The Effect of Taxation on Corporate Financing and Investment

2021 ◽  
Author(s):  
Hong Chen ◽  
Murray Z Frank
Keyword(s):  
Corporate Tax ◽  
Firm Level ◽  
Corporate Financing ◽  
Tax Rate ◽  
Household Level ◽  
Laffer Curve ◽  
Personal Taxes ◽  
Corporate Decisions ◽  
Financing And Investment ◽  
The Impact

Abstract Extensive empirical research concerning the impact of taxes on corporate decisions has had trouble identifying seemingly obvious effects. Perhaps the problem is that the seemingly obvious tax predictions are not quite right. We provide an equilibrium model with both corporate and personal taxes. In the steady-state equilibrium, the corporate tax rate affects the level of production despite interest deductibility at the firm level, but not household-level taxes on interest earnings or dividends. We prove several other tax irrelevance results and document a Laffer curve in the corporate tax rate.

scholarly journals Malaysian corporate tax rate and revenue: the application of Ibn Khaldun tax theory

2018 ◽  
Vol 10 (2) ◽  
pp. 251-262
Author(s):  
Hairul Azlan Annuar ◽  
Khadijah Isa ◽  
Salihu Aramide Ibrahim ◽  
Sakiru Adsebola Solarin
Keyword(s):  
Cash Flow ◽  
Positive Impact ◽  
Tax Revenue ◽  
Corporate Tax ◽  
Gradual Reduction ◽  
Content Type ◽  
Ibn Khaldun ◽  
Tax Rate ◽  
Optimal Tax ◽  
The Impact

Purpose The present study aims to investigate the impact of the reduction of the corporate tax rate on corporate tax revenue. The study adopts the theory of taxation by Ibn Khaldun, depicted as the Laffer curve. Design/methodology/approach The paper analyses time series data for the period 1996 to 2014 using the autoregressive distributed lag (ARDL) approach. Findings The paper finds that the corporate tax rate has a dual effect on corporate tax revenue over the study period. It shows an inverted U-shape relationship between the corporate tax rate and corporate tax revenue and reveals that the optimal tax rate is 25.5156 per cent. Inferentially, a positive relationship exists between the two variables prior to the optimal tax rate, and a negative relationship prevails afterwards. A further test of causality shows a long-run unidirectional causality between corporate tax rate and corporate tax revenue. Research limitations/implications First, it should be noted that the policy was not implemented in isolation. Several other tax incentives were given to corporate tax payers, and therefore, such incentives should be controlled for to have a more insightful evaluation of the policy. Second and most important, there is a need to investigate whether the increased cash flow available to firms as a result of the reduction in the corporate tax rate adds value to firms. It is also necessary to investigate whether firms’ stakeholders benefited from the increased cash flow or was there managerial diversion of firms’ resources. Practical implications The policy of gradual reduction of the corporate tax rate in Malaysia is suspected to have a positive impact on the productivity of Malaysian companies, which has contributed to an increase in corporate tax revenue. It also has a positive impact on the economic growth of the country. It means that the lower corporate tax rate has actually reduced the cost of doing business in the country. Originality/value The benefit of increased corporate tax revenue needs to be investigated empirically for insightful policy evaluation. In Malaysia, however, such investigation is close to non-existent to the best knowledge of the researchers. Thus, the present study aims at investigating the impact of the policy of gradual reduction of the corporate tax rate on corporate tax revenue over an 18-year period from 1996 to 2014.

scholarly journals Effects of IFRS adoption on tax avoidance

2017 ◽  
Vol 28 (75) ◽  
pp. 407-424 ◽  
Author(s):  
Renata Nogueira Braga
Keyword(s):  
Financial Reporting ◽  
Tax Avoidance ◽  
Publicly Traded ◽  
Corporate Tax ◽  
Firm Level ◽  
Tax Rate ◽  
Publicly Traded Companies ◽  
Accruals Management ◽  
Financial Reporting Standards ◽  
Ifrs Adoption

ABSTRACT This study investigates the association between mandatory International Financial Reporting Standards (IFRS) adoption and corporate tax avoidance. In this study, tax avoidance is defined as a reduction in the effective corporate income tax rate through tax planning activities, whether these are legal, questionable, or even illegal. Three measures of tax avoidance are used and factors at the country and firm level (that have already been associated with tax avoidance in prior research) are controlled. Using samples that range from 9,389 to 15,423 publicly-traded companies from 35 countries, covering 1999 to 2014, it is found that IFRS adoption is associated with higher levels of corporate tax avoidance, even when the level of book-tax conformity required in the countries and the volume of accruals are controlled, both of which are considered potential determinants of this relationship. Furthermore, the results suggest that after IFRS adoption, firms in higher book-tax conformity environments engage more in tax avoidance than firms in lower book-tax conformity environments. It is also identified that engagement in tax avoidance after IFRS adoption derives not only from accruals management, but also from practices that do not involve accruals. The main conclusion is that companies engage more in tax avoidance after mandatory IFRS adoption.

Corporate tax planning and corporate tax disclosure

2019 ◽  
Vol 28 (2) ◽  
pp. 327-364
Author(s):  
Mahfoudh Hussein Mgammal
Keyword(s):  
Positive Impact ◽  
Positive Influence ◽  
Tax Planning ◽  
Corporate Tax ◽  
Effective Tax Rate ◽  
Firm Level ◽  
Data Set ◽  
Content Type ◽  
The Impact ◽  
Practical Implications

Purpose This paper aims to examine the impact of corporate tax planning (TP) on tax disclosure (TD). Using tax expenses data set, with the detailed effective tax rate (ETR) by reconciling individual items of income and expenses. Design/methodology/approach A firm-level panel data set is used to analyse 286 non-financial listed companies on Bursa Malaysia that spans the period 2010-2012. Multivariate statistical analyses were run on the sample data. The empirical understanding of TD depends on public sources of data in the financial statement, characterized in the aggregated note of tax expenses. Fitting with Malaysian environment, the authors measured TD using modified ETR reconciling items. Findings Results show that TP, exhibit a robust positive influence on TD. This suggests that TP is related to lower corporate TD. In addition, companies with high TP attempt to mitigate the disclosure problem by increasing various TD. The authors further find significant positive impact between each of firm size and industry dummy, on TD. This means that company-specific characteristics are significant factors affecting corporate TD. Research limitations/implications This study contributes to the literature on the effect of TP on TD. It depends on both the signalling theory and the Scholes–Wolfson framework, which are the main theories concerned with TP and TD. Therefore, from a theoretical side, the authors add to the current theories by verifying that users are the party influenced whether positively or negatively, by the extent of TD or the extent of TP activities through Malaysian organizations. Practical implications The evidence found in this paper has important policy and practical implications for the authorities, researchers, decision makers and company managers. The findings can provide them some relevant insights on the importance of TP actions from companies’ perspective and contribute to the discussion of who verifies and deduces from TD directed by companies. Originality/value This paper originality is regarded as the first attempt to examine the impact of TP on TD in a developing country such as Malaysia. Malaysian setting is an interesting one to examine because Malaysia could be similar to other countries in Southeast Asia. Results contribute significant insights to the discussion about TD regarding, which parties are responsible for the verification of TD by firms, and which parties benefit from this disclosure. Findings suggest that companies face a trade-off between tax benefits and TD when selecting the type of their TP.

scholarly journals Comparison of Income Tax Base in Visegrad Countries

2021 ◽  
Vol 16 (2) ◽  
pp. 101-110
Author(s):  
Jana Hinke ◽  
Tomáš Rain ◽  
Barbora Hrabovská
Keyword(s):  
Literature Review ◽  
Income Tax ◽  
Corporate Tax ◽  
Tax Base ◽  
Tax Rate ◽  
The Disabled ◽  
The Impact ◽  
Visegrád Countries ◽  
Calculation Procedures

Abstract The objective of the research was to compare the procedures for the calculation of income tax in the Visegrad Four (V4) countries. The statutory income tax calculation procedures are very similar in the V4 countries. Particular systems differ parametrically. Based on a literature review, synthesis of knowledge, comparison and simulation calculations, it can be stated that Hungary has the lowest corporate tax rate, and in the simulative calculations it also produced the lowest tax and highest profit after taxation for a fictitious entity in Hungary. Income tax in the V4 countries differs mainly in the possibility of applying the loss of previous years, in the impact of depreciation on the amount of the tax and in the income tax rebate linked to the employment of the disabled.

scholarly journals Corporate taxes and the location of FDI in Europe: The importance of economic integration and project characteristics

2018 ◽  
Vol 63 (217) ◽  
pp. 39-73 ◽  
Author(s):  
Tomás Silva ◽  
Sérgio Lagoa
Keyword(s):  
Capital Intensity ◽  
Foreign Firms ◽  
Monetary Integration ◽  
High Tech ◽  
Corporate Taxes ◽  
Tax Rates ◽  
Firm Level ◽  
Tax Rate ◽  
Project Characteristics ◽  
The Impact

European countries face ever-increasing competition for Foreign Direct Investment (FDI). This paper studies how corporate taxes affect the location of FDI in Europe. Using firm-level data, we start by analysing the impact of the level and volatility of three tax rates on FDI: effective, statutory, and marginal tax rates. Next, we investigate how economic and monetary integration influences the effect of taxes on FDI. Finally, we focus on how the impact of taxes varies by project characteristics and sector: expansion versus new investment, industry versus services, high-tech versus low-tech manufacturing industries, and high versus low capital intensity firms. We conclude that stable taxes play a significant role in attracting FDI and, most importantly, that lowering taxes fosters FDI especially when the country has a high tax rate or is outside the euro area. There are some nuances in this relationship that are relevant to policymakers. Tax cuts are particularly important in stimulating foreign firms already in situ to expand their activities and in attracting industrial businesses. Finally, capital-intensive projects are less sensitive to taxes, but high-tech manufacturing projects have the same reaction to tax rates as other manufacturing projects.

The impact of R&D tax incentive programs on the performance of innovative companies

foresight ◽  
2019 ◽  
Vol 21 (5) ◽  
pp. 545-562
Author(s):  
Elena Makeeva ◽  
Ilona Murashkina ◽  
Irina Mikhaleva
Keyword(s):  
Explanatory Variable ◽  
Corporate Taxation ◽  
Corporate Tax ◽  
Data Set ◽  
Content Type ◽  
Tax Rate ◽  
Incentive Programs ◽  
Incentive Program ◽  
Tax Incentive ◽  
The Impact

Purpose This study aims to explore the influence of corporate taxation on the performance of innovative companies under various research and development (R&D) tax incentive programs. Design/methodology/approach The empirical model is based on the data of 520 companies for period 2007-2016. This model includes return on assets as the main proxy for performance and effective tax rate as a main explanatory variable. Controlling for other known determinants, the authors divide the sample into the subsamples to control for the various R&D tax incentive programs. The fact that the model includes the lagged explanatory variable of performance the Blundell –Bond model was applied. Findings The authors found evidence that corporate taxation has a significant impact on performance, but the direction could be ambiguous. Impact of the corporate tax rate on performance in general sample is significantly negative, which is consistent with results obtained by authors for the non-innovative companies. However, for further examination, the authors use subsamples of companies with different R&D tax incentive programs. The effect of corporate tax becomes positive under the patent box program only. Moreover, under various R&D tax incentive program, the impact of main control variables has changed. Therefore, the authors conclude that not only corporate taxation but also R&D tax incentive programs significantly influence the performance of innovative companies. Research limitations/implications The data are limited due to fragmented information disclosure about the R&D tax incentive program used. Thus, a different data set might reveal new information and correlation between variable on the same topic. Moreover, the authors do not cover all R&D tax incentive programs, which are specified for companies and countries. However, the study fills the gap between corporate taxation, performance and innovative companies. As the significant result was found the further research is important. The study contributes not only in the field of research but also a practical one. The choice of R&D tax incentive program influences main indicators of companies’ performance so it may change the behavior of the investors and decision-making managers of the companies. Originality/value Given the increasing interest in the topic of innovative companies, this study fills the gap between corporate taxation in innovative companies and performance. In addition, the importance of R&D tax incentive programs as a feature of innovative companies was found.

scholarly journals THE IMPACT OF THE 2017 TAX ACT ON CERTAIN PERSONAL INJURY PLAINTIFFS

2020 ◽  
Vol 12 (1) ◽  
pp. 27-57
Author(s):  
Gregg Polsky
Keyword(s):  
Internal Revenue Service ◽  
Personal Injury ◽  
Corporate Tax ◽  
Tax Rate ◽  
Administrative Action ◽  
Tax Legislation ◽  
Contingent Fee ◽  
The Impact ◽  
Treasury Department ◽  
Significant Attention

The 2017 Tax Act was the most sweeping federal tax legislation in over a generation. While many of its reforms, from dramatically lowering the corporate tax rate to altering the international tax rules, have already received significant attention, comparatively little attention has been paid to the 2017 Tax Act’s effects on personal injury plaintiffs. This Article explores those impacts. The 2017 Tax Act added a new provision that indirectly affects plaintiffs who allege sexual harassment or abuse. The new provision disallows the defendants’ deductions if the parties enter into a nondisclosure agreement. While targeted at defendants, the provision likely unwittingly harms plaintiffs by reducing settlement offers. The provision also suffers from a host of ambiguities that the Treasury Department and Internal Revenue Service will need to resolve. The 2017 Tax Act also eliminated so-called miscellaneous itemized deductions. In certain types of personal injury claims, such as defamation or emotional distress, this development causes the plaintiff to be taxed on the full settlement amount even if, as is often the case, one-third or more of the settlement is paid as a contingent fee to the plaintiff’s attorney. Legislative or administrative action is required to remedy this patent unfairness.

scholarly journals THE ROLE OF TAX ADMINISTRATION AND TAX RATE ON FOREIGN DIRECT INVESTMENT

2020 ◽  
Vol 13 (1) ◽  
pp. 64-82
Author(s):  
Rusman Affandi Nasution
Keyword(s):  
Institutional Performance ◽  
Essential Factor ◽  
Corporate Tax ◽  
Tax System ◽  
Middle Income ◽  
Fdi Inflows ◽  
Tax Rate ◽  
Middle Income Countries ◽  
The Impact

This thesis examines the impact of the tax system in determining FDI inflows in countries around the world from 2010 to 2017. We group the countries into two groups, based on income levels. Our findings suggest that the tax system, which reflects the easiness of tax payment, and the commitment to all tax regulations, plays a significant role in determining FDI inflows in low & middle-income countries. In high-income countries, it is the corporate tax cut that plays the role. The result implies that improved institutional performance in low & middle-income countries is an essential factor to induce FDI inflows.

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