaction is processed, the location from which the goods or services are supplied and the place of supply of such goods or services are in different jurisdictions, therefore, the question “Where should the transaction be taxed?” is raised. Meanwhile, the digital economy opens up unprecedented opportunities to avoid taxes with the international tax rules which are still “stuck” in 20th-century business concepts, because the companies operating in the digital space do not need factories, stores or other permanent residences to develop their activities. This article aims to evaluate the efforts of the European Union and international standard-setting entities to find a solution for fair taxation of the digital economy. The first part of the article delves into the concept of the digital economy and its essential features with a special emphasis on the role of the digital service user which is unique and more complex than the role usually played by the customer. This part also analyses the differences between digital and traditional business. The second part of the study emphasizes the reasons that will lead to the necessity of taxation of the digital economy, discusses the digital services tax applied in certain countries of the European Union and highlights the weakness of the concept of digital establishment in double taxation agreements concluded by the countries. The final part explores the proposals submitted by the European Commission regarding the introduction of a common consolidated corporate tax base and the inclusion of the concept of virtual permanent establishment in the tax system in the context of the digital economy taxation model proposed by international organizations.

Taxes, Leverage, and Profit Shifting in Banks

The goal of this research is to investigate whether taxation affects the leverage decisions of banks and if the response of leverage to tax increases depends on profit-shifting opportunities available to individual banks. This topic remains controversial since it is often believed that banking regulation is such an essential driver of leverage choices that little room is left for other considerations studied in the corporate finance literature. Using a difference-in-differences setup encompassing the period from 2006 to 2017, we exploit two exogenous income tax rate increases applicable to 225 Brazilian banks, employing novel identification strategies based on the intricacies of local taxation rules and on the distinctions between individual banks and financial conglomerates. We find stark differences in the behavior of banks around the two events, with a substantial increase in leverage following the first tax hike but no leverage response following the second. In addition, we find no evidence of heterogeneous effects based on the amount of profit-shifting opportunities available to individual banks. Regulatory concerns possibly became more relevant for leverage decisions during the period around the second tax hike because it coincided with the implementation of stricter capital requirements associated with the Basel III framework. Taken together, our results suggest that financial institutions balance considerations regarding the tax-shield benefits of debt against regulatory concerns specific to the banking industry when making capital structure choices.

The Imitation Game: The Imitation Game: How Encouraging Renegotiation Makes Good Borrowers Bad

Abstract We show that commercial mortgage borrowers behave opportunistically to attempt to obtain principal reductions. We develop a model in which lenders cannot perfectly observe borrowers’ use values and renegotiation is costly. We then exploit a tax rule change that reduced the cost of renegotiation. Consistent with the model predictions, borrowers with high private use values of the property are more likely to transfer into special servicing when lenders have a higher capacity to negotiate principal reductions after the rule change. Our results suggest adverse consequences of principal forgiveness for lenders.

Ethical Decision Dilemma for Tax Consultants in Tax Planning

Tax consultants contribute to assisting taxpayers in overcoming difficulties caused by the complexity of tax rules. Reliable tax consultants tend to provide aggressive advice. Tax consultants as professionals must uphold the code of ethics and applicable tax rules. In this condition, tax consultants are faced with a dilemma in making ethical decisions. This study aims to interpret more deeply how the integrity of tax consultants in facing ethical decision dilemmas in conducting tax planning using a transcendental phenomenological approach. The results of this study show that tax consultants face several dilemmas, including: ethical decision dilemmas due to unclear regulations and client interest factors and responsibility to the state for tax revenue. Experienced tax consultants can overcome the dilemma by continuing to exercise good self-control, and still adhere to the rules and code of professional ethics.

Preferential Personal Income Tax Regimes in the European Union: A New Form of Permitted (Harmful) Tax Competition?

The aim of this contribution is to examine whether the current normative framework of the European Union is adequately equipped to deal with the potentially harmful effects of the so-called preferential personal income tax regimes (PPITRs). For that purpose, after providing an overview of these special tax measures within the EU landscape, the article analyses whether these regimes could be considered a new form of harmful tax competition under the international soft law instruments developed by the OECD and European Union. It is highlighted that these instruments at present do not cover personal income tax rules, although the effects of PPITRs can be as harmful as those of preferential corporate income tax regimes. With regard to other EU instruments (State aid rules, fundamental freedoms and the fundamental right to equality), it is concluded that they are not adequate to tackle in a systematic way the potential harmful effects of special tax regimes targeting individuals. To remedy this hiatus, a proposal is made to extend the mandate of the EU Code of Conduct and adapt the currently applicable criteria under the Code to enable it to capture harmful PPITRs.

Smart Answers to GLoBE Challenges Faced by a Small Country

In this note, the authors highlight the challenges that Hungary, a small country with a low corporate income tax rate, faced in implementing Pillar Two. The intention was to comply with the global minimum tax rules while keeping as much of the country’s attractiveness to foreign investors as possible at the lowest cost to the state budget. This was achieved by a range of targeted measures which may serve as a best practice for other countries in a similar situation.

La Maison Des Comptables: A Tax Research, Data Management, and Data Visualization Case

ABSTRACT This teaching case integrates the tax and accounting information systems curricula to help students apply research-based outcomes to critical business processes. The setting involves sales and excise tax compliance for out-of-state alcohol shipments, a complex context given the variation between state laws and nuances in the application of general tax rules created by the 21st amendment. The various case components require students to research state tax law, employ data management techniques to apply those laws to a large dataset, and create data visualizations to aid managers with business decision-making. Components of the case can be implemented concurrently or sequentially across multiple courses in the accounting curriculum or as a stand-alone case in a single course. Requiring students to identify and apply tax law across multiple courses helps students see through individual course silos and understand how various accounting disciplines are interconnected. JEL Classifications: M49; M41.

Analisis penerapan akuntansi Pajak Penghasilan Pasal 21 pada karyawan PT. Manado Post

Manado Post is a Media Company under the Jawa Post Group. Manado Post has a large number of employees with the specifications of Permanent Employees and Non-Permanent Employees, so it has great potential in paying taxes, especially Article 21 Income Tax. In addition, there is the potential for errors in both calculating and recording Income Tax. This also affects accounting records, because errors in calculations will cause errors in accounting records. In addition, Manado Post on irregularities in both calculation and reporting of Income Tax caused by differences in views on the Income Tax Law. This also affects accounting records. Based on the reference background of this study, the subject matter can be formulated which will then be the object of discussion in this study. This study used qualitative descriptive method. A total of 55 employees were involved in the study, and of these, 15 employees were the subjects of the study. The qualitative research intended here is to illustrate how the accounting treatment of Article 21 Income Tax applied in Manado Post. The results showed that Manado Post did not fully follow the applicable Tax Law in calculating article 21 income tax on its employees. This causes an overpayment of Article 21 income tax by the company. In this case, Manado Post needs to improve understanding and compliance with applicable tax rules to avoid errors in tax calculations.

Tax Compliance among Managers: Evidence from Randomized Audits1

Abstract Earlier studies of individuals’ law-abiding behavior find significant effects of home country corruption level on compliance. In our study of manager’s tax compliance, we use data from random audits and find associations between tax compliance and the use of an external accountant, age, manager’s place of origin and employees’ conflict exposure, but no effect from a manager’s own conflict exposure, nor Corruption Perception Index scores. The use of an external accountant seems to commit managers to comply with reporting requirements. Our findings suggest that factors such as managers’ age and company characteristics are important in understanding manager compliance. To study whether other mechanisms not previously tested may provide explanatory power, we specify two machinelearning models, which confirm our findings, but also suggest other associations. Nontechnical summary Our study examines tax compliance among managers using data from random audits. We found associations between tax compliance and the use of an external accountant, age, manager’s place of origin and employees’ conflict exposure. However, the manager’s own conflict exposure and corruption levels in their home country did not affect compliance. External accountants seem to encourage managers to comply with tax rules. Machine-learning models confirmed these findings and suggested other relevant factors.

The Impact of the Global Minimum Tax Reform on China and Its Countermeasures

Abstract Significant corporate tax reform was agreed upon by more than 140 nations in 2021, with implementation set for 2023 and beyond. Many people throughout the globe are discussing the possible effects of the Organization for Economic Cooperation and Development (OECD) planned adjustment to the global minimum tax (GMT) on their respective economies. The OECD has formulated a “two-pillar” scheme for international tax rules for 137 countries and regions within the overall framework. Pillar 2 is to set the tax rate at 15%, the world’s lowest corporate tax. The GMT is a reclassification of the taxing authority mechanism for the profits of multinational corporations, which has made significant adjustments to the global tax coordination and governance mechanism. People living in China and earning money from China must pay university fees, which are all of a nationality. Progressive rates ranging from 3 to 45% apply to the complete income. Therefore, taking the initiative in policy is crucial to address this challenge actively. This article makes an in-depth assessment and prediction of the impact of the GMT reform on China’s tax system and enterprises and proposes countermeasures. However, approximately 20% of the earnings can be exposed to the 15% tax rate that governments can apply. If the entire process is mixed in tandem, the tax rate equals 0.2%. Hence, an important amount of tax revenue can proceed down the drain. From the numerical outcomes, the minimum tax with jurisdictional blending was set at 12.5% under Pillar 2; the disparity between the sample’s top and lowest EATRs would decrease by 2.8% points.

New Pillar to Address Tax Challenges Arising from Digitalization of the Economy

Traditional international tax rules empower a source state to tax non-residents who have a strong physical connection to that state. Digitalized business models reduce, or even eliminate, the need for a physical presence to conduct economic activities in the state where customers are located. This change has created significant challenges for tax administrations, and many jurisdictions have adopted unilateral digital services taxes to increase collection from digitalized businesses. The OECD/G20 Inclusive Framework aims to reform the ‘outdated’ international tax rules by promoting the Pillar One project on the tax challenges of digitalization in order to enable greater taxing rights by market jurisdiction. However, Pillar One seems to foster uncertainty rather than reassurance. This article considers the possibility of coordinating digital services taxes among individual jurisdictions: instead of focusing on the uncertainty and complexity of Pillar One, the OECD could use the Inclusive Framework to provide guidance on the collection of digital services taxes to protect taxing rights of market states and prevent double taxation of multinational enterprises.

Who Is Leading the Dance? or Should the Main Principles of Taxation Be Adjusted in Accordance with Coordination Principles of Social Security? – Teleworking and Beyond

Enabling telework for a few days each week is increasingly becoming the new normal for millions of individuals. Since 1 July 2023, there has been a Framework Agreement in place within the EU, allowing employees to remain covered by the social security system of their state of employment when teleworking from home in a cross-border context. This article discusses whether it is possible to change the allocation rules for taxation of employment income in these situations, to be levied in the same state as the social security contributions (a hypothesis). Arguments pro and contra are highlighted, and additional changes are considered. By using two scenarios (Sweden-Germany and Sweden-Denmark) the outcome of the hypothesis as well as the implications for the new Framework Agreement and similar agreements are highlighted.

Налоговые рулинги по законодательству Индии

This paper is dedicated to a comprehensive study of the institution of tax rulings in India, as well as the impact of the ruling system on attracting foreign investment. The analysis includes an examination of the historical context, regulatory framework, procedures for obtaining and executing tax rulings. Based on the results of the research the author made conclusions about the practical and theoretical applicability of the Institute.

Do Indonesia Tax Rules Support Or Hinder Sme’s Tax Conformity?

This study aims to determine the effect of tax knowledge, tax awareness, and tax sanctions on tax compliance in the SME sector in Cirebon City, Indonesia. The population of this study was 2,426 SMEs in Cirebon City, and a sample of 343 was used for analysis, with purposive random sampling employed. This study employs a quantitative approach with SPSS. For testing the analyses employed, this study utilizes a quantitative approach. The findings indicate that tax compliance is significantly influenced by tax knowledge, tax awareness, and tax enforcement among SME actors.

Globalization and taxation: Implications on national tax policies and international tax competition

This review examines the profound impact of globalization on national tax policies and the ensuing tax competition among countries. Globalization, characterized by increased economic integration and cross-border capital and labor mobility, has significantly influenced national tax structures and policies. Countries are compelled to adapt their tax systems to remain competitive in attracting and retaining investments, leading to a shift from traditional income taxes to consumption-based taxes and adjustments in corporate tax rates. This competition often results in a "race to the bottom," where countries continuously lower tax rates to outbid each other, thereby affecting government revenues and public service funding. The review explores how globalization erodes traditional tax bases, creating challenges for national policymakers who must balance the need for competitiveness with revenue requirements and equity considerations. Through case studies, the effects of tax competition are analyzed, highlighting the outcomes of various national strategies in attracting global capital. Additionally, the role of international tax treaties and agreements in shaping global taxation dynamics is scrutinized. Treaties aimed at avoiding double taxation and preventing tax evasion, such as those orchestrated by the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, and EU tax policies, are pivotal in harmonizing tax rules and reducing tax arbitrage opportunities. These agreements foster international cooperation, attempting to create a more stable and fair global tax environment. The interaction between national tax policies and global agreements is complex, involving coordination and occasional conflict. The effectiveness of these international efforts in addressing the challenges posed by globalization is assessed, considering both successes and limitations. Emerging trends, such as the taxation of the digital economy and the increasing involvement of developing countries in global tax discussions, are also explored. The review provides insights into the dynamic interplay between globalization and taxation, offering recommendations for policymakers to navigate the intricate global tax landscape. Future challenges and opportunities are discussed, emphasizing the need for continued international cooperation and adaptive national policies. Keywords: Globalization, National Tax Policies, Tax Competition.