Tax Strategies Research Articles

Qualitative Disclosure as a Tax Enforcement Mechanism: Evidence from the U.K. Tax Strategy Disclosure Requirement

Qualitative Disclosure as a Tax Enforcement Mechanism: Evidence from the U.K. Tax Strategy Disclosure Requirement

The Augusta Rule: How Golf Influenced Legislation and Created a Unique Tax Strategy for Business Owners

The Augusta Rule: How Golf Influenced Legislation and Created a Unique Tax Strategy for Business Owners

EU AND TRANSFER PRICING. TOWARD PETRIFICATION OR REVOLUTION?

Two EU documents important for transfer pricing were announced in 2021 and 2023. The first one is a framework of the EU’s tax strategy disclosed in a document called “Communication on Business Taxation for the 21st century” published in 2021. The next one is Transfer Pricing Directive (TPD) proposal published in 2023. TPD proposes cementing current TP rules proposed by OECD decades ago. The first document contains some very significant proposals, one of which calls for the introduction of a new taxation mechanism imposed on “groups of companies “as the term is used in the document. This new tax would be based on the Formulary Apportionment Mechanism (FA) of income allocation. The article puts forward the thesis that the choice between the directive and the strategy addressed in “Communication on Business Taxation for the 21st century” will have a significant impact on the global development of TP standards and the entire global tax order. The article is to analyse the possible impact of the EU’s adoption of FA approach and not petrification of ALP standard through TPD on evolving global taxation principles (which are currently based on the Arm’s Length Principle - ALP). We will go on to analyze the impact of its adoption on further development with respect to ALP, potential transformation of the transfer pricing to-date model and e-commerce taxation, and, finally, the emergence of a new global system of taxation.

The Contemporary Corporate Tax Strategy Environment

The Contemporary Corporate Tax Strategy Environment

Tax Strategies in Manufacturing: Profitability, Capital, and Inventory Impact

This study examines the impact of profitability, capital intensity, and inventory intensity on tax avoidance and tax planning in the manufacturing sector, specifically focusing on industrial and consumer goods companies listed on the Indonesia Stock Exchange during the 2017-2019 period. The research employs quantitative methods and utilizes primary data, collected based on predetermined criteria, for statistical analysis. The sample consists of 42 purposively selected companies from a population of 123 manufacturing firms. Multiple linear regression analysis using SPSS version 25 is employed to analyze the data. The findings reveal that profitability and capital intensity do not significantly influence tax avoidance, while inventory intensity does. Similarly, profitability and capital intensity do not significantly affect tax planning, whereas inventory intensity does. These results highlight the importance of inventory management and provide insights for manufacturing companies in formulating effective tax strategies to enhance financial performance and compliance with tax regulations. 
 Highlights:
 
 The study investigates the impact of profitability, capital intensity, and inventory intensity on tax avoidance and tax planning in the manufacturing sector.
 Multiple linear regression analysis using SPSS version 25 is employed for statistical analysis.
 The findings reveal that inventory intensity has a significant effect on both tax avoidance and tax planning, while profitability and capital intensity do not demonstrate significant influences on either.
 
 Keywords: Tax Avoidance, Tax Planning, Profitability, Capital Intensity, Inventory Intensity

Tax Sustainability in Ukraine: A Case of Agricultural Companies

The purpose of this article is to study the tax sustainability of agricultural companies in Ukraine. This article developed the following working hypotheses, which were derived from the main purpose of the study. The methodology for the assessment of tax sustainability has been improved due to the development of indicators of tax sustainability at all levels of the tax hierarchy. Our study confirms the hypothesis that the tax sustainability of Ukraine is worse than that of OECD member countries. The hypothesis that the tax sustainability of agricultural companies in Ukraine is worse compared to other sectors of the economy was confirmed as well. The main reason for the instability in the tax system and taxation of the agricultural sector of Ukraine is changes in tax legislation. The issue linked to the instability of agricultural companies is the lack of a company tax strategy. The research results presented in the paper are of considerable importance for ensuring the tax sustainability of agricultural companies in Ukraine.

Tax differences and international location strategies

This paper examines the influence of tax rate differences and international transfer pricing regulations on the profit-maximizing location strategies of a multinational firm (MNF). We show how a MNF that sells its products in multiple markets and manufactures multiple inputs used for its own production can optimize its tax strategy by jointly selecting the location of input production and the transfer pricing method. We find that a production technology with multiple complementary inputs results in a close connection between national and international transfer prices. Selecting different location choices enables the MNF to base international transfer prices on different arm’s length standards. The optimal location strategy and transfer pricing approach balances the gains from profit-shifting to the low-tax country with the losses that occur due to distorted quantity choices. The MNF’s trade-off between the gains or losses can be moderated by adjusting domestic transfer prices for transactions between the divisions in the high-tax country.

Local Tax Strategy and Its Components and the Formation of Investment Competitiveness of the Municipality

It can be assumed that the main objective of the tax policy – both from the macro- and microeconomic perspective – is the implementation of the fiscal function of taxes, consisting in the accumulation of tax revenues to fulfil the tasks and functions of public finance sector entities. Tax revenues are used to finance budget transfers, e.g. to the public sector, while affecting the allocation processes between taxpayers and the public finance sector. Taxes and the tax system also perform non-fiscal functions of taxation, influencing – inter alia, through tax allowances and tax exemptions – the implementation of various stimulus, economic and social objectives (often overextended and mutually contradictory). An example of non-fiscal goals of taxation is the use of tax instruments to influence changes in the economic or social structure at the municipality level. The amount of revenue obtained by municipalities from local government taxes and fees in Poland was influenced by the tax policy pursued by municipalities and the resulting reduction of the maximum tax and fee rates, which are tools for supporting local systemic development.

Reassessing Moral Legitimacy in Times of Instability

AbstractThe presence of conflicting cues about what is legitimate provided by various stakeholders, begs the question of how the legitimacy of contested institutionalized practices is justified. Recent critique of tax minimization strategies exemplifies this difficulty: on one hand, practitioners need to increase shareholders' profits; on the other, a growing number of stakeholders push for ‘fairer’ corporate tax payments. Conducted during a time of public criticism of Australian corporate tax strategies, our study draws on justifications of corporate tax minimization strategies by senior tax practitioners and corporate submissions to a Senate Inquiry on corporate tax avoidance. The study explores how legitimacy judgements come under pressure by conflicting cues. Through the application of Boltanski and Thévenot's (2006) Economies of Worth (EW) framework, we advance legitimacy scholarship by clarifying what constitutes situated judgements in times of instability. Our work puts forward the concept of perceived forecasted consensus as a guide for individuals in making situated legitimacy judgements in times of instability.

Customer and Tax Avoidance: How Does Customer Geographic Proximity Affect a Supplier’s Tax Avoidance?

This paper examines the effect of customer geographic proximity on supplier tax avoidance. Based on 5135 Chinese firm–year observations from 2009 to 2020, we find a positive association between customer geographic distance and supplier tax avoidance. Moreover, this association is robust after studying endogeneity concerns. We further find that information asymmetry and detection risk are underlying mechanisms. We also find that this positive relation is more pronounced in suppliers with high financial risk, competitive industrial sectors, and weak marketization environments. Overall, our findings suggest that customer geographic localities within a country are an important factor affecting a supplier’s motivation for tax avoidance. Our research sheds light on how the change in a supplier’s information environment caused by differences in customer geographic proximity impacts its tax strategy.

Analysis of the relationships between corporate reputation and tax avoidance of Brazilian companies

This article aims to analyze the relationship between corporate reputation and tax avoidance of Brazilian companies. Unlike previous research that observed reputational damage caused by tax reduction strategies deemed abusive or illegal, the purpose of this research is to analyze whether, once established, corporate reputation is likely to influence the level of tax avoidance of Brazilian companies. The research sample comprises a total of 180 publicly traded companies, totaling 1,800 observations in the period from 2010 to 2019. Panel data regression (fixed effect with FE-LSDV estimators and random effect - RE) was used to test the effects of corporate reputation on tax avoidance. The main results indicate that companies with a strong reputation are paying more taxes, on average, and are less aggressive in tax strategies. In addition, companies with a strong reputation have larger book-tax-differences (BTD).

IPOs and Corporate Tax Planning

Does going public affect the amount and type of corporate tax planning? Using a panel of U.S. corporate tax return data from 1994 to 2018, we show that IPO completion is associated with the implementation of multinational income shifting strategies central to the current international tax policy debate. Specifically, firms (i) expand their foreign tax haven presence, (ii) enter into cross-border agreements that accompany intangible asset transfers to foreign subsidiaries, and (iii) increase their level of foreign related-party payments around the time that they go public. The effects are strongest among firms that switch to more sophisticated tax advisors in the years preceding the IPO. In contrast, we observe little domestic tax planning because large stock option deductions, which increase as a consequence of the IPO, provide large domestic tax shields. The paper contributes to the nascent literature studying IPOs by documenting the types and timing of specific tax strategies that enable public firms to remain lightly taxed in the post-IPO period. Furthermore, the findings imply that U.S. tax policies targeted at early-stage innovative firms are critical for retaining domestically developed IP – and the income earned on such assets – for the U.S. tax base.

Taxation of sugar-sweetened beverages in South Africa: Perspectives of consumers in Cape Town.

Background:Globally, fiscal measures are deemed effective in combating the obesity epidemic at population level. A health promotional levy (HPL) on sugar sweetened beverages (SSBs) was implemented in April 2018 in South Africa to reduce sugar consumption.Design and methods:This cross-sectional, descriptive study investigated consumers’ understanding and opinion of the HPL, and impact on consumption of SSBs. Data was collected outside 15 grocery stores, within four health sub-districts of the City of Cape Town. An interviewer-administered questionnaire was completed with literate, adult consumers (N = 696).Results:Participants (46.0%) were aware of the HPL but regarded it insufficient to change purchasing behaviour (55.4%). The lower income group (56.4%) was most affected by the increased price of SSBs. Those who agreed (46.8%) that the levy would help to reduce the prevalence of obesity was significantly more likely to notice a price increase in SSBs (54.5%) (p < 0.01) and had a higher education level (p < 0.01). Overall, self-reported consumption of SSBs decreased by 7.7% since the HPL was enacted. Participants who were aware of the detrimental effect of consuming large amounts of sugar, were more likely to change their behaviour (p < 0.01).Conclusions:Participants were receptive for legislative measures to combat the prevalence of obesity but lacked clarity of the goal and implementation of the HPL. A multipronged approach is crucial to lower sugar intake sustainably and an environment which offers healthy alternatives to SSBs. A higher HPL combined with transparency of how revenue is utilised could enhance the impact of the sugar tax strategy.

Tax Treaties and the Mobility of Workers

After an introduction about the mobility of workers under the Covid crisis and its tax implications (section 1), the article begins by providing at section 2 a general overview of Art. 15 § 1 which attributes taxing power to the country where the activities are carried out as well as to the country of residence of the worker, creating a potential situation of double taxation. The article goes on at section 3 to provide an overview of the very relevant exception provided by Art. 15 § 2 which spells out the requirements under which the mobile worker is taxable only in the country of residence thereby preventing double taxation and simplifying tax compliance for the mobile worker. The article at section 4 develops a discussion of the so called ‘hiringout of labor’ which is pursued through aggressive tax structures that abuse the benefit of exclusive taxation provided by Art. 15 § 2. The paper after a digression about the wider concept of tax migration and exit taxes (section 5), concludes briefly discussing the impacts that the recent Covid crisis might have had on the system of tax treaty rules about the mobility of workers (section 6). Mobility of workers, migration, tax treaties, hiring-out of labor, aggressive tax strategies, exit taxes, Covid crisis, country of residence, double taxation, country of source

기업지배구조와 조세회피

[Purpose]This paper examines the relationship between various characteristics of the corporate governance and the tax avoidance. [Methodology]We measure the tax avoidance by using long－run effective tax rates (GAAP ETR and current ETR are used in this research) following Dyreng et al. (2008). This study examines not only the level of tax avoidance but also the sustainability of a firm’s tax strategy following McGuire(2013). [Findings]The results show that the ownership concentration has a significant relation to the corporate tax management. To explain concretely, the ownership concentration has negative associations with the corporate tax avoidance and positive associations with the sustainability of the tax strategy. It suggests that the owners face “asymmetry in cost distribution” due to much larger equity ownership, so they forgo the risky tax avoidance. It is possible to distribute tax costs, whereas it is difficult to distribute non－tax costs. The higher ownership concentration is, the more owners are concerned with non－tax costs such as potential penalty and reputation damage from being involved in a tax related lawsuit etc. [Implications]This study described the decrease in tax avoidance in companies with high concentration of ownership as “asymmetry in cost distribution” rather than capital market pressure. The “asymmetry of cost distribution” can be said to be a risk that Korea’s corporate governance structure, which exercises control over its stake, has come to bear.

Taxation strategies for the governance of digital business model-An example of China.

The digital business model emerges as a new business model and gradually penetrates global industries, and countries are putting in place various digital strategies to support their development. As one of the important tools, taxation strategies are highly expected by countries, which not only describe the economic development pattern of a country but also show the digital leadership of a country. Some countries have introduced their own unilateral digital services tax to govern their digital business models, while others have looked more to the global minimum tax, resulting in the current situation of both a unilateral digital services tax and a global minimum tax. However, both of them are of great reference value for the tax governance of digital business models. This paper compares the development history of digital tax strategies, categorizes, and analyzes the design logic of existing digital tax strategies, and takes China, one of the major digital economy countries, as an example to propose China’s digital tax strategies by drawing on international experience. We set an example for the design of digital economy tax strategies for countries around the world so that they can manage digital business models more efficiently.

Cryptocurrency Market and Tax Regulations in Turkey: an Analysis in the European Emerging Economy

The aim of the article: The purpose of this study is to provide a thorough review of the current state of cryptocurrency market and how governments perceive and deal with the threats and opportunities brought by the block chain technology. Cryptocurrencies were certainly the most popular investment in the last decade with a skyrocketing trading volume. However, cryptocurrency abilities in money laundering, financing terrorism and tax evasion overshadow the great opportunities and potential of this new technology. Therefore, the major economies in the world have been working on an efficient and effective strategy to control and tax the cryptocurrency market. In this study, the current state in Turkey regarding cryptocurrency taxation is analysed and a tax system is proposed. The authors claim that the Tobin tax, or in other words, low tax rates would be the best tax system to be applied in Turkey.&#x0D; Methodology: The study is based on a detailed literature review on the subject, academic papers, news releases and legal acts of the USA, Europe and Turkey. Different attitudes of varied groups are discussed and proposed solutions in the subject are being considered.&#x0D; Results of the research: Cryptocurrency market has a great potential and block-chain technology is full of opportunities. However, it is essential to control this market without harming the appeal of cryptocurrencies, yet this is not an easy task. Therefore, we argue that Turkey should extend the usage of cryptocurrencies, create a tax strategy with low tax rates and we claim that a regulation similar to the Tobin tax application would be effective here.

Maximizing financial benefits of investment tax allowances in renewable energy portfolios

ABSTRACT Policy makers offer fiscal incentives to encourage companies to invest in renewable technologies. This work considers generation companies that take advantage of fiscal incentives to minimize income tax. Thus, a novel mixed-integer linear optimization model that minimizes total tax payments of a company owning a portfolio of energy projects is designed. The model strategically manages depreciation, tax loss carryforward, and tax incentive use for minimizing discounted income tax. A set of revenue scenarios was employed to analyze model results. The proposed model yields tax savings between 8.2% and 19.2% of the company’s taxes. Tax savings are significantly larger for companies with a large generation portfolio; which represents a clear advantage over small generation companies. The proposed model can also be employed by policy makers to adjust future ITA policies by taking advantage of the anticipative knowledge of the optimal tax strategies implemented by generation companies.

Who Gets to Play Dirty? Using Legitimacy Theory to Examine Investor Reactions to Differing Modes of Corporate Tax Minimization*

ABSTRACTThis study examines how information about a corporation's tax minimization activities and primary operations jointly influence investor behavior. Prior research identifies fear of investor backlash as a primary curb on corporations' tax minimization. However, evidence for such reactions remains mixed. Drawing on the psychological framework of legitimacy theory, we predict and find that the interaction between operations‐level validity and tax‐level propriety influences investor behavior. For companies with lower perceived validity in their primary operations, perceived improper tax minimization elicits strong negative reactions from investors, while proper tax minimization partially compensates for a lack of validity. Conversely, companies with greater perceived operational validity are mostly insulated from negative reactions to tax strategies deemed improper. Thus, management concerns over the reputational risks of tax minimization may be misplaced in some contexts, as companies whose primary operations are more valued by society may be afforded more leeway in their tax strategies.

경영전략과 조세전략 지속성 간의 관련성

This study examines the relationship between business strategy and sustainable tax strategies under the assumption that net income in the income statement according to business strategy will affect the tax burden, and verifies the effect of earnings management on this relationship. The empirical analysis results are as follows. First, as a result of examining the relationship between these corporate strategies and sustainable tax strategies(Minton et al. 2002), it was found that defender firms have higher sustainable tax strategies than prospector firms. Second, as a result of analyzing the effect of earnings management on the relationship between corporate strategy and tax sustainability, earnings management reduces tax sustainability, but for defender firms, there is a positive (+) difference between earnings management and sustainable tax strategies. This is consistent with previous studies that earnings management lowers persistence, and it is judged that defender firms adjust earnings for sustainable tax strategies. The verification result of this study is meaningful in that it expanded the previous studies that looked at corporate strategy and tax avoidance to examine the difference in sustainable tax strategies according to corporate strategy and to examine the effect of earnings management on sustainable tax strategies. This suggests empirical evidence that business performance varies depending on business strategy, and that sustainable tax strategies are different due to differences in business performance. A more sophisticated analysis of corporate management strategies and additional research based on this are expected in the future.