nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2016‒06‒25
fifteen papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Would a CCCTB mitigate profit shifting? By Claudia Keser; Gerrit Kimpel; Andreas Oestreicher
  2. Thin capitalisation rules: A second-best solution to the cross-border debt bias? By Kayis-Kumar, Ann
  3. Taxation, industry integration and production efficiency By Simone Moriconi
  4. Fair Value Accounting and the Cost of Debt / La comptabilité à la juste valeur et le coût de la dette pour une entreprise By Michel Magnan; Haiping Wang; Yaqi Shi(Sans nom)
  5. Improving the Russian Tax Legislation on the Taxation of Income from Asset Management By Gromov, Vladimir; Malinina, Tatiana
  6. Improving the Practice of Application of Modern Methods of Accounting and Valuation Models of Objects in the Preparation of Financial Statements of Public Russian Organizations By Chipurenko, Elena; Lisovskaya, Irina; Trapeznikova, Natalia
  7. Taxing cross-border intercompany transactions: are financing activities fungible? By Kayis-Kumar, Ann
  8. Improving the Mechanism of Taxation of Natural Persons Property By Korytin, A.V.; Shatalova, Svetlana Sergeevna
  9. The impact of real estate, inequality and current account imbalances on excessive credit: A cross country analysis By Halim, Asyraf Abdul; Ariff, Muhammad; Masih, A. Mansur M.
  10. A Quantitative Description of State-Level Taxation of Oil and Gas Production in the Continental U.S. By Weber, Jeremy G.; Wang, Yongsheng; Chomas, Maxwell
  11. Implementing Tax Coordination and Harmonization through Voluntary Commitment By Grégoire ROTA-GRAZIOSI
  12. The Power to Tax in Sub-Saharan Africa: LTUs, VATs, and SARAs By Christian EBEKE; Mario MANSOUR; Grégoire ROTA-GRAZIOSI
  13. Results of Revision to the Flow of Funds Accounts Based on 2008SNA By Research and Statistics Department
  14. How do small firms respond to tax schedule discontinuities? Evidence from South African tax registers By Wian Boonzaaier; Jarkko Harju; Tuomas Matikka; Jukka Pirttilä
  15. Opinion shopping: Partner versus firm-level evidence By Beatriz García Osma; Belén Gill de Albornoz Noguer; Elena De las Heras Cristobal

  1. By: Claudia Keser; Gerrit Kimpel; Andreas Oestreicher
    Abstract: In this paper we look into the probability that, given the choice, corporate groups would opt for taxation on a consolidated basis. We further consider what effects separate accounting and taxation on a consolidated basis (formula apportionment) might have on the location of investments and exploitation of remaining leeway for profit shifting. To this end, we present an experimental framework that captures the most relevant aspects of theses decision for EU multinationals. In a controlled laboratory experiment we use a basic 2-by-2 treatment design with two levels of tax-rate differential between two investment locations and two different remuneration functions allowing the participants to act as owners or managers of a company. In addition, we control for the way in which information on possible extra costs associated with profit shifting is presented to participants. Our results show that taxation using formula apportionment, while being a viable alternative, does not emerge as the preferred regime. In both separate accounting and formula apportionment, the allocation of production factors depends on the tax-rate differential. Higher tax rates lead to lower amounts of investment, in particular if formula apportionment (CCCTB) is used. Moreover, profit shifts to companies not eligible for consolidation (i.e., companies not resident in the EU) are significantly higher under formula apportionment than under separate accounting. We do not observe significant differences in the behavior of managers and owners. However, the form in which information is provided on possible extra costs has an impact on the extent of profits shifted to low tax countries.
    Keywords: International Company Taxation; Separate Accounting; Formula Apportionment; Transfer Pricing; Experimental Economics,
    JEL: C91 H25 M41
    Date: 2016–06–06
  2. By: Kayis-Kumar, Ann
    Abstract: One of the most significant trends in the evolution of global tax systems has been the rise from relative obscurity of thin capitalisation rules, which are perceived as anti-avoidance rules which limit tax base erosion from cross-border interest deductions. However, over the same timeframe, innovations to financial instruments have challenged the traditional financial and legal distinctions between debt and equity, which in the cross-border setting has exposed the prevalence of economic inefficiencies in the design of the international tax system. This paper approaches the issue of thin capitalisation from a novel perspective by conceptualising the cross-border debt bias as the ‘disease’ and thin capitalisation as merely the ‘symptom’. Despite their prevalence, it is unclear whether thin capitalisation rules: (1) attain tax neutrality (specifically, do these rules mitigate the debt bias); (2) are effective in both theory and practice. This provides the basis to examine whether a cross-border manifestation of a fundamental reform could eliminate the need for existing thin capitalisation rules, which are presently a second-best solution to the tax-induced cross-border debt bias. Accordingly, this paper: (1) considers reforms traditionally designed to address the domestic debt bias; specifically, the allowance for corporate equity (ACE), comprehensive business income tax (CBIT), combined ACE-CBIT and allowance for corporate capital; (2) examines the literature and implementation experience of the ACE, the only one of these fundamental reforms which has been experimented with in practice, to consider whether it is effective in both theory and practice; (3) presents the possibility of extending the combined ACE-CBIT to the cross-border context as an alternative to thin capitalisation rules.
    Keywords: International tax law, Tax policy, Public economics, Thin capitalisation rules, Corporate taxation, Multinational debt shifting, Debt bias, Allowance for corporate equity, Economic rent tax
    JEL: F3 G3 K0 K00 K33 K34
    Date: 2015–02–25
  3. By: Simone Moriconi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: Taxes levied on production processes (e.g. VAT), are today a very important source of government revenues in developed economies. Theories of optimal taxation conclude that these taxes are detrimental to production efficiency, when firms operate in perfectly competitive markets. These theories draw on the neoclassical approach, which regards firms as single production units. The present paper investigates the effects of taxation on production efficiency, accounting for the organization of an industry. The model shows that a lump-sum tax does not have any effect on the organization of the industry, while a non lump-sum tax can be designed that induces an organizational change of the industry. The paper shows that the effect of this ”tax induced organizational change” on production efficiency ultimately depends on the characteristics of the market.
    Keywords: taxation, organizational change, vertical integration, and production efficiency.
    JEL: H21 L22 H32
    Date: 2016–06
  4. By: Michel Magnan; Haiping Wang; Yaqi Shi(Sans nom)
    Abstract: This study examines the association between the use of fair value accounting and the cost of debt, as well as the impact of auditor industry expertise on this association. The sample comprises U.S. financial institutions’ data between 2007 and 2014. Results suggest that more extensive use of fair value accounting measurement in the financial statements is generally associated with a higher cost of debt, which supports the argument that fair value accounting is perceived to exhibit lower reliability. Findings further show that greater reliance on Level 2 and Level 3 fair value inputs is related with a higher cost of debt, indicating that the reliability issue is primarily driven by Level 2 and Level 3 estimates. In addition, we do not find that auditor industry expertise improves the decision usefulness of fair value accounting information. These results hold even after controlling for variables associated with a financial institution`s business model. Cette étude examine la relation entre l’intensité de l’usage de la comptabilité à la juste valeur et le coût de financement par voie de dette. Nous évaluons également si l’engagement d’auditeurs dits experts influence cette relation. Notre échantillon comprend des émissions de titres de dette effectuées par des institutions financières américaines entre 2007 et 2014. Nos résultats indiquent que l’utilisation plus intensive de la comptabilité à la juste valeur comme base de mesure pour les états financiers est associée à des coûts de financement plus élevés. La fiabilité moins grande de la comptabilité à la juste valeur peut expliquer ce résultat. À cet égard, l’utilisation d’intrants de niveau 2 et de niveau 3 influence grandement le coût de financement par voie de dette. Contrairement à certains résultats antérieurs, nous n’observons pas que l’engagement d’auditeurs dits experts contribue à réduire l’effet de la comptabilité à la juste valeur sur le coût de financement. Ces résultats demeurent valides même après avoir contrôlé pour des variables captant le modèle d’affaires des institutions financières.
    Date: 2016–06–07
  5. By: Gromov, Vladimir (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Malinina, Tatiana (Russian Presidential Academy of National Economy and Public Administration (RANEPA); Gaidar Institute for Economic Policy)
    Abstract: The paper concerns the international and Russian practice of taxation of income from trusts. The proposals on the change of approach for taxation of such income according to the applicable law are formulated.
    Keywords: taxation of income, trusts
    Date: 2016–03–31
  6. By: Chipurenko, Elena (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Lisovskaya, Irina (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Trapeznikova, Natalia (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The object of study in this work are methods of assessing the elements of financial statements of entities in Russia during the transition to the application of international accounting standards and the concept of fair value.
    Keywords: financial statements, concept of fair value
    Date: 2016–04–25
  7. By: Kayis-Kumar, Ann
    Abstract: The Organisation for Economic Cooperation and Development (‘OECD’) is currently considering best practice approaches to designing rules to prevent base erosion and profit shifting (‘BEPS’) by multinational enterprises (‘MNEs’). However, the OECD makes a distinction between combating BEPS and reducing distortions between the tax treatment of various methods of financing. Yet, an unequal tax treatment can create distortions, which incentivises tax planning behaviour. Accordingly, this paper aims to improve the tax design of anti-avoidance rules governing MNEs’ cross-border intercompany deductions by introducing the concept of the tax-induced cross-border funding bias. To date, the literature has focussed on the debt bias, which arises from the distortion in the tax treatment between debt and equity financing. On the other hand, the funding bias also includes licensing and leasing activities in addition to debt and equity financing. This presents a novel contribution to the literature. This paper examines the conceptual case for why is might be appropriate and feasible to restrict the tax deductibility of cross-border intercompany interest, dividends, royalties and lease payments given their mobility and fungibility. Specifically, it examines whether it is preferable for MNEs to be subject to economic rent taxation, as is attained through reform proposals such as the Allowance for Corporate Equity (‘ACE’), in this context. This presents a novel proposal for taxing cross-border intercompany economic rents which aligns with the main aim of corporate tax harmonisation; namely: to reduce, if not remove, distortions relating to the taxation of cross-border intercompany activities.
    Keywords: OECD, BEPS, Transfer pricing, Multinational, Economic rent taxation
    JEL: C6 C61 H2 H20 H25 H26 K0 K00
    Date: 2015–07–24
  8. By: Korytin, A.V. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Shatalova, Svetlana Sergeevna (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The report presents the results of the search and analysis of the methods of the resident property tax development as well as the recommendations on the practical implementation of the property tax world experience in Russia. This work profoundly research the international experience in the property tax domain and analyze possible consequences of its adaptation based on the wide range of national datasets.
    Keywords: property tax development, Russia
    Date: 2016–03–23
  9. By: Halim, Asyraf Abdul; Ariff, Muhammad; Masih, A. Mansur M.
    Abstract: The numerous financial crises in the 20th and 21st century demonstrate the role of excessive credit as the main instigator of financial crises. Could this excessive credit be natural byproducts of lingering economic ailments such as, income inequality, property bubbles and persistent current account imbalances? This study attempts to answer this question by applying the Least Squares Dummy Variable (LSDVC) and dynamic GMM estimations based on the data of ten countries from the year 2004 to 2012. Whilst past literature have investigated the effect of income inequality, dominant real estate sector and current account imbalances on excessive credit separately, this study extends the literature by examining the impact of all three variables on excessive credit aggregately. Our findings tend to indicate that there do exist a positive relationship between all three variables and excessive credit. However, we found that only income inequality and the real estate sector contribute significantly to excessive credit but current account imbalances only marginally do so. We also discovered that the contribution to excessive credit by the banking sector is just about twice the amount of all three variables combined. Our results serve as evidence for policymakers interested in reducing excessive credit by controlling all three variables as well as the banking sector.
    Keywords: Excessive Credit, Inequality, Real Estate, Current Account Imbalances, Credit-to- GDP Gap.
    JEL: C22 C58 E44 G15
    Date: 2016–06–17
  10. By: Weber, Jeremy G.; Wang, Yongsheng; Chomas, Maxwell
    Abstract: We provide a quantitative description of state-level taxation of oil and gas production in the Continental U.S. for 2004 to 2013. Aggregate revenues from production taxes nearly doubled in real terms over the period, reaching $10.3 billion and accounting for 20 percent of tax receipts in the top ten revenue states. The average state had a tax rate of 3.6 percent; nationally, the average dollar of production was taxed at 4.2 percent. The oil-specific rate estimated for the study period is $2.4 per barrel or $5.5 per ton of carbon. Lastly, state-level tax rates are two-thirds higher in states excluding oil and gas wells from local property taxes, suggesting that the policies are substitutes for one another.
    Keywords: state policy, oil and gas taxation, effective tax rates
    JEL: Q38 Q48
    Date: 2016–06–03
  11. By: Grégoire ROTA-GRAZIOSI (Centre d'Etudes et de Recherches sur le Développement International(CERDI))
    Abstract: Pareto-improving tax coordination, and even tax harmonization, are Nash implementable between sovereign countries without any supranational tax authorities. Following Schelling's approach, we consider voluntary commitment, which constrains countries' respective tax rate choices. We develop a commitment game where countries choose their strategy sets in preliminary stages and play consistently during the final one. We determine the set of tax rates, which are implementable by commitment. This allows countries to reach Pareto-improving equilibriums. We also establish that complete tax harmonization may emerge as the subgame perfect Nash equilibrium of the commitment game as long as the asymmetry between countries remains limited. Our analysis contributes to the rationale of tax ranges and, more broadly, of non binding but self-enforcing commitments (not equivalent to cheap talk) in the context of tax competition.
    Keywords: Tax coordination, Commitment.
    JEL: C72 H30
    Date: 2016–06
  12. By: Christian EBEKE (International Monetary Fund (IMF)); Mario MANSOUR (Fiscal Affairs Department - International Monetary Fund); Grégoire ROTA-GRAZIOSI (Ferdi)
    Abstract: In the context of achieving the new Sustainable Development Goals, revenue mobilization is a high priority in developing countries and in Sub-Saharan Africa, where governments’ ability to tax remains limited. Using a unique revenue dataset spanning the period 1980-2010, we analyze three important tax reforms: the Large Taxpayers Unit (LTU), the Value Added Tax (VAT), and the Semi-Autonomous Revenue Agency (SARA). We propose an ex-post impact assessment of these tax reforms in SSA countries based on propensity-score matching methodology (PSM) and synthetic control method (SCM). VAT and SARA are found to have an unambiguously large and positive effect on non-resource taxes, while the impact of LTU is insignificant—LTU seems however an important precondition for the adoption of the first two reforms. We conclude also that VAT and SARA display some synergy, and their positive effects strengthen several years after their adoption.Keywords: tax reforms; Africa; revenue mobilization; causality.
    Keywords: tax reforms, Africa, revenue mobilization, causality.
    JEL: H2 O23 O55 C1
    Date: 2016–06
  13. By: Research and Statistics Department (Bank of Japan)
    Abstract: In October 2013, the Bank of Japan (the Research and Statistics Department, which is the section responsible for compiling and publishing statistics) announced for public consultation its project on revising the Flow of Funds Accounts in line with the 2008SNA recommendations1. In response, the Bank received valuable comments and suggestions, and after taking them into account, the Bank presented the final draft in June 20142. Since then, the Bank had been finalizing details of the revised Flow of Funds Accounts (based on 2008SNA, hereinafter referred to as the "New Flow of Funds Accounts"). The New Flow of Funds Accounts was released on March 25, 2016. This was the first substantial revision since 1999 (revision based on 1993SNA, hereinafter referred to as the "Former Flow of Funds Accounts"). This paper provides details of the major changes resulting from the current revision of the Flow of Funds Accounts and also shows the quantitative impact of the revision on stocks and transaction flows. The overview of the revision, including detailed items, is summarized in Section 11.
    Date: 2016–03–31
  14. By: Wian Boonzaaier; Jarkko Harju; Tuomas Matikka; Jukka Pirttilä
    Abstract: In this paper we study the effects of various tax schedule discontinuities on the behavior of small firms using high-quality and population-wide tax register data from South Africa. We use the bunching method to analyse how these discontinuities affect the firm-size distribution. We first examine how the value-added tax threshold affects the sales distribution of firms. We also study the effects of two separate corporate income tax rate kinks. We find sizable bunching at each of these thresholds. The elasticity estimates for the corporate tax kink points are large, ranging from 0.7 to 1.6, whereas the elasticity of the value added is below 0.1. We find some suggestive evidence that part of the response is driven by tax evasion.
    Keywords: developing countries, value-added tax, corporate tax, VAT threshold, corporate tax kink, bunching, small firms
    Date: 2016
  15. By: Beatriz García Osma (Universidad Carlos III de Madrid); Belén Gill de Albornoz Noguer (Universitat Jaume I); Elena De las Heras Cristobal (Universidad Autónoma de Madrid)
    Abstract: We study the strategies, timing and relative outcomes obtained by companies that attempt to shop for more favorable audit opinions both at the firm and at the partner level. Using a uniquely long time series of Spanish firms’ data, we employ the Lennox's (2000) methodology and find evidence of successful opinion-shopping through voluntary firm switching. In contrast, our results suggest that voluntary audit partner switches are associated with a fresh eye effect. Additionally, we document that firm switching activity is more likely when prior attempts to shop for an opinion were unsuccessful. Finally, we show that the fresh eyes effect associated with partner switching disappears when partner rotation becomes mandatory; and that under such a regulatory setting firm-level opinion-shopping is still pervasive. Estudiamos las estrategias empresariales para conseguir informes de auditoria con opiniones mas favorables, tanto a nivel de firma como de socio. Utilizando la metodología de Lennox (2000) y la comparación entre la opinión pre y post cambio de auditor, proporcionamos evidencia de la existencia de compra de opinión a través del cambio voluntario de firma de auditoría. Sin embargo, los resultados sugieren que los cambios voluntarios del socio de auditoría están asociados con un efecto "ojos frescos". Además, los cambios de firma son más probables cuando previamente se han producido intentos de compra de opinión que no han tenido éxito. Finalmente, se proporciona evidencia de que el efecto "ojos frescos" asociado a los cambios voluntarios de socio desaparece cuando la rotación del socio es obligatoria; y que la compra de opinión a nivel de firma sigue existiendo en un contexto de rotación obligatoria del socio.
    Keywords: compra de opinión; cambio de auditor; opinión con salvedades; rotación obligatoria del socio. opinion-shopping, auditor switches, modified audit reports, mandatory partner rotation.
    JEL: M42 M48
    Date: 2016–05

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