Transaction Tax Research Articles

Piling On – How Provincial Taxation of Insurance Premiums Costs Consumers

Insurance premiums have been taxed by Canadian governments for so long – some provinces and municipalities collected small levies as early as the late 1800s – that they’ve become a fixture rarely discussed in the literature and the financial press. For many years, insurance premium taxes were collected from insurers as an alternative to taxing their profits. But this practice is now long gone since all Canadian governments tax the corporate income of insurance companies, in addition to premium taxes and other taxes and levies. Most insurance consumers do not know that a provincial insurance premium tax (IPT) ranging from 2 percent to 5 percent is levied on their premiums. In addition, five provinces charge a retail sales tax (RST) ranging from 6 to 15 percent on top of the premium taxes for certain types of insurance. In Quebec and Ontario, the RST rates of respectively 9 and 8 percent generally apply to group life and health insurance, and property and casualty insurance (although Ontario excludes auto insurance). Saskatchewan is the latest province to introduce an RST. Since insurance is a financial service, premiums are exempt from GST/HST. So why do provinces still tax insurance premiums? While IPTs and RSTs on premiums are largely invisible to customers on whom the burden ultimately falls, they generate more than $7 billion of stable and growing provincial government revenues – representing about 7 percent of all provincial taxes collected on goods and services. Premium-based taxes increase the price of insurance products and lower the demand for them. We find that an increase of one percentage point in the provincial IPT rate leads to a 10 percent decrease in the number of life insurance contracts sold. Reduced insurance coverage for natural disasters such as floods and earthquakes, other catastrophes, relief to a deceased's family, or relief of the financial burden of illness and disability may lead to increased cost pressures on government budgets down the road. Canadian governments should revisit and reassess the taxes imposed on insurance products. At a minimum, IPT liabilities should be made creditable against corporate income tax liabilities, partly restoring their original role as a substitute for taxing profits. And provinces that impose an RST on IPTinclusive premiums should lead the way and eliminate this form of double taxation. A more ambitious reform would remodel the patchwork of transaction taxes for insurance services to a comprehensive and broad-based, value-added system, bringing down the insurance industry's high transaction tax burden and ensuring greater comparability with other industries.

An Analysis of Value Capture Instruments

Value capture means capturing in some way the value of an investment in public infrastructure. Value capture methods include five forms of property-related taxes: a tax on land value uplift, a broad-based land tax, selective land tax, property taxes and transaction taxes. They may also include three forms of user charges: developer charges, consumer charges and sale of development rights. The paper assesses these options against three standard policy objectives of efficiency, equity and practicality. The paper finds that all three main forms of user charges meet these criteria. Special area land and property taxes may be appropriate in limited cases. Pure betterment taxes on land value uplift are rarely practical.

Power, ideas, and national preferences: Ireland and the FTT

ABSTRACTEuropean countries have been required to formulate a national preference in relation to the EU Financial Transaction Tax. The two leading approaches to explaining how the financial sector makes its views felt in the political process – the structural power of the financial services sector based on potential disinvestment, and its instrumental power arising from direct political lobbying – fall short of providing a comprehensive account. The missing link is how and why policy-makers might be willing to adopt the priorities of key sectors of the financial services industry. We outline how three levels of ideational power might be at work in shaping outcomes, using Ireland as a case study. We argue that background systems of shared knowledge that are institutionalised in policy networks generated broad ideational convergence between the financial sector and policymakers, creating a policy paradigm over the priorities of industrial policy in general. Against that backdrop, debate over specific policy choices (policy instruments and policy settings) can leave room for a wider range of disagreement and indeed political and ideational contestation. Irish policymakers proved responsive to industry interests in the case of the FTT, but not for the reasons normally given.

Related Party Transactions and Tax Avoidance of Business Groups

This study aims to examine if the firms in business groups avoid tax by related party transactions. If other conditions are the same, firms have an incentive to maximize after-tax profits by minimizing tax burden. If the firms are in business groups, they tend to minimize tax at the business group level. It is expected that the level of tax avoidance of both parties of related party transactions will be high if tax is minimized at the business group level as the transactions will be made at a level that can minimize the tax of both the firm that reduces the taxable income through related party transactions and the firm whose taxable income increases. In addition, the effect of being in a Chaebol business group and the effect of the Unfair Related Party Transactions Tax Law on the association with related party transactions and tax avoidance are also examined. According to this study, the firms in business groups avoid tax by related party transactions. It is also found out that tax avoidance by related party transactions is done more aggressively in Chaebol member firms than non-Chaebol firms, while tax avoidance by related party transactions in Chaebol business groups decreases after the implementation of the Unfair Related Party Transactions Tax Law.

NSE Is Better Than BSE

Indian Market is an open economy since 1991. Till date many reforms have taken place in the Indian Market. One such Major Change was the coming of the National Stock Exchange (“NSE”) for trading of Shares and Commodities other than the Bombay Stock Exchange (“BSE”). From the emergence of NSE it is always a hot topic as which Exchange is better. Here in this Research Paper I have tried to answer this question in favor of NSE. The two largest and most prominent stock exchanges in India are the BSE and the NSE. While the BSE has the distinction of being the oldest stock exchange in Asia, established in 1875, the NSE has quickly grown to prominence since its creation in 1992. While these two markets dominate in India there are clear differences between the two that can impact your decision to invest. When you open an account to buy or sell shares with a broker, they generally are members of both the exchanges ie BSE and NSE. So, if you have an account at Zerodha when you buy shares you have an option of buying the same at the BSE or the NSE. Is it advantageous to buy and sell shares at BSE or NSE? Well, the only advantage that an investor will have is in terms of price. So, if you are buying a share online you can look at the price on both the exchanges and buy where the price is lower. Again, if you are selling a share you can look at the price on both the exchanges and sell at the exchange where it is higher. For example, if you want to sell Reliance and if you see on the BSE the stock is quoting at Rs 1000 and NSE it is quoting at Rs 1002, you are better off selling shares on the NSE. However, this will make sense only for market orders. If you want to place a limit order to sell Reliance shares at Rs 1006 it does not make a difference on which exchange you want to sell. There is no other difference in buying on either exchange for a limit order. The brokerage charged by the broker, the Securities Transaction Tax are all the same on either of the exchanges. The volumes of shares is generally higher on the NSE, which means if you are selling sizeable quantities the NSE could be a better proposition. It is almost impossible to get similar prices on both the exchanges. There is bound to be some price differential. Also, some shares are not traded on the NSE, which will force you to buy or sell the shares on the BSE. For example, Claris Lifesciences, Spice Jet are examples of stocks that are not traded on the NSE. Interestingly, the largest number of stocks in the world are listed on the BSE.

Unconditional Basic Income in the Czech Republic: What Type of Taxes Could Fund It? A Theoretical Tax Analysis

Abstract This paper contains a summary of public support for the idea of unconditional basic income in the Czech Republic in the first part. Interest in unconditional income can be found both in the Czech political sphere and in the social sciences community. In the second part, the article theoretically analyzes the possible sources of unconditional basic income funding. The aim of this paper is to support argumentation in favor of the implementation of BI by a systematic analysis of the real possibilities of its funding through the state tax revenues. The feasibility of funding a BI scheme using taxes on labor, property, consumption, environmental taxes, financial transaction tax, and tax on the transfer of information is considered. Consideration is also given to administrative savings that the basic income system could bring. Due to political enforceability of BI, it is important to contemplate and discuss the distortions and other problems of proposed changes in taxation, which would not be negligible as can be expected.

Taxation in the Age of Digital Globalization

Innovations in finance and information technology have radically reduced transaction costs, thereby stimulating the globalization of goods, services and capital. Capital mobility, the growth of multinational corporations, high frequency trading, complex financial instruments, and global equity exchanges, have increased the risks of global financial instability, while making the identification and assessment of income and profits by national origin increasingly obscure and difficult. Tax avoidance and evasion behaviors drastically limit the revenues and hence social expenditures of national governments whose citizens perceive existing tax systems to be overly complex, inefficient, and inequitable with high costs of administration and compliance. In contrast to the speed of financial and technological innovation, tax systems remain mired in inertia, eluding global calls for tax reform. How then, can tax systems be adapted to the digital age? There is broad consensus on the objectives of tax reform: simplification, efficiency, equity, and reduced costs of administration and compliance. Simplification and reduction in administrative and compliance costs require abandoning the plethora of loopholes and tax expenditures that well-off stakeholders have lobbied politicians to introduce by supporting their campaigns for reelection. A reformed tax law requires a clear and simple statement of what is taxable, how much it will be taxed and how the tax will be collected. A small globally adopted Automatic Payment Transaction (APT) tax, is optimal for the digital age.

Socializing Global Economic Governance: Introducing a Financial Transaction Tax

The uncontrolled exponential growth of the financial sector and its rapid globalization led to an equally rapid increase in challenges to the global financial system. The already undertaken measures aimed at improving financial stability are necessary, yet not sustainable enough. The aim of this article is to provide more analytical arguments to favour another solution – the introduction of the Financial Transaction Tax (FTT), and to increase the public and academic awareness of the necessity of such a measure. The ongoing reforms do not solve the key problem – the enormous cost to rescue the financial sector, subsidized to a large extent by the taxpayer, and the absence of a fair contribution from the financial sector. FTT as a tool to discourage excessive speculation without hindering other activities seems to be a socially responsible measure working for financial stability at the same time. To efficiently socialize its impact, however, it is critical to define exact patterns of spending of the funds raised by the states.

Time on market (TOM): The impact of new residential stamp duty

This paper is the pioneer research considering impacts of new residential stamp duty on TOM. This paper covers space and time information of property transaction via spatial–temporal model, which overcomes the deficits of previous studies by only capturing temporal information. A spatial model selection scheme is adopted in this paper which largely reduces the subjective model selection bias. The results of this paper enable to test and support the important housing theory: when the new residential stamp duty is executed, buyers’ options are limited then TOM is reduced. The reduced TOM implied that buyers intend to suffer high transaction tax of the property on the condition that new residential stamp duty is enforced. They believe that performance of property asset still outperforms the other investment vehicles in Hong Kong. The results of this paper provide valuable information on policy making.

The revenue potential of a financial transaction tax for US financial markets

ABSTRACTThis paper estimates the revenue potential of a financial transaction tax (FTT) for US financial markets. We focus on analyzing the revenue potential of the Inclusive Prosperity Act that was introduced in the US House of Representatives in 2012 and the US Senate in 2015. The tax rates stipulated in this Act include 0.5% (50 basis points (bps)) for all stock transactions, 0.1% (10 bps) for all bond transactions and 0.005% (0.5 bps) on the notional value of all derivative trades. We examine three sets of evidence to generate potential revenue estimates: 1) the levels of transaction costs in US financial markets over time and within the range of financial market segments; 2) the extent of trading elasticities under various trading conditions; and 3) the current level of trading activity in US financial markets. Based on this evidence, we conclude that a US FTT operating at the tax rates stated above would generate about $220 billion per year, equal to about 1.2% of the current US GDP.

The European Union as a Global Actor: The Case of the Financial Transaction Tax

The EU plays a high-profile role in the international arena, and yet this role still evades accurate conceptualization. Since the EU is not a state, it is commonly accepted assui generis; a normative power influencing the world order mostly by means of direct and intermediary persuasion. Despite this position, in practice when championing the global normative agenda, the EU does not always demonstrate high efficiency as a leader. This article studies the EU’s efforts to push through regional and global versions of a financial transaction tax, meant to promote the common good through the positive externalities it generates for the economy. The aim of the article is to arrive at an adequate explanation for the (in)ability of the EU to act as an agent of global governance in this case. The focus of attention is the inner organizational limitations on the EU’s behaviour as a global actor.

VAT and the Sharing Economy

The sharing economy, underpinned by digital platforms like Airbnb and Uber, which pair individuals’ needs and wants, from accommodation to rides, is on the ascent. These new business models, where capital and labour are provided by several dispersed individuals rather than by a single centralized entity, defy the operational structure of comparable traditional activities. In the sharing economy, in fact, the personal and the professional spheres blur, and selfish motivations mingle with altruistic aims, while transactions span the whole market-to-gift spectrum. Against this background, in which the classification of individuals and transactions is less straightforward, the article intends to assess the practical feasibility of specific EU VAT notions such as “taxable persons” and “taxable transactions”, as interpreted by the ECJ and the VAT doctrine. In addition, the research seeks to test these concepts against a framework of selected tax principles.

Tax control of cryptocurrency transactions in Ukraine

The current global financial market is witnessing the activation of cryptocurrency as a payment instrument and a means of accumulation. However, the risks of money laundering, terrorism financing and tax evasion that cryptocurrency transactions imply lead to the need to implement their state regulation, an important component of which is tax control.Therefore, the purpose of the article is to substantiate the value orientations when forming the system of cryptocurrency transactions tax control in Ukraine taking the positive experience of developed countries into account. The scientific results of the study consist in the emphasizing structural, functional, systemic and institutional approaches to understanding tax control, which became the basis for identifying the features of cryptocurrency transactions as a tax control object.It was revealed that the lack of personalization of the agreement parties, the relatively high level of information security, free international turnover and a decentralized payment system are the factors of the cryptocurrency market further development. On the other hand, this leads to the loss of tax revenues for Ukrainian budgetary system, taking into account the forecasted trends in the development of the cryptocurrency market by 2022 through methods of sums, least squares and expert estimates. Given the institutional approach to the understanding of tax control, an institutional structure of the cryptocurrency transactions tax control in Ukraine is proposed.It is established that domestic state institutions are able to carry out tax control over these transactions. It is also determined that introducing fiscal control will result in the receipt of additional revenues by budgets, reduction of shadow economy, counteraction to cybercrime and terrorism financing.The practical importance of the results is in the need to form an effective system of cryptocurrency transactions tax control as a function of public administration.It has been determined that transactions on cryptocurrency supply, on the determining exchange rates and transactions on cryptocurrency disposal should be an object of tax control in Ukraine. Mining transactions, receipt of income (profits) in the cryptocurrency are subject to general taxes, depending on the taxpayer’s legal status, in particular, personal income tax, corporate income tax and a unified social tax (UST). Taking into account the EU recommendations on the non-application of value added tax in the cryptocurrency transactions taxation, it is not appropriate to implement it in this area. Establishing tax control over cryptocurrency transactions will expand the powers of state authorities that are empowered to control observing financial discipline by economic agents in Ukraine and the financial capabilities of state and local budgets.

Corporate Income Tax Contribution of the Polish Financial Sector

Abstract The financial crisis has stimulated debate on the taxation of the financial sector. The focus is on the bank levy and financial transaction tax, whereas corporate income tax attracts less attention in the public debate. Accordingly, this study analyses the contribution of the financial sector to Polish revenue from corporate income tax. Based on tax statistics of the Ministry of Finance from 1998 to 2016, the aggregated effective tax burden of the financial sector is determined and compared with the tax burden of corporations from other sectors. In addition, the study deals with loss deduction of the financial sector in comparison to non-financial corporations. The study shows that the effective tax burden of the financial sector - measured as a ratio of the tax due to income - is higher than the corresponding burden for corporations from outside this sector. A higher corporate income tax burden of the financial sector also applies if it is measured by aggregated profits reduced by losses. An exception to this is the period up to 2002 and the year 2009, when the effective tax burden of the financial sector was lower after the inclusion of losses when compared to other sectors of the Polish economy. This can be explained by the relatively low losses of the Polish financial corporations compared to other corporations. Furthermore, the study shows that tax losses in the financial sector are used much more effectively. The minimum ratio of the expired loss carry-forward - due to its limitation up to five years – to the reported losses accounts for 20.2% for this sector and is thereby significantly lower than the corresponding share of 54.6% for non-financial corporations.

The Capital Markets Union: Key Challenges

In September 2015, the European Commission announced the first actions of its plan to build a Capital Markets Union in Europe. We describe the key features of the Commission’s plan and discuss the economic rationale behind it. The plan has many strengths but also some weaknesses, such as limited ambition in the supervision and enforcement of securities regulations. Other challenges to the development of European capital markets include the financial transactions tax, the low-interest-rate environment, cultural reasons, and potential political opposition.

Central banking and the infrastructural power of finance: the case of ECB support for repo and securitization markets

Abstract The pre-crisis rise and post-crisis resilience of European repo and securitization markets represent political victories for the interests of large banks. To explain when and how finance wins, the literature emphasizes lobbying capacity (instrumental power) and the financial sector’s central position in the economy (structural power). Increasingly, however, finance also enjoys infrastructural power, which stems from entanglements between specific financial markets and public-sector actors, such as treasuries and central banks, which govern by transacting in those markets. To demonstrate the analytical value of this perspective, the article traces how the European Central Bank (ECB), motivated by monetary policy considerations, has shaped post-crisis financial policymaking in the EU. It shows that the ECB has played a key part in fending off a financial transaction tax on repos and in shoring up and rebuilding the securitization market. With market-based forms of state agency on the rise, infrastructural entanglement and power shed new light on the politics of finance.

Sharing Economy – New Phenomenon

Economics sharing is one of the most amazing and provoking phenomena with which we face in the modern economy. The purpose of this article is to show the specificity of sharing economy and its international outreach. The phenomenon of sharing economy is a phenomenon of recent years in developed countries; being a social response to the crisis, the debt trap, high profits of big corporations, environmental destruction and waste of raw materials and products. Development of the sharing economy indicates that started a new period of market education and economic rationality in consumer behavior. National governments will have to take a stand on the issue of regulation and taxation of transactions in the new market segment, which is the sharing economy. the article makes an important issue which is the future and opportunities faced by the sharing economy. The authors conduct synthetic quantitative analysis of this phenomenon, not forgetting the presentation of critical comments.

CEO of Apparent Private Foundation Hit With Excess Benefit Transaction Taxes

CEO of Apparent Private Foundation Hit With Excess Benefit Transaction Taxes

Securities Transaction Taxes and Market Quality

We study changes in market quality associated with 9 modifications to the New York State securities transaction tax (STT) between 1932 and 1981 and 3 changes to the federal STT between 1932 and 1966. We find that when there is an increase in the level of an STT, individual stock volatility increases, bid–ask spreads widen, price impacts are greater, and volume decreases. We examine the propensity of traders to switch trading locations to avoid the tax and find mixed evidence that they will change locations. Overall, our findings support the notion that the imposition of or increases in an STT harm market quality.

Ekonomika opodatkowania zdarzenia gospodarczego

The paper considers critical review of economic aspects of business transaction taxation. The aim of paper is to extract the determinants of the ability of government to tax business transactions. The subject of the paper contains the study of the aggregation (conjunction) of many business transactions because of complex taxation, even transactions differing in terms of their economic character. The details of the investigation of disaggregation (disjunction) of taxed transactions are provided, where attributes of involved agents are juxtaposed. The paper focuses on acceptable time caesura between actualization of business transactions and emerging of formal obligation to pay tax. The paper discusses the precedence of enacting tax statute (legalization of taxation), imposing an obligation to pay tax, and business incident.