Tax Savings Research Articles

Hidden subsidies and the public ownership of sports facilities: a case study of Levi's Stadium in Santa Clara

Levi's Stadium in Santa Clara, California is an example of a private financing/public ownership arrangement. While the stadium's construction resulted in no direct tax increases and officially included only $114 million in direct subsidies, this ownership arrangement allows the San Francisco 49ers to avoid many types of taxes on the income generated from Levi's Stadium. We estimate the total tax savings for the 49ers to be between $106 and $213 million over the first 20 years of operations at Levi's Stadium compared with a privately financed and owned option. These amounts match or exceed the more widely publicised direct construction subsidies for the stadium. We argue that tax savings inherent in private financing/public ownership arrangements represent indirect and hidden subsidies.

Kinerja Keuangan Dan Penghematan Pajak Sebelum Dan Sesudah Revaluasi Aset

Revaluation of assets is considered capable of fulfilling relevant information to investors and can improve the company's financial performance. In addition to improving financial performance, there are other studies that mention the revaluation of fixed assets may cause tax savings. Researches mostly discusse the impact of revaluation of fixed assets related to financial performance using quantitative methods, while researches looking at taxation aspects are discussed with qualitative methods. Therefore the researcher will try to connect financial performance using variables in the form of debt to equity ratio, operational profit margin, total turnover assets, and return on assets and tax savings using effective tax rate before and after revaluing fixed assets. The variable was tested using a mean difference test-MANOVA method and the sample used was a public company that revalued its fixed assets in 2013 year. The results of the study did not prove that there were differences in financial performance and tax savings before and after the company revaluing fixed assets. This has no effect because the company that revalues ​​fixed assets is merely to meet the target of the government or actually the impact of the tax changes does not have a significant influence because there may be other impacts such as new additional costs for example appraiser fees, increased depreciation costs, all of which may make the company’s profits declined and final tax must be paid by the company. Instead, the revaluation just increase the book value of fixed assets and not the fixed assets physically

Does Tax Planning Affect Analysts' Forecast Accuracy?

ABSTRACTWe investigate whether firms' tax planning affects the accuracy of analysts' forecasts. Tax planning can exacerbate the complexity of firms' operations through strategic choices to exploit tax laws. Because of its effect on firms' operations, tax planning can influence analysts' efforts to understand and forecast earnings. Specifically, if the additional complexity arising from tax planning makes firm attributes less representative of expected earnings, analysts may issue less accurate forecasts. Using auditor‐provided tax services (APTS) as a measure of tax planning, we find that, as firms spend more on tax planning, the accuracy of analysts' forecasts of both earnings per share and tax expense declines. We also document that firms with higher levels of APTS have greater year‐to‐year volatility in, and lower persistence of, effective tax rates and earnings. Our results suggest that increased firm complexity, due to greater tax planning, makes earnings and tax expense more difficult to forecast and that analysts do not properly adjust for these effects. Thus, when deciding to engage in tax planning, firms appear to make trade‐offs between potential tax savings and negative effects on earnings properties and analysts' forecasts.

Tax Avoidance, Firm Value, and Comparability

The purpose of this study is to examine whether financial reporting comparability affects the relation between tax avoidance and firm value. There are two conflicting views on the relation between tax avoidance and firm value. One is the traditional perspective that views tax avoidance as value-enhancing transfer of corporate resources from the government to the shareholders. The other is an agency theory perspective that views tax avoidance as an effective monitoring vehicle for managerial private interests, and thus the effect of tax avoidance on firm value varies depending on the size of non-tax costs of tax avoidance. Using 3,123 firm-year observations listed on Korea Exchange over 2006~2015, we find that the negative relationship between tax avoidance and firm value weakens as the level of comparability increases. Investors place a price discount on tax avoidance on average because the increase in non-tax costs due to tax avoidance is more severe than tax savings itself. However, as comparability increases, the decline in corporate value is partially alleviated due to a decrease in non-tax costs of tax avoidance. In short, financial reporting comparability has a positive impact on the relationship between tax avoidance and firm value. These results can be seen in both accounting-based and market-based comparability. This study contributes to the literature on the relationship between tax avoidance and firm value by focusing on the effect of comparability. As the comparability among firms enhances, it will increase market participants'' understanding of the economic consequences of tax avoidance. Further, this study provides evidence of the role of Peterson, Schmardebeck, and Wilks''s (2015) text-based accounting consistency beyond De Franco, Kothari, and Verdi''s (2011) market-based comparability in explaining the relationship between tax avoidance and firm value. measure, it has limitation in that it is highly influenced by stock returns.1) In contrast,

Tax Incentives for Green Industries: Determinants of Performance between Green Building Index (GBI) and Non-Green Building Index Firms in Malaysia

Industrialization, urbanization, and economic growth are among the major causes of environmental degradation. These factors are closely related to the construction sector. To curb the issue, the government has initiated tax incentives to encourage developers embracing green technology. Developers who entitled to these tax incentives should enjoy a considerable amount of tax savings, which can be employed for capital reinvestment. Consequently, this study aims to determine whether firms that specifically involve with the construction of green buildings and have received the tax incentives are more likely to achieve relatively better financial performance, as a result of tax benefits gained from the government assistance. For the empirical analyses, secondary data was employed. A total of 138 firm-year observations from 2015 until 2017 used to measure the firm’s characteristic of board size, asset tangibility, deferred tax balances, and leverage against financial performance. The Theory of the Growth of the Firm was used to interpret the relationship between the financial characteristics and firm performance. We obtain evidence that indicates there is no significant difference in the financial performance between the GBI and non-GBI firms. The deferred tax balance, a proxy of the investment tax allowances granted by the Malaysian government to the GBI firms, is shown to be ineffective in improving the financial performances of these firms. The finding of this study suggests that any form of tax assistance from the government for the construction sector has not benefitted its recipients and requires remodeling.

Performance Evaluation of Banks Sponsored Mutual Funds: An Analytical Study

This research paper inspects the comparative performance evaluation of banks sponsored Indian mutual funds using traditional measure. The data comprises 166 open-ended equity, debt, liquid and equity linked saving schemes (tax savings) schemes during the period of April 2006–March 2017. The evidence shows that all sample schemes are well diversified. Public sector banks sponsored get first ranked because good return, all positive and diversified schemes and efficient performance of portfolio management as compared to Private sector and UTI banks sponsored mutual funds.

Who Consumes the Credit Union Tax Subsidy?

Credit unions are exempt from paying income taxes, and these tax savings are supposed to subsidize the provision of financial services to credit union members. In this paper, we investigate whether the entire credit union tax subsidy is being passed along to credit union members — in the form of increased quantities of financial services and/or better-than-market interest rates — or whether some of the credit union tax subsidy is being consumed by inefficient credit union operations. We estimate a structural model of profit inefficiency for US commercial banks between 2005 through 2017, and use the estimated parameters to evaluate the relative performance of US credit unions and commercial banks. When inputs and outputs are valued in terms of market prices, profit inefficiencies at credit unions exceed those at similar commercial banks by an economically significant order. About half of this inefficiency gap can be attributed to legally mandated credit union activities — such as producing loans and issuing deposits — while the remainder can be attributed to operational inefficiencies at credit unions relative to banks. When inputs and outputs are valued in terms of the prices that credit unions actually pay, our results suggest that over nine-tenths of the tax subsidy is simply passed through to credit union members in the form of higher deposit interest rates.

Trade‐offs between Tax and Financial Reporting Benefits: Evidence from Purchase Price Allocations in Taxable Acquisitions

ABSTRACTUnder U.S. GAAP, firms recognize assets acquired in business combinations at fair value. Similarly, in taxable asset acquisitions firms adjust the tax basis of assets to fair value. Managers can increase the present value of future tax savings by allocating a greater portion of the purchase price to shorter‐lived assets than to goodwill or indefinite‐lived intangibles. However, this tax planning strategy imposes a financial reporting cost because it reduces book income following the acquisition; all else equal, allocations to shorter‐lived depreciable assets increase book depreciation expense, whereas allocations to goodwill and indefinite‐lived intangibles do not increase book amortization expense. We exploit the features of taxable asset acquisitions to investigate trade‐offs between tax and financial reporting incentives. We predict and find greater allocations to depreciable versus intangible assets when managers have strong tax incentives and weak financial reporting incentives. However, we also find that strong financial reporting incentives moderate the effects of strong tax incentives. These findings contribute new evidence to the literature on the importance of nontax costs in tax planning decisions

Capital taxation efficiency of agricultural businesses in the Slovak Republic

Effective tax rates are presented by indicators of the actual corporate tax burden, which take into account the impact of all the elements listed in the legislation. The submitted contribution explores the issue of effective taxation through effective average tax rates (EATRs) focusing on agricultural production enterprises. The analysis assessed the effect of changing the statutory tax rate (and other taxes and factors) on changing the effective average rate of capital. Taxation efficiency was monitored for selected intangible and tangible assets for 2004 and 2018. Analysis indicated a depreciation tax shield that tracked the amount of tax savings on capital investment as well as the economic rent of the project with taxation. The analysis showed that a 3% increase in the statutory rate over the reference period increased the effective average corporate rates for intangible assets by 13.35%, tangible assets by 14.25% and inventories by 16.63%. The highest annual tax saving was achieved in 2018 for tangible assets of € 4,647.50, with a four-year return.

TAX AVOIDANCE, CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF COMPANIES REGISTERED IN THE JAKARTA ISLAMIC INDEX

ax aTax avoidance is a tax savings actions that are still in the realm of tax law (lawful fashion). Financial performance and corporate governance are used as independent variables were estimated impact on tax avoidance as the dependent variable. Financial performance indicators are ROA, DAR, and DPR. Corporate governance is proxied with the percentage of attendance of the board of directors, board of commissioners and audit committee, the proportion of independent commissioners, and managerial ownership. Tax avoidance as a dependent variable is measured by effective tax rate (ETR). This research was conducted on companies incorporated in the Jakarta’s Islamic Index 2016. The samples in this study used nonprobability sampling method with purposive sampling technique in order to get a sample size of 26 companies. Data in this study were analyzed with SEM-PLS. The results of this study indicate that the financial performance and corporate governance has an effect on tax avoidance.

The Effects of Competition from S Corporations on the Organizational Form Choice of Rival C Corporations

ABSTRACTSubchapter C of the U.S. Internal Revenue Code levies an entity‐level tax on corporate profits, whereas Subchapter S allows corporations meeting specific criteria to elect out of this tax. Despite these differences, C and S corporations regularly compete for customers and capital. We examine whether and the extent to which competition from S corporations influences the future organizational form choice of rival C corporations and explore outcomes of this choice. Using data for 4,462 private U.S. commercial banks grouped by Metropolitan Statistical Area during 1997–2010, we find that greater competition from S corporation banks increases the likelihood that rival C corporation banks convert to Subchapter S status. We estimate that the aggregate first‐year tax savings from S conversion exceed $372 million. Consistent with these savings being used to maintain competitive parity with rivals, we find that converting banks increase their interest rates on customer deposits and advertising intensity. Our findings provide insight into whether competition from tax‐advantaged firms influences the organizational form choice of rival tax‐disadvantaged firms.

The synchronicity phenomenon of trends of income tax and population savings in the Russian Arctic

The article attempts to assess the impact of an existing tax burden on an individual’s standard of living and the possibility to savings, as well as to determine the trajectory of changes in the level of tax burden and population savings. The regions of the Russian Arctic were chosen as the research object, since, the harsh environmental conditions, the compensation for living expenses of the population is significantly higher than in other regions of the Russian Federation. The differentiation of incomes of the Arctic population and the structure of incomes using are analyzed for research of the phenomenon of synchronism of the trajectories these indicators. The measure the cost of living of northerners has been carried out. The relationship between the standard of living, the dynamics of savings and the tax burden has been established. Based on the author’s methodological approach, the maximum possible tax burden is determined, which reflects the maximum level of the tax rate in comparison with the income of individual residing in the region of the Arctic zone. Proposals for the introduction of innovations in the individual tax system for the fair distribution of tax burdens in conditions of increased discomfort of people live are formed.

Are Back-to-School Sales Tax Holidays Progressive or Regressive?

Sales tax holidays are temporary suspensions of tax rates applicable to selected goods. In the United States, sales tax holidays are popular among states during “back-to-school” seasons for educational supplies and new clothing. One motivation for these policies is to provide state assistance to households with children for necessary goods. This paper investigates the distributional impact across income groups on school supplies’ and apparel purchases during these holidays for a panel of nearly 170,000 households from 2004 to 2016. Judging by conventional household income elasticities the tax savings are very progressively distributed. However, we demonstrate tax holidays to be poorly targeted if judged by the intention of arranging transfers to low income households or households with children. For instance, an equivalent cash transfer to households with children and less than $20,000 in income would have a revenue cost of five percent of what is waived by the sales tax holidays.

Corporate Tax Planning and Financial Performance in Nigerian Non‐Financial Quoted Companies

AbstractThis study investigates the relationship between corporate tax planning and financial performance of quoted non‐financial companies. The secondary yearly data used were gathered from 47 sampled non‐financial companies from 2007 to 2016. A panel vector autoregressive approach with structural analysis such as variance decomposition and impulse response function was adopted. The results of the study revealed that tax saving had a direct relationship with financial performance, while tax avoidance had an inverse relationship with financial performance. The financial variables under consideration mainly contributed to their own shocks or forecast errors. The responses of the financial performance to shocks in tax avoidance had an expansionary effect which could hinder the performance of the companies, while financial performance response to shocks in tax savings had a contractionary effect and as such, could lead to better performance of the companies. Thus, corporate tax planning that enhances tax savings greatly contributes to the performance of non‐financial companies. They should therefore not only engage in tax planning, but also ensure that their tax planning is legal, and leads to tax saving for the companies, such that no excessive or multiple tax will be paid and hence, better financial performance will be achieved.

Optimal Capital Structure (OCS) with a Finite Cash Flow: A Simple Numerical Illustration

In this note, we present a simple numerical example, with a finite cash flow, to illustrate the concept of the Optimal Capital Structure (OCS). First, we assume that the discount rate for the tax benefits KTB equals the return to unlevered equity KU. The cost of debt KD is a simple linear function of the percent debt %D and the leverage costs LC are proportional to the percent debt %D. With this stringent assumption about the value of KTB, over the life of the FCF (Free Cash Flow), we obtain constant annual debt-equity ratios D/E; the return to levered equity KE and the FCF WACC are also constant over the three years. The FCF WACC decreases and then increases after the value of the maximum percent debt. We also analyze the cases where the value of KTB equals the cost of debt KD and the return to levered equity KE. We recognize that the risk profile of the tax shields is complex, and it may not be possible to capture all the benefits of the tax savings from debt financing with a single discount rate. Nevertheless, we ignore our own admonitions, and present a model that may have pedagogical value and provide insights for valuation.

Performance Analysis of Mutual Fund Equity Linked Savings Schemes

In India tax benefit on investments are offered on a number of products like postal small savings, insurance, bank fixed deposits, pension schemes, public provident fund, health insurance, tax saving mutual fund schemes etc. Mutual fund schemes are considered as most risk among all, as returns are subject to market risks. With increasing awareness on mutual fund and reduction of returns on traditional tax savings products, now investors are turning towards mutual fund retirement schemes, unit linked insurance plans and equity linked saving schemes. The present study is to understand the mutual fund Equity Linked Savings Schemes (ELSS) market in India and performance analysis of specific ELSS schemes over last 10 years period from 2009 to 2019 as compared to diversified equity market benchmark returns. From ELSS market growth analysis, it is observed that ELSS market in India has grown @CAGR of 20% in last 19 years and from performance analysis it is observed that, as on January 21, 2019 ELSS peer group average have delivered negative returns in 1 year period. However, for 2 years, 3 years, 5 years, 10 years period the peer group average is positive and higher than the traditional fixed income tax savings products. Further, the peer group average underperformed in 1year, 2years and 3 years period but out-performed the benchmark in 5 years and 10 years performance measurement period.

Heads I win, tails you lose: Asymmetric taxes, risk taking, and innovation

When multinationals face lower tax rates abroad than in the US, transfer pricing strategies generate an asymmetry in the tax rates on a project’s profits and losses. We show that the tax savings from transfer pricing can be expressed as a long position in a call option. We use a model to show that this transfer pricing call option leads a firm to choose riskier and larger projects than it would otherwise. Thus, transfer pricing strategies do not simply reduce a firm’s taxes, they can influence the scale and types of projects undertaken.

The Effect of Corporate Tax Planning On Firm Value

Objective - This research aims to empirically examine the effect of tax planning on firm value. The population of this research consists of manufacturing companies listed on the Indonesian Stock Exchange (IDX) from 2014 to 2016. Methodology/Technique - This research uses 3 recent years and uses variables not used in previous research. The 43 respondents were chosen using purposive sampling. The hypotheses were tested using multiple regressions with Eviews program to determine the relationship between each independent variable to firm value. Findings - The empirical results show that tax planning that is measured by the cash effective tax rate has a negative effect on firm value, while tax planning measured by effective cash rate and tax savings has no effect on firm value. Novelty - The study recommends the need for firms to institute more robust tax planning practices that will help reduce their effective tax liabilities and therefore improve their overall value. Firms that engage in better tax planning practices are likely to get higher firm value. Type of Paper Empirical. Keywords: Firm Performance; Tax Planning; Effective Tax Rate; Cash Effective Tax Rate; Tax Saving. JEL Classification: M40, M42, M49. DOI: https://doi.org/10.35609/afr.2019.4.1(1)

REIT Conversions

In this study, I examine the wealth effects of REIT conversions. I find that REIT conversionannouncements create significant positive wealth for shareholders of firms announcing REITconversions. I find that cumulative average abnormal return around REIT conversion announcements is 6.01 percent. The wealth gain is 7.63 percent for those firms planning to convert into REITs through spinoffs. The results also show that shareholder wealth gains are associated with potential tax savings.

Heads I Win, Tails You Lose: Asymmetric Taxes, Risk Taking, and Innovation

When multinationals face lower tax rates abroad than in the US, transfer pricing strategies generate an asymmetry in the tax rates on a project's profits and losses. We show that the tax savings from transfer pricing can be expressed as a long position in a call option. We use a model to show that this transfer pricing call option leads a firm to choose riskier and larger projects than it would otherwise. Thus, transfer pricing strategies do not simply reduce a firm's taxes, they can influence the scale and types of projects undertaken.