nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒07‒16
five papers chosen by

  1. Unintended technology-bias in corporate income taxation: The case of electricity generation in the low-carbon transition By Luisa Dressler; Tibor Hanappi; Kurt van Dender
  2. Credit Value Adjustment for Counterparties with Illiquid CDS By Ola Hammarlid; Marta Leniec
  3. Voluntary disclosure schemes for offshore tax evasion By Matthew D. Rablen; Matthew Gould
  4. Tax Competition in Developed, Emerging and Developing Regions - Same Same but Different? By Mohammed Mardan; Michael Stimmelmayr
  5. Domestic Revenue Mobilisation: A new database on tax levels and structures in 80 countries By Emmanuelle Modica; Sabine Laudage; Michelle Harding

  1. By: Luisa Dressler; Tibor Hanappi; Kurt van Dender
    Abstract: This paper shows that corporate tax provisions can lead to different effective tax rates (ETRs) if there is a capital cost-intensive and a variable cost-intensive way of producing the same output. It develops a framework for analysing sources of the difference in ETRs and adapts existing models to compare forward-looking ETRs for low-carbon and high-carbon electricity generation technologies, considering tax provisions for cost recovery in 36 countries. It finds that standard tax systems are technology neutral when investments are debt-financed because the deductibility of interest payments compensates for the fact that capital allowances are based on nominal (rather than real) capital costs. Under equity finance, ETRs are higher for investments in capital-cost-intensive technologies as the cost of equity finance is often not deductible. Since low-carbon electricity generation tends to be relatively capital-intensive, this result represents a form of unintentional misalignment of the corporate tax system with decarbonisation objectives,.
    Keywords: corporate taxation, cost structure, electricity generation, low-carbon transition, technology choice
    JEL: G11 H25 O14 Q48
    Date: 2018–07–19
  2. By: Ola Hammarlid; Marta Leniec
    Abstract: Credit Value Adjustment (CVA) is the difference between the value of the default-free and credit-risky derivative portfolio, which can be regarded as the cost of the credit hedge. Default probabilities are therefore needed, as input parameters to the valuation. When liquid CDS are available, then implied probabilities of default can be derived and used. However, in small markets, like the Nordic region of Europe, there are practically no CDS to use. We study the following problem: given that no liquid contracts written on the default event are available, choose a model for the default time and estimate the model parameters. We use the minimum variance hedge to show that we should use the real-world probabilities, first in a discrete time setting and later in the continuous time setting. We also argue that this approach should fulfil the requirements of IFRS 13, which means it could be used in accounting as well. We also present a method that can be used to estimate the real-world probabilities of default, making maximal use of market information (IFRS requirement).
    Date: 2018–06
  3. By: Matthew D. Rablen (Institute for Fiscal Studies and Sheffield University); Matthew Gould (Institute for Fiscal Studies)
    Abstract: Tax authorities worldwide are implementing voluntary disclosure schemes to recover tax on offshore investments. Such schemes are typically designed retrospectively following the bulk acquisition of information on offshore holdings, such as the recent ?Paradise? and ?Panama? papers. They offer an opportunity for affected taxpayers to make a voluntary disclosure, with reduced fine rates for truthful disclosure. We characterize the taxpayer/tax authority game with and without a scheme and show that a scheme increases net expected tax revenue, decreases illegal offshore investment, increases onshore investment, and could either increase or decrease total offshore investment (legal plus illegal).
    Keywords: voluntary disclosure, offshore tax evasion, tax amnesty, third-party information
    JEL: H26 D85
    Date: 2018–03–05
  4. By: Mohammed Mardan; Michael Stimmelmayr
    Abstract: This paper analyzes tax competition between countries which differ in their country-specific risk. We show that the outcome of asymmetric tax competition crucially depends on the ability of multinational firms to shift profits. With high costs of profit shifting, higher-risk countries set lower tax rates than lower-risk countries whereas the opposite is true if the costs of profit shifting are low. The results provide an explanation for the patterns observed in the corporate income tax policies across countries and regions differing in their level of development. Moreover, for intermediate costs of profit shifting, we show that also a country’s absolute risk level affects countries’ tax rate setting. These results carry important implication for the empirical tax competition literature.
    Keywords: tax competition, country risk, developing countries, asymmetric countries
    JEL: H25 O23 F23
    Date: 2018
  5. By: Emmanuelle Modica; Sabine Laudage; Michelle Harding
    Abstract: Domestic resource mobilisation is critical to fund government services and to support development. Taxes are a critical domestic revenue source that can also impact other social or economic outcomes. Understanding differences in the level and structure of tax revenues is therefore foundational to discussions of domestic resource mobilisation and of tax reform.This paper presents evidence on the level and structure of tax revenues in 80 countries, drawing on the new Global Revenue Statistics Database. It compares tax-to-GDP ratios and tax structures across countries, regions and over time. Links between tax-to-GDP ratios, GDP per capita and tax structures are assessed in a correlation analysis. The new database provides invaluable insights for researchers and fiscal policy analysts and offers a high level of comparability and reliability.
    Keywords: Addis Tax Initiative, comparable, Domestic Revenue Mobilisation, global database, revenue statistics, SDG17, tax levels, tax revenues, tax structures, tax-to-GDP ratios
    Date: 2018–06–28

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.