nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2011‒07‒13
twelve papers chosen by
Alexander Harin
Modern University for the Humanities

  1. International Taxation and FDI Strategies: Evidence From US Cross-Border Acquisitions By Nils Herger; Christos Kotsogiannis; Steve McCorriston
  2. Report on Removing Tax Obstacles to Cross-Border Venture Capital Investment By European Commission
  3. Study on Inheritance Taxes in EU Member States and Possible Mechanisms to Resolve Problems of Double Inheritance Taxation in the EU. By Copenhagen Economics
  4. Taxation trends in the European Union: 2011 edition By European Commission
  5. Top tax system: a common taxation system for all nations By Varma, Vijaya Krushna Varma
  6. TAX PLANNING AND DIRECTORS’ REMUNERATION By Dr. Nor Shaipah Abdul Wahab; Assoc. Prof. Dr. Chek Derashid; Nur Azliani Che Pak
  7. Tax Treatment of ETS Allowances: Options for Improving Transparency and Efficiency By Copenhagen Economics
  8. The Impact of Controlled Foreign Company Legislation on Real Investments Abroad: A Two-dimensional Regression Discontinuity Design By Egger, Peter; Wamser, Georg
  9. The Effects of IFRS on Financial Ratios: Early Evidence in Canada By Michel Blanchette; François-Éric Racicot; Jean-Yves Girard
  11. MD&A – Counterpart to or Distraction from Financial Reporting By Kevin Girdharry; Elena Simonova; Rock Lefebvre
  12. Evaluation of firms dissimulated activity based on fiscal audits and integration in national accounts By C. LOUVOT-RUNAVOT

  1. By: Nils Herger (Study Center Gerzensee); Christos Kotsogiannis (Department of Economics, University of Exeter and CESIfo); Steve McCorriston (Department of Economics, University of Exeter)
    Abstract: While there is a well-established body of empirical research documenting the negative effect of taxation on foreign direct investment (FDI), there is scant evidence on the extent to which international tax considerations (double taxation, international tax relief stipulated in bilateral tax treaties and the effect of withholding taxes) affect the role of taxation for FDI, and how tax issues differ according to the investment strategies—‘horizontal’ and ‘vertical’—pursued by %multinational firms. This paper addresses these issues. Using data on US acquisitions over the period 1995-2005 in 18 OECD countries, it is shown that international tax relief plays a critical role in determining the impact of taxation. Regardless of the type of investment strategy, the significantly negative effect of corporate taxes disappears when accounting for the tax credits stipulated in bilateral tax treaties. It is also shown that there is considerable heterogeneity of the impact of sales taxes across investment strategies. High administrative burden to comply with taxation always reduces a country’s appeal as target for FDI.
    Keywords: Corporate taxation; Cross-Border acquisitions; FDI strategies; Tax treaties; Tax credits
    JEL: F15 F21 F23 F33
    Date: 2011
  2. By: European Commission
    Abstract: The report outlines the double taxation problems that arise when venture capital is invested cross-border, as well as possible solutions. It sets out the findings and recommendations of an independent group of EU tax experts, which was set up by the Commission to look at how to remove the main tax barriers to cross-border investment in venture capital.
    Keywords: European Union, taxation, venture capital
    JEL: G32 H20
    Date: 2010–04
  3. By: Copenhagen Economics
    Abstract: The objective of this external study is to provide more information about the extent of cross-border inheritance tax problems
    Keywords: European Union, taxation, inheritance tax
    JEL: H24 H25
    Date: 2010–08
  4. By: European Commission
    Abstract: This report contains a detailed statistical and economic analysis of the tax systems of the Member States of the European Union, plus Iceland and Norway, which are Members of the European Economic Area. The data are presented within a unified statistical framework (the ESA95 harmonised system of national and regional accounts), which makes it possible to assess the heterogeneous national tax systems on a fully comparable basis. The standard classifications of tax revenues (by major type of tax or by level of government) presented in most international tax revenue statistics are hard to interpret in economic terms. This publication stands out for offering a breakdown of tax revenues by economic function (i.e. according to whether they are raised on consumption, labour or capital). This classification is based on disaggregated tax data and on a breakdown of the revenue from the personal income tax. Besides revenue data, the report also contains indicators of the average effective tax rate falling on consumption, labour and capital, as well as data on environmental taxation and on the top rates for the personal and corporate income tax. Country chapters give an overview of the tax system in each of the 29 countries covered, the revenue trends and the main recent policy changes. Detailed tables allow comparison between the individual countries and European averages. Data cover the 1995-2009 period and are presented both as a percentage of GDP and as a percentage of total taxation. This year's edition of the report for the first time includes data on average effective tax ratios (EATRs) for non-financial corporations. In addition, the report also contains a detailed new analysis of the impact of the economic and financial crisis on the tax systems of all EU Member States.
    Keywords: European Union, taxation
    JEL: H23 H24 H25 H27 H71
    Date: 2011–06
  5. By: Varma, Vijaya Krushna Varma
    Abstract: I am suggesting new methods, and innovative and alternative policies in the areas of optimal taxation, tax collection, money supply and banking financial system to help remove corruption, tax evasion, economic recession, black money, fake currency and societal inequalities. In my opinion, the proposed TOP Tax system may usher in good governance, 100% tax compliance and corruption free environment. It suggests a single tax called “TOP Tax” (Transfer Or Purchase Tax) for both Centre and States combined in place of present multiple Indirect taxes with different slab rates on different goods/commodities/services and multiple Direct taxes with different slab rates, relieving people from the cobweb of ambiguous and complex tax structures, plethora of tax laws, mandatory and cumbersome accounting, auditing, tax returns and consequent quagmire of all tax related cases. Therefore the numerous tax exemptions and exclusions, which have invariably narrowed the tax base, will no longer be needed. This new TOP Tax system with only single tax (TOP Tax) envisages 20 to 30 % more revenues than presently accruing from multiple taxes collected by different departments/agencies. The availability of resources and capital flows, needed for economic recovery, is the self-priming character of the “TOP Tax system” without Government’s fiscal stimulus packages. This new taxation shall be operated at minimum operating cost with limited paper currency, thereby totally eliminating fake currency, black money, tax evasion, corruption and extortions. Under this new taxation system the tax net will be the broadest with absolutely no tax evasion, making it possible for the lowest tax slab rate and cheapest prices of commodities/services. The redistribution of revenues from Government to people in the form of welfare schemes, subsidies and various relief funds will become easier without leakages, bribes and misappropriation. Although this new taxation system is a basic model suggested mainly for India, the basic concept of taxation and tax collection methods can be adopted and implemented by all the developed and developing countries alike to benefit 6.5 billion people of the world in all spheres of their lives in one form or other.
    Keywords: Single tax system; A new taxation system; Redefining the role of banking sector; optimal taxation; tax collection; money supply; lowest interest rates; Economy that will run on limited paper currency and dematerialised money
    JEL: E62 E43 E51 H24 H2 H71 H63 H21 H25 E52 E40 H61 H26 G21
    Date: 2009–05–31
  6. By: Dr. Nor Shaipah Abdul Wahab (College of Business, Accounting Building, Universiti Utara Malaysia); Assoc. Prof. Dr. Chek Derashid; Nur Azliani Che Pak
    Abstract: Companies involve in tax planning due to its primary benefit of increase after-tax return. However, this activity has been an ongoing discussion as it impairs provision of public goods which indirectly causes social issues. Companies, in conducting tax planning, make use of several techniques to effectively minimise the tax burden, for example, profit sharing, income shifting and change of characteristics of income. Directors’ remuneration is also identified as a tax-reduction strategy. While increasing the wealth of the directors, higher directors’ remuneration expense reduces company taxable income and in turn raises company tax savings. This provides indications about missing link between directors’ performance and pay. In fact, in Malaysia, this issue has been long debated by public including academics. Despite this highlight, little attention has been given on the relationship between tax planning and directors’ remuneration. Therefore, this paper reports the results of this study’s focus of attention on whether tax planning activity is significantly related to directors’ remuneration expenses of non-financial Malaysian public-listed companies. The sample period of the study is from 2007 to 2009. The panel dataset is drawn from Datastream and hand-collected tax data from company annual reports. The results derive from multivariate analyses highlight the extent of the relationship between tax planning and directors’ remuneration and thus enlighten the knowledge on the utilisation of directors’ remuneration as a strategy in tax planning. The results also highlight the policy and reporting implications to the authority
    Keywords: Accounting, Taxation, Corporate Governance
    JEL: M00
    Date: 2011–06
  7. By: Copenhagen Economics
    Abstract: The study examines current national practices with respect to emissions allowances in the EU and the countries with similar cap-and-trade systems. It analyses potential distortions resulting from national practices and identifies the best solutions. It deals with issues such as the tax treatment of allowances allocated for free, that of allowances originated as Clean Development Mechanism or Joint Implementation, and the tax treatment of penalties for non-compliance. It also examines the feasibility of various policy solutions at EU level.
    Keywords: European Union, taxation, environmental tax, ETS
    JEL: H24 H25
    Date: 2010–11
  8. By: Egger, Peter; Wamser, Georg
    Abstract: Controlled foreign company (CFC) rules are frequently imposed by countries as part of their anti-tax-avoidance legislation. This paper aims at quantifying their impact on foreign investments by utilizing a regression discontinuity design and the universe of German foreign investments notified to Deutsche Bundesbank. While most regression discontinuity designs are one-dimensional, German CFC legislation gives rise to a two-dimensional design. The latter allows the local average treatment effect (LATE) to be heterogeneous along the two treatment thresholds, which are related to the level of the foreign corporate profit tax rate and to the returns on passive assets relative to total returns. We find clear evidence of a negative average LATE of the CFC legislation on the fixed assets held by German multinationals abroad. We find also evidence of some heterogeneity of LATE according to parametric as well as nonparametric estimates. On average, foreign assets are estimated to respond by about 10 million Euros in the neighborhood of the intersection of both treatment thresholds. This evidence points to a significant and economically large impact of anti-tax-avoidance legislation on multinational firms’ real activity abroad.
    Keywords: CFC rule; Corporate profit tax; Multinational firms; Plant-level data; Regression discontinuity design; Tax avoidance
    JEL: F23 H25
    Date: 2011–06
  9. By: Michel Blanchette (Université du Québec en Outaouais); François-Éric Racicot (Université du Québec en Outaouais); Jean-Yves Girard (Industry Canada)
    Abstract: This paper provides preliminary evidence of the impact on financial ratios caused by the transition to International Financial Reporting Standards (IFRS) in Canada. The main features of IFRS are explained in the context of a shift from Canadian Generally Accepted Accounting Principles (GAAP) while the main differences between the two sets of rules are underscored – heavier reliance of IFRS on fair value accounting and comprehensive income, and the use of the entity theory for consolidation. The effects of IFRS on financial ratios in the areas of liquidity, leverage, coverage and profitability are discussed and verified using a sample cohort of early adopters in Canada. The preliminary evidence reveals significantly higher volatility to most of the ratios under IFRS when compared to those derived under pre-changeover Canadian GAAP. While the means and medians of IFRS ratios differ from the means and medians of the same ratios under pre-changeover Canadian GAAP, the differences are not statistically significant overall. However, important individual discrepancies are in some cases observed. Naturally, analysts using ratios for analytical purposes during the transition period need to be vigilant as ratios computed under IFRS are not directly comparable with those derived under pre-changeover Canadian GAAP. It is recommended that heightened attention be directed to the new feature – comprehensive income – which incorporates unrealized gains and losses that bypass the income statement. The suggested analytical tools best suited to mitigate the contributing effect include reliance on comprehensive-Return on Assets (ROA) and comprehensive-Return on Equity (ROE).
    Keywords: IFRS, financial ratios, first application of IFRS
    JEL: E22 G31 G32 M41 D21 D23
    Date: 2011–03
  10. By: Zulhelmy Bin Mohd. Hatta (Ph.D Student in Malaya University, Kuala Lumpur)
    Abstract: The adoption of corporate governance at various financial institutions in the banking world is needed. This requirement is caused due to various faktors such as the most impressive is the economic crisis, especially the financial crisis. Any concept of corporate governance have been proposed and even practiced. The result is a positive signal is also negative. However, the practice of governance in Islamic banking has indeed become an interesting case for study.
    Keywords: Corporate Governance, Board of Directors, Audit committee, Internal Auditor, External Auditor, Syariah Suvervisory Board, Quality of Financial Reporting, Islamic Banking
    JEL: M00
    Date: 2011–06
  11. By: Kevin Girdharry (Certified General Accountants Association of Canada); Elena Simonova (Certified General Accountants Association of Canada); Rock Lefebvre (Certified General Accountants Association of Canada)
    Abstract: MD&A content has been an ongoing topic of recent debate with the views divided on the impact that regulated content has on the quality of the MD&A. Complexity has amplified as a result of emerging issues of particular importance to investors such as transition to IFRS, the environment and executive compensation. This paper examines companies’ compliance with requirements of the Canadian Securities Administrators for MD&A disclosures, and aims to advance understand on whether following CSA requirements positively influences the quality of the MD&A. The analysis shows that overall, companies provide quality information to investors as MD&A disclosures meet, and often exceed CSA requirements. However, incorporating marketing elements in the MD&A is sometimes present. Environmental and executive compensation disclosures are two areas that are currently underrepresented in the MD&A. Nevertheless, companies are well positioned to closely follow principles and the framework of the IFRS Practice Statement on Management Commentary issued by the International Accounting Standards Board (IASB).
    Keywords: MD&A, financial reporting, management commentary
    JEL: E22 G31 G32 M41 D21 D23
    Date: 2011–01
  12. By: C. LOUVOT-RUNAVOT (Insee)
    Abstract: The measurement of the hidden economy is necessary to ensure exhaustiveness of Gross Domestic Product and thus be able to conduct comparisons between countries. The part of firms activity that is not declared to tax authorities inevitably evades statistical observation. In France, it is possible to evaluate this hidden activity by means of fiscal audits, during which concealed profits may be unveiled. By incorporating a fiscal audit sample into a survey, this type of fraud can then be extrapolated to the whole field. For every category of taxpayer, inclusion probabilities have been estimated with logistic models, making use of categorical predictor variables, like size or activity sector. The more significant of those variables have been used next to define a post-stratification upon which is based the macroeconomic evaluation of the dissimulated aggregates. This extrapolation method takes into account the overrepresentation of the firms that are supposed to conceal the biggest amounts of taxes. In particular, financial indicators have been introduced in the stratification to improve the modeling of this overrepresentation and they lead to a marked decrease in the estimation of the hidden production. The aim was to rectify National Accounts output and value-added. Among the fiscal rectifications, only those that dealt with the real flows of the firms book-keeping were taken into account. Moreover, when the available rectifications were concerned with taxes, it was necessary to go back to the corresponding taxable amount. This procedure is the main weakness of the fiscal information processing. Applied to 2006 turnover, the fraud rates finally obtained led to a 40 billion euro rise in the level of national value-added, that is to say a 2.2 % adjustment of GDP.
    Keywords: Dissimulated activity, fiscal audit, logistic regression, post-stratification, correction (rectification), National Accounts
    JEL: E26 C25 C81 E01
    Date: 2011

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