scholarly journals Implicit Taxes Amid Race to the Bottom in a Global Tax Game

2020 ◽  
Vol 27 (1) ◽  
pp. 44
Author(s):  
Igor Semenenko ◽  
Junwook Yoo ◽  
Parporn Akathaporn
Keyword(s):  
Capital Mobility ◽  
Tax Rates ◽  
Corporate Tax ◽  
Firm Level ◽  
Race To The Bottom ◽  
Tax Subsidy ◽  
Tax Subsidies ◽  
Level Data ◽  
Tax Returns ◽  
Tax Hypothesis

Growing tax competition among national governments in the presence of capital mobility distorts equilibrium in the international corporate tax market. This paper is related to the literature that examines impact of international tax policies on corporate accounting statements. Employing international firm-level data, this study revisits the race-to-the-bottom hypothesis and documents that tax exemptions lowering effective tax rates relative to statutory rates increase pre-tax returns. This finding directly contradicts the implicit tax hypothesis documented by Wilkie (1992), who provided empirical evidence on inverse relationship between pre-tax return and tax subsidy. We also find evidences that relative importance of permanent versus timing component depends on the geography and that decline in corporate tax rates reduces impact of tax subsidies on profitability. Our findings suggest that tax subsidies play a different role than in 1968-1985, which was examined by Wilkie (1992). These results are consistent with the race-to-the-bottom hypothesis and income shifting explanation

Implicit Taxes Amid Race to the Bottom in a Global Tax Game

2020 ◽  
Vol 27 (2) ◽  
pp. 42
Author(s):  
Igor Semenenko ◽  
Junwook Yoo ◽  
Parporn Akathaporn
Keyword(s):  
Capital Mobility ◽  
Tax Rates ◽  
Corporate Tax ◽  
Firm Level ◽  
Race To The Bottom ◽  
Tax Subsidy ◽  
Tax Subsidies ◽  
Level Data ◽  
Tax Returns ◽  
Tax Hypothesis

Growing tax competition among national governments in the presence of capital mobility distorts equilibrium in the international corporate tax market. This paper is related to the literature that examines impact of international tax policies on corporate accounting statements. Employing international firm-level data, this study revisits the race-to-the-bottom hypothesis and documents that tax exemptions lowering effective tax rates relative to statutory rates increase pre-tax returns. This finding directly contradicts the implicit tax hypothesis documented by Wilkie (1992), who provided empirical evidence on inverse relationship between pre-tax return and tax subsidy. We also find evidences that relative importance of permanent versus timing component depends on the geography and that decline in corporate tax rates reduces impact of tax subsidies on profitability. Our findings suggest that tax subsidies play a different role than in 1968-1985, which was examined by Wilkie (1992). These results are consistent with the race-to-the-bottom hypothesis and income shifting explanation

scholarly journals Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers

1999 ◽  
Vol 74 (3) ◽  
pp. 371-393 ◽  
Author(s):  
Kathy R. Petroni ◽  
Douglas A. Shackelford
Keyword(s):  
State Government ◽  
State Level ◽  
Income Shifting ◽  
Tax Rates ◽  
Firm Level ◽  
Level Data ◽  
State Tax ◽  
Total State ◽  
State Taxes ◽  
Accounting Reports

We hypothesize that, in their annual accounting reports, propertycasualty insurers allocate premiums from multistate policies to reduce total state taxes. To test this prediction, we exploit the industry's unique state tax disclosures. We examine firm-level data, collected from the publicly available, statutory reports filed with each state government. Reported premiums at the insurer-state level, scaled by incurred losses, are regressed on state tax measures. Consistent with tax-motivated income shifting, we find the premiumloss ratio is decreasing in state tax rates. The negative relation is greatest for insurers specializing in multistate lines of business.

scholarly journals Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes

2011 ◽  
Vol 86 (3) ◽  
pp. 887-914 ◽  
Author(s):  
Jennifer L. Blouin ◽  
Jana S. Raedy ◽  
Douglas A. Shackelford
Keyword(s):  
Generalized Method Of Moments ◽  
Capital Gains ◽  
Share Repurchases ◽  
Individual Investors ◽  
Tax Rates ◽  
Capital Gains Tax ◽  
Firm Level ◽  
Shareholder Taxes ◽  
Tax Returns ◽  
Directors And Officers

ABSTRACT: This study jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors and officers, but not other individual investors, rebalanced their portfolios to maximize after-tax returns in light of the new tax rules. We also find that firms adjusted their distribution policy (specifically, dividends versus share repurchases) in a manner consistent with the altered tax incentives for individual investors. To our knowledge, this is the first study to employ simultaneous equations to estimate both shareholder and managerial responses to the 2003 rate reductions. We find that the generalized method of moments (GMM) estimates are substantially stronger than OLS estimates, consistent with our expectation that investor and manager responses are simultaneously determined. Failure to estimate systems of equations may account for some of the weak and conflicting results from prior studies of the 2003 rate reductions.

International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

2020 ◽  
Vol 102 (4) ◽  
pp. 766-778 ◽  
Author(s):  
Li Liu ◽  
Tim Schmidt-Eisenlohr ◽  
Dongxian Guo
Keyword(s):  
United Kingdom ◽  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
The United Kingdom ◽  
Tax Returns ◽  
Medium Level ◽  
Transfer Prices

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It shows that the 2009 tax reform in the United Kingdom, which changed the taxation of corporate profits from a worldwide to a territorial system, led to a substantial increase in transfer mispricing. It also provides evidence for a trade creation effect of transfer mispricing and estimates substantial transfer mispricing in non-tax-haven countries with low- to medium-level corporate tax rates, and in R&D intensive firms.

scholarly journals Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships

2016 ◽  
Vol 8 (3) ◽  
pp. 170-202 ◽  
Author(s):  
Anca D. Cristea ◽  
Daniel X. Nguyen
Keyword(s):  
Multinational Corporations ◽  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Rates ◽  
Profit Shifting ◽  
Firm Level ◽  
For Profit ◽  
Tax Returns ◽  
Triple Difference ◽  
Downward Bias

Using a firm-level dataset of Danish exports between 1999–2006, we find robust evidence for profit shifting by multinational corporations. Our triple difference estimations exploit the response of export unit values to acquisitions of foreign affiliates and to changes in statutory corporate tax rates. This identification strategy corrects for a downward bias resulting from firms adjusting arm's length prices to obscure transfer price manipulations. We find that Danish multinationals reduce the unit values of their exports to low tax countries between 5.7 to 9.1 percent. This difference corresponds to a tax revenue loss of 3.24 percent of Danish multinationals' tax returns. (JEL D21, D22, F14, F23, H25, H32)

scholarly journals Is NY's Supply-side Experiment Working? A Preliminary Analysis using County Unemployment Rates

2018 ◽  
Vol 10 (3) ◽  
pp. 245-266
Author(s):  
Lynn B. Snarr ◽  
Hal Snarr ◽  
Dan Friesner
Keyword(s):  
New York ◽  
The State ◽  
Tax Rates ◽  
Free Enterprise ◽  
Corporate Tax ◽  
Tax Reforms ◽  
Tax Rate ◽  
Start Up ◽  
Level Data ◽  
Business Tax

The State of New York recently enacted business tax reforms. The first legislative act launched the START-UP NY program in 2014. It created tax free enterprise zones throughout the state to incentivize business incubation within, or relocation of existing firms to, the State of New York. In that same year, the state lowered its corporate tax rate state-wide from 7.1% to 6.5% in 2016. We use a difference-in-differences (DID) methodology, evaluated using county-level data, to empirically test whether New York’s recent business tax reforms significantly reduce unemployment, beyond what would exist in the absence of the reforms. We fail to find significant evidence that START-UP NY affects unemployment during the period studied, 2014-2017.  We do, however, find evidence suggesting that New York lowering its corporate tax rates in 2016 is associated with a large reduction in unemployment (by approximately 90,000 jobs) in 2016 and a smaller reduction (by approximately 25,000 jobs) in 2017.

The Costs of Corporate Tax Complexity

2021 ◽  
Vol 13 (2) ◽  
pp. 467-500
Author(s):  
Eric Zwick
Keyword(s):  
Small Firms ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Tax Rates ◽  
Corporate Tax ◽  
Corporate Behavior ◽  
Research Designs ◽  
Tax Returns ◽  
Code Complexity ◽  
Tax Loss

Does tax code complexity alter corporate behavior? We investigate this question by studying the decision to claim refunds for tax losses. In a sample of 1.2 million observations from the population of corporate tax returns, only 37 percent of eligible firms claim their refund. A simple cost-benefit analysis of the tax loss choice cannot explain low take-up, motivating an exploration of how complexity alters this calculation. Research designs exploiting tax preparer switches, deaths, and relocations show that sophisticated preparers increase claim rates for small firms. Imperfect take-up has implications for measuring marginal tax rates and for the design of fiscal policy. (JEL D22, D61, E62, H25, K34)

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