nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2009‒09‒05
ten papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Common corporate tax base (CCTB) and effective tax burdens in the EU member states By Oestreicher, Andreas; Reister, Timo; Spengel, Christoph
  2. Basic Principles of Hedge Accounting By Bunea-Bontas, Cristina Aurora
  3. Planning and Policy Issues Raised by the Structure of the U.S. International Tax Rules By Daniel N. Shaviro
  4. Long-Run Impacts of Inflation Tax in the Presence of Multiple Capital Goods By Fujisaki , Seiya; Mino, Kazuo
  5. Taxing Risky Investment By Michael P. Devereux
  6. The Direct Incidence of Corporate Income Tax on Wages By Wiji Arulampalam; Michael P Devereux; Giorgia Maffini
  7. Internal Debt and Multinationals' Profit Shifting - Empirical Evidence from Firm-Level Panel Data By Thiess Buettner; Georg Wamser
  8. Corporate Taxation and the Choice of Patent Location within Multinational Firms By Tom Karkinsky; Nadine Riedel
  9. Avoidance Policies – A New Conceptual Framework By David Ulph
  10. Value Added Taxes, Chain Effects and Informality By Aureo de Paula; Jose A. Scheinkman

  1. By: Oestreicher, Andreas; Reister, Timo; Spengel, Christoph
    Abstract: The article assesses the impact of a Common Corporate Tax Base (CCTB) as promoted by the European Commission and the related Working Groups on the effective tax burdens of companies in all 27 EU member states. The results shall help to evaluate the economic consequences of introducing a harmonized set of tax accounting rules for EU-based companies. The proposals for a CCTB covered here include depreciation on intangibles, machinery, buildings, furniture and fixture, simplified valuation of inventories, determination of production costs for stocks, treatment of costs for R&D as part of production costs, provisions for future pension payments, provisions for legal obligations, avoidance of double taxation regarding dividend income, and loss relief. The proposed options for a CCTB are applied for average EU-27 corporations of different size as well as for model companies belonging to different economic sectors.
    Keywords: European Taxation,Tax Harmonization,Tax Accounting,Effective Tax Burdens
    JEL: H20 H21 H25 K34
    Date: 2009
  2. By: Bunea-Bontas, Cristina Aurora
    Abstract: The development of the capital markets increases the key role of the financial manager both in using the new techniques for administrating the risks and in assessing hedge effectiveness. Risk means possible uncertainty regarding cash flows, influencing the fair value of assets and liabilities or the value of cash flow relating to future transactions of the entity. This article emphasizes that possible financial risk in international business, like as price risk, credit risk, risk of liquidity, can be hedged using financial instruments, especially derivatives, like as forward, futures, options and swaps. The accounting treatment for these instruments is presented in accordance to the basic principles of hedge accounting imposed by IAS 39. Additionally, there are references to the most important requirements regarding the accounting rules regarding recognition and measurement of hedged derivatives according to the Romanian regulations.
    Keywords: hedge derivatives; fair value; hedge accounting; hedge effectiveness; risk management
    JEL: M41 D84 F30 E40 G20
    Date: 2009–08
  3. By: Daniel N. Shaviro (NYU Law School)
    Abstract: The U.S. international income tax rules, which govern the U.S. tax treatment of multinational companies, employ five key concepts: corporate residence, source of income, foreign tax credits with limits, deferral, and subpart F. This paper, which is a draft version of chapter 2 of a book in progress entitled Fixing the U.S. International Tax Rules, explores the tax planning and tax policy issues raised in practice by each of these concepts, focusing in particular on how, why, to what extent, and with what consequences each of them runs into difficulty in practice.
    Keywords: tax law, corporate taxation, international taxation, corporate residence, source, foreign tax credits, controlled foreign corporations, deferral, subpart F
    JEL: H20 H21 H25
    Date: 2009
  4. By: Fujisaki , Seiya; Mino, Kazuo
    Abstract: This paper examines the long-run impact of inflation tax in the context of a generalized Ak growth model in which the production technology uses two types of capital stocks under a constant-returns-to-scale technology. We find hat unless investment expenditure for each type of capital is subject to the same degree of cash-in-advance constraint, a change in the money growth rate affects the steady-state level of factor intensity. It is shown that if the balanced-growth path is uniquely given, we still have a negative long-run relationship between money growth and the growth rate of real income. However, due to the endogenous determination of the factor intensity, the negative relation between the velocity of money and the rate of inflation may not be established.
    Keywords: maintenance expenditures; endogenous Growth; cash-in-advance constraint; inflation tax
    JEL: O42 E31 E52
    Date: 2009–06
  5. By: Michael P. Devereux (Centre for Business Taxation, Said Business School, University of Oxford)
    Abstract: This paper re-examines the impact of consumption and capital income taxes on (a) the incentive to undertake risky investment and (b) the revenue generated from such taxes. It challenges a well-known claim in the literature that a capital income tax with full loss offset can leave incentives to invest "basically unaffected" because the tax liability is offset by a reduction in the post-tax risk of the investment. Instead, it argues that such a tax would have a significantly negative impact on the incentive to invest.
    JEL: H25 H32 E22
    Date: 2009
  6. By: Wiji Arulampalam (University of Warwick and Oxford University Centre for Business Taxation); Michael P Devereux (Oxford University Centre for Business Taxation); Giorgia Maffini (University of Warwick and Oxford University Centre for Business Taxation)
    Abstract: We examine how far taxes on corporate income are directly shifted onto the workforce. We use data on 55,082 companies located in nine European countries over the period 1996–2003. We identify this direct shifting through cross-company variation in tax liabilities, conditional on value added per employee. Our central estimate is that the long run elasticity of the wage bill with respect to taxation is -0.093. Evaluated at the median, this implies that an exogenous rise of $1 in tax would reduce the wage bill by 75 cents. We find only weak evidence of a difference for multinational companies.
    Date: 2009
  7. By: Thiess Buettner (Ifo Institute and Munich University (LMU)); Georg Wamser (Ifo Institute)
    Abstract: This paper is concerned with the shifting of taxable profits by means of borrowing and lending between affliates of multinational corporations. Empirical evidence is provided using microlevel panel data of virtually all German multinationals made available by the German Central Bank (Bundesbank). This comprehensive dataset allows us to exploit differences in taxing conditions in more than 150 countries over a period of ten years. The empirical results confirm a robust impact of tax-rate differences within the multinational group on the use of internal debt, supporting the view that internal debt is used to shift profits to low-tax countries. However, the tax effects are rather small. Given that the empirical literature finds profit shifting to be substantial, our estimates suggest that other strategies to shift income to low-tax countries are relatively more important.
    Keywords: Capital Structure; Multinational Corporations; Internal Debt; Corporate Taxation; Tax Planning; Profit Shifting
    JEL: H25 G32 F23
    Date: 2009
  8. By: Tom Karkinsky (Oxford University Centre for Business Taxation); Nadine Riedel (Oxford University Centre for Business Taxation)
    Abstract: This paper investigates whether corporate taxation affects the location of patents within a multinational group. We exploit a unique dataset which links patent data from the European Patent Office to micro panel data on European firms for 1995-2003. Our results suggest that the host country’s corporate tax rate exerts a negative effect on the number of patents filed by a multinational subsidiary. The effect is statistically significant and quantitatively large and turns out to be robust against controlling for affiliate size. The findings prevail if we additionally account for royalty withholding taxes. Moreover, binding ‘Controlled Foreign Company’ rules tend to decrease the number of patent applications.
    Keywords: corporate taxation, multinational enterprise, profit shifting
    JEL: H25 F23 H26 C33
    Date: 2009
  9. By: David Ulph
    Abstract: This paper develops a general theoretical framework within which a heterogeneous group taxpayers confront a market that supplies a variety of schemes for reducing tax liability, and uses this framework to explore the impact of a wide range of anti-avoidance policies. Schemes differ in their legal effectiveness and hence in the risks to which they expose taxpayers - risks which go beyond the risk of audit considered in the conventional literature on evasion. Given the individual taxpayer’s circumstances, the prices charged for the schemes and the policy environment, the model predicts (i) whether or not any given taxpayer will acquire a scheme, and (ii) if they do so, which type of scheme they will acquire. The paper then analyses how these decisions, and hence the tax gap, are influenced by four generic types of policy: * Disclosure – earlier information leading to faster closure of loopholes; * Penalties – introduction of penalties for failed avoidance; * Policy Design – fundamental policy changes that design out opportunities for avoidance; * Product Register - the introduction of GAARs or mini-GAARs that give greater clarity about how different types of scheme will be treated. The paper shows that when considering the indirect/behavioural effects of policies on the tax gap it is important to recognise that these operate on two different margins. First policies will have deterrence effects – their impact on the quantum of taxpayers choosing to acquire different types schemes as distinct to acquiring no scheme at all. There will be a range of such deterrence effects reflecting the range of schemes available in the market. But secondly, since different schemes generate different tax gaps, policies will also have switching effects as they induce taxpayers who previously acquired one type of scheme to acquire another. The first three types of policy generate positive deterrence effects but differ in the switching effects they produce. The fourth type of policy produces mixed deterrence effects.
    Keywords: Tax Avoidance; Supply Side; Risks; Tax Schemes; Disclosure; Guidance; Penalties; Tax Policy
    JEL: H26 H30
    Date: 2009–08
  10. By: Aureo de Paula (Department of Economics, University of Pennsylvania); Jose A. Scheinkman (Department of Economics, University of Pennsylvania)
    Abstract: This paper investigates determinants of informal economic activity. We present an equilibrium model of informality and test its implications using a survey of 48,000+ small firms in Brazil. We define informality as tax avoidance; firms in the informal sector avoid tax payments but suffer other limitations. A novel theoretical contribution in this model is the role of value added taxes in transmitting informality. It predicts that the informality of a firm is correlated to the informality of firms from which it buys or sells. The model also implies that higher tolerance for informal firms in one production stage increases tax avoidance in downstream and upstream stages. Empirical analysis shows that, in fact, various measures of formality of suppliers and purchasers (and its enforcement) are correlated with the formality of a firm. Even more interestingly, when we look at sectors where Brazilian firms are not subject to the credit system of value added tax, but instead the value added tax is applied at some stage of production at a rate that is estimated by the tax authorities, this chain effect vanishes.
    Keywords: Informal Sector,VAT,Tax Avoidance
    JEL: H2 H3 K4
    Date: 2009–08–01

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