nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2013‒11‒14
eleven papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Profit shifting and 'aggressive' tax planning by multinational firms: Issues and options for reform By Fuest, Clemens; Spengel, Christoph; Finke, Katharina; Heckemeyer, Jost H.; Nusser, Hannah
  2. Taxation and corporate debt: are banks any different? By Jost Heckemeyer; Ruud de Mooij
  3. Do transfer pricing laws limit international income shifting? Evidence from European multinationals By Theresa Lohse; Nadine Riedel
  4. Investor Valuations of Japan's Adoption of a Territorial Tax Regime: Quantifying the Direct and Competitive Effects of International Tax Reform By Estelle P. Dauchy; Sebastien Bradley; Makoto Hasegawa
  5. Conservative accounting yields excessive risk-taking; a note By Johannes Becker; Melanie Steinhoff
  6. What Gets Measured Gets Managed: The Economic Burden of Business Property Taxes By Benjaming Dachis; Adam Found; Peter Tomlinson
  7. Informal taxation systems – Zakat and Ushr in Pakistan as example for the relevance of parallel/semi-public dues By Lorenz, Christian
  8. Emission Taxes and Border Tax Adjustments for Oligopolistic Industries By Timothy Halliday; Sumner La Croix
  9. The Value Relevance of SAM's Corporate Sustainability Ranking and GRI Sustainability Reporting in the European Stock Markets By Thomas Kaspereit; Kerstin Lopatta
  10. Marking to Market and Inefficient Investment Decisions By Otto, Clemens A.; Volpin , Paolo F.
  11. The implementation of current asset purchases By Simon Potter

  1. By: Fuest, Clemens; Spengel, Christoph; Finke, Katharina; Heckemeyer, Jost H.; Nusser, Hannah
    Abstract: This paper discusses the issue of profit shifting and 'aggressive' tax planning by multinational firms. The paper makes two contributions. First, it provides some background information to the debate by giving a brief overview of existing empirical studies on profit shifting and by describing arrangements for IP-based profit shifting which are used by the companies currently accused of avoiding taxes. We then show that preventing this type of tax avoidance is, in principle, straightforward. Second, we argue that, in the short term, policy makers should focus on extending withholding taxes in an internationally coordinated way. Other measures which are currently being discussed, in particular unilateral measures, like limitations on interest and license deduction, fundamental reforms of the international tax system and country-by-country reporting, are either economically harmful or need to be elaborated much further before their introduction can be considered. --
    Keywords: tax avoidance,profit shifting,multinational firms,intellectual property,tax policy,tax reform
    JEL: H20 H25 F23 K34
    Date: 2013
  2. By: Jost Heckemeyer (University of Mannheim); Ruud de Mooij (International Monetary Fund (IMF))
    Abstract: This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks,using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks,we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast,the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holdsfor the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response.
    Keywords: Corporate tax; debt bias; leverage; banks; non-financial firms; quantile regressions
    JEL: G21 G32 H25
    Date: 2013
  3. By: Theresa Lohse (University of Mannheim); Nadine Riedel (University of Hohenheim, CESifo Munich & Oxford University CBT)
    Abstract: In recent years several countries have augmented their national tax laws by transfer pricing legislations which intend to limit the leeway of multinational firms to exploit international corporate tax rate diverences and relocate profit to low-tax affiliates by distorting intra-firm transfer prices. The aim of this paper is to empirically investigate whether these laws are instrumental in restricting shifting behaviour. To do so, we exploit unique information on the scope and evolution of national transfer pricing laws and link it with panel data on European multinationals. In line with previous studies, we find evidence for tax-motivated profit shifting. The analysis further suggests that transfer pricing rules significantly reduce shifting activities. The effect is economically relevant, suggesting that the legislations may be socially desirable despite the high administrative burden they impose on firms and tax authorities.
    Keywords: corporate taxation, international prot shifting, transfer pricing laws
    JEL: H25 F23
    Date: 2013
  4. By: Estelle P. Dauchy (New Economic School); Sebastien Bradley (Department of Economics, LeBow College of Business, Drexel University); Makoto Hasegawa (National Graduate Institute for Policy Studies)
    Abstract: Globalization of firm operations has brought the issue of multinational taxation to the forefront of tax reform debates worldwide, with countries paying increasingly close attention to tax developments elsewhere around the world. Using an event study methodology that emphasizes specific firm attributes, we examine investor reactions in both the Japanese and U.S. stock markets to nine events leading up to the enactment of the 2009 Japanese dividend exemption in order to measure the perceived gains in short- and long-term after-tax profitability resulting from this reform. We thus aim to provide a comprehensive evaluation of the full range of direct tax savings effects and indirect effects associated with changes in firm competitiveness and international tax competition. Preliminary results suggest that investors capitalized gains of over 1 percent and 0.3 percent on the date that the bill was finally passed in the Japanese and U.S. markets, respectively, with further pronounced gains arising in the aftermath of select earlier events associated with the revelation of significant new information. Direct tax savings are responsible for a significant proportion of estimated abnormal returns across multiple event dates, even for U.S. Firms where these effects are necessarily largely in anticipation of the adoption of a similar territorial regime. Strikingly, the largest beneficiaries of the Japanese reform appear to be firms with less elaborate tax minimization strategies or with no foreign operations altogether, whereas U.S. multinationals with subsidiaries located in tax havens appear more heavily favored.
    Date: 2013–08
  5. By: Johannes Becker (University of Münster); Melanie Steinhoff (University of Münster)
    Abstract: We analyse the role of business taxation for corporate risk-taking under different accounting principles. We build a model in which investors have complete information and markets are perfect. A representative risk-neutral firm invests in one unit of an asset choosing from a continuum of assets differing in income and risk properties. The corporate tax base is determined following specific accounting principles (such as mark-to-market, lower-of-cost-or-market and historical cost). We demonstrate that conservative accounting may imply incentives to overinvest in risky assets. If tax loss offset opportunities are less than perfect, the mark-to-market principle penalizes risky investment whereas more conservative accounting leaves the risk choice unaffected.
    Keywords: accounting; risk-taking; business taxation; corporate investment
    JEL: H25 M41 G32
    Date: 2013
  6. By: Benjaming Dachis (C.D. Howe Institute); Adam Found (University of Toronto); Peter Tomlinson (University of Toronto)
    Abstract: Business property taxes are a major part of the tax burden on new business investment that can tip the balance in the competition for capital among Canadian cities and provinces, according to a report released today by the C.D. Howe Institute. In “What Gets Measured Gets Managed: The Economic Burden of Business Property Taxes,” authors Adam Found, Benjamin Dachis, and Peter Tomlinson conduct groundbreaking research into the impact of business property taxes (BPTs) in localities across Canada and show where they are highest and lowest.
    Keywords: Fiscal and Tax Competitiveness
    JEL: H25 H71
    Date: 2013–10
  7. By: Lorenz, Christian
    Abstract: This article provides an overview of the religious background of Zakat and the organisation of the Zakat collection in several Islamic countries. Then the mandatory system in Pakistan of Zakat and Ushr is described in more detail. Zakat and Ushr are spent mainly on much targeted areas like social welfare, education and health care for certain population groups. Other types of public goods and services are not covered with funds received from Zakat. Hence, the question arises, whether an Islamic state is according to the Islamic laws entitled to collect additional revenues like taxes in addition to Zakat. A second question is answered in the text, in how far an engagement of religious leaders in tax reform activities is in line with the Islamic law and can contribute to development activities. Taking into account the cultural and religious factors and actors, the involvement of Mullahs or Friday prayers to promote tax morale requires the support of religious scholars, but might have broader impacts even than governmental activities on the public awareness. To answer both questions it is important that - according to important religious scholars - the Islamic state requires additional revenues to cover all necessary demands of its population. One permitted option to collect additional revenues is taxation. Finally the different types of individual giving increase the total amount paid to formal and informal taxation systems in Pakistan by about 1%. Nevertheless, formally the tax to GDP ratio does not change, because Zakat is statistically classified as social assistance benefits, which do not become part of the tax to GDP indicator.
    Keywords: Informal taxation system, Islamic taxation, Zakat, Ushr, tax to GDP ratio, Pakistan
    JEL: H22 H27
    Date: 2013
  8. By: Timothy Halliday (Department of Economics, University of Hawaii at Manoa); Sumner La Croix (Department of Economics, University of Hawaii at Manoa)
    Abstract: We examine the welfare consequence of emissions tax with and without a Border Tax Adjustment for an imperfectly competitive industry, where intra-industry trade arises between countries. BTA allows a government to impose a pollution-content tariff on imports and refund an emission tax for export sales. We analyze the structure of an optimal emission tax with BTA when a government chooses its emission tax rate to maximize its national welfare. We show that the optimal emission tax policy with BTA achieves greater national welfare and higher environmental quality than the optimal policy without BTA.
    Keywords: trade and environment, border tax adjustment, intra-industry trade
    JEL: F18 F12 Q56
    Date: 2013–09
  9. By: Thomas Kaspereit (University of Oldenburg - Accounting and Corporate Governance); Kerstin Lopatta (University of Oldenburg - Accounting and Corporate Governance & ZenTra)
    Abstract: This paper investigates whether relative corporate sustainability as measured by the Sustainable Asset Management (SAM) sustainability rating and sustainability reporting in terms of Global Reporting Initiative (GRI) application levels are associated with a higher market valuation. We conduct a value relevance study for the 600 largest European companies with the Feltham and Ohlson (1995) valuation model as a reference point. Our results indicate that for the observation period 2001 to 2011, the association between corporate sustainability and market value is positive. The empirical evidence of a positive relationship between GRI reporting and market value is statistically significant in some but not all of the model specifications. We find no evidence of interaction between the value relevance of corporate sustainability and sustainability reporting, nor do we find any positive effect of external assurance on the capital market perception of GRI application levels. Our results support the notion that conducting business in accordance with ethical norms is also a shareholder value-increasing business strategy. However, it is not possible to verify the information given in sustainability reports through external assurance.
    Keywords: Corporate Sustainability, Global Reporting Initiative (GRI), Sustainability Reporting, International Value Relevance
    JEL: C12 D53 G32 Q56
    Date: 2013–10
  10. By: Otto, Clemens A.; Volpin , Paolo F.
    Abstract: We examine how mark-to-market accounting affects investment decisions in an agency model with reputation concerns. Reporting the current market value of a firm's assets in the financial statements can serve as a disciplining device because the information contained in the market price provides a benchmark against which the agent's actions can be evaluated. However, the fact that market prices are informative can have a perverse effect on the investment decisions: The agent may prefer to ignore relevant but contradictory private information whose revelation would damage his reputation. Surprisingly, this effect makes mark-to-market accounting less desirable as market prices become more informative.
    Keywords: Accounting rules; marking to market; historical cost accounting; investment decisions; reputation; agency problem
    JEL: D81 G31 M41
    Date: 2013–06–29
  11. By: Simon Potter
    Abstract: Remarks at the Forecasters Club of New York, New York City.
    Keywords: Federal Open Market Committee ; Assets (Accounting) ; Open market operations ; Government securities ; Mortgage-backed securities ; Risk ; Interest rates ; Treasury bonds ; Monetary policy
    Date: 2013

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