nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2018‒12‒17
eleven papers chosen by

  1. Tax planning in multinational corporations after the discussions referred to immorality of base erosion and profit shifting (BEPS): With focus on Starbucks Corporation By Robles, María Guadalupe
  2. Spillover from the haven: Cross-border externalities of patent box regimes within multinational firms By Thomas Schwab; Maximilian Todtenhaupt
  3. The tenuous case for an annual wealth tax By Robin Boadway; Pierre Pestieau
  4. Bank loan loss provisions, risk-taking and bank intangibles By Ozili, Peterson K
  5. Unilateral Tax Reform: Border Adjusted Taxes, Cash Flow Taxes, and Transfer Pricing By Eric Bond; Thomas A. Gresik
  6. Will Destination-Based Taxes be Fully Exploited when Available? An Application to the U.S. Commodity Tax System By David R. Agrawal; Mohammed Mardan
  7. Banks, debt and risk: assessing the spillovers of corporate taxes By Fatica, Serena; Heynderickx, Wouter; Pagano, Andrea
  8. What Happened to CIT Collection? Solving the Rates-Revenues Puzzle By Nicodeme Gaetan; Caiumi Antonella; Majewski Ina
  9. Does tax enforcement matter for the cost of bank loans? Evidence from the United States By Bermpei, Theodora; Kalyvas, Antonios Nikolaos
  10. Popularity shocks and political selection By Gianmarco Daniele; Francisco Cavalcanti; Sergio Galletta
  11. Heterogeneous Tax Sensitivity of Firm-level Investments By Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian

  1. By: Robles, María Guadalupe
    Abstract: Tax planning is a crucial strategy that management can display in order to increase the net profit of the companies, by reducing tax expenses (Randeberg/Selvik, 2014). This is particularly significant for multinational corporations (MNCs), due to their possibility to take advantage of the different tax rates existing in the various countries where they operate (Krens, 2013). Even though most of the utilized practices were legal, they were increasingly discussed and accused of being immoral. Governments were urged by the public to take action. As a result, MNCs may possibly change their concept of tax planning and comportment. As one of the public actions, the "House of Commons Public Accounts Committee" In the United Kingdom suggested in 2012 that some large MNCs were using the tax legislation in an unintended way. Through tax planning, they managed to make huge profits and still pay very low amounts of taxes. From that moment on, base erosion and profit shifting (BEPS) has been a controversial topic in the international taxation field all around the world. This paper uses the case of Starbucks corporation to analyze to which extent the utilization of aggressive tax planning strategies has decreased since the immorality of BEPS was stated by the "House of Commons Public Accounts Committee". To this end, the financial statements of the years 2010 to 2015 are analyzed for four companies of the Starbucks group.
    Date: 2018
  2. By: Thomas Schwab (University of Mannheim, WU Vienna & ZEW); Maximilian Todtenhaupt (University of Mannheim & ZEW)
    Abstract: In this paper, we analyze the cross-border effects of patent box regimes that reduce the tax rate on income from intellectual property. We argue that the tax cut in one location of a multinational enterprise may reduce the user cost of capital for the whole group if profit shifting is possible. This spillover effect of the foreign tax cut raises domestic R&D investment. We test this mechanism by combining information on patents, firm ownership and specific characteristics of patent box regimes. Empirical results from a micro-level analysis suggest that patent box regimes without a nexus requirement (patent havens) induce positive cross-border externalities on R&D activity within multinational groups. For firms with cross-border links, the implementation of a foreign patent haven increases domestic research activity by about 2.3% per implied tax rate differential. Furthermore, our findings suggest that patent boxes generate negative spillovers on average patent quality. This has important implications for international tax policy and the evaluation of patent box regimes.
    Keywords: Patent box, spillover, corporate taxation, innovation
    JEL: F23 H25 O31
    Date: 2017
  3. By: Robin Boadway (Queen’s University); Pierre Pestieau (University of Liège)
    Abstract: We explore the case for and against an annual wealth tax as part of the overall tax mix. Few countries now use wealth taxes, and those that do adopt narrow tax bases. Taxes on inheritances or bequest are more common, but they generate limited revenue and apply to relatively few taxpayer. In principle, annual wealth taxes are roughly equivalent to capital income taxes on the assets to which they apply, although there are some assets for which wealth taxes might be simpler to implement than capital income taxes. Annual wealth taxes are distinct in purpose from inheritance taxes which are useful adjuncts to income taxes even if capital income is exempt. We recount the persuasive arguments for taxing capital income, albeit at different rates than for other income, and for taxing inheritances regardless of whether capital income is taxed. We argue that if the desire to tax asset income and wealth transfers is appropriately addressed by capital income and inheritance taxation, the additional need for an annual wealth tax is minimal and its benefits do not outweigh its administrative costs.
    Keywords: Wealth tax, capital income tax, inheritance tax
    Date: 2018
  4. By: Ozili, Peterson K
    Abstract: This article investigates the relationship between discretionary loan loss provisions and bank intangibles among African banks. Prior studies have focused on how intangible assets affect firms’ profitability and valuation decisions with almost no focus on the role of loan loss provisions. We investigate whether banks increase (decrease) loan loss provisions in response to risks associated with investment in intangible assets. We find that discretionary loan loss provisions are inversely associated with bank intangible assets and change in intangible assets, but the inverse association is weakened in environments with strong investor protection. We observe that income smoothing is reduced among banks that have large intangible asset investment. Moreover, income smoothing is pronounced among banks that have few intangible asset investments but this behaviour is reduced for banks in environments with strong minority shareholders right protection.
    Keywords: banks; income smoothing; financial institutions; financial reporting; intangible assets; loan loss provisions; signalling; bank valuation; risk; Africa,
    JEL: G21 G28 M2 M41 M42 M48
    Date: 2019–01–01
  5. By: Eric Bond; Thomas A. Gresik
    Abstract: We study the economic effects of unilateral adoption of corporate tax policies that include destination-based taxes and/or cash ow taxes in a heterogeneous agent model in which multinational firms can endogenously shift income between countries using transfer prices. Standard pass through arguments no longer apply because of the income shifting behavior of multinationals. Over or under- pass through will affect domestic consumer prices charged by multinational firms and will distort the decision of international businesses to outsource intermediate goods or to produce them in a foreign subsidiary. The welfare of the adopting country can decrease both with the adoption of destination-based taxes and the adoption of cash ow taxes. For a country with sufficiently large export markets that can optimally adjust its corporate tax rate on domestic earnings, unilaterally adopting cash ow taxation with full destination-based rate adjustments will reduce welfare.
    Keywords: border adjustments, destination-based taxes, source-based taxes, cash flow taxes, income taxes, transfer pricing, unilateral tax reform
    JEL: F23 H21 H25 H26
    Date: 2018
  6. By: David R. Agrawal; Mohammed Mardan
    Abstract: We develop a tax competition model that allows for the setting of both an origin-based and a destination-based commodity tax rate in the presence of avoidance and evasion. In the presence of evasion, jurisdictions will give cross-border shoppers tax preferential treatment, thus not fully exploiting the potential of destination-based taxation. Moreover, the divergence between origin-based and destination-based taxes is stronger when the incentives for consumers’ tax-arbitrage opportunities increase. The United States is one example of many such systems. While sales taxes are due at the point of sale, use taxes are due on goods purchased out-of-state. We document that when able to set both rates, a majority of jurisdictions levy destination-based use taxes at a lower rate than origin-based sales taxes. In response to changes in state-level policies that increase tax avoidance opportunities, the results of the empirical model broadly confirm our theory.
    Keywords: tax evasion, tax avoidance, destination taxation, origin taxation, tax competition, use tax, sales tax
    JEL: C72 H21 H25 H26 H77 P16 R51
    Date: 2018
  7. By: Fatica, Serena (European Commission – JRC); Heynderickx, Wouter (European Commission – JRC); Pagano, Andrea (European Commission – JRC)
    Abstract: Using bank balance sheet data, we find evidence that leverage and asset risk of European multinational banks in the crisis and post-crisis period is affected by corporate taxes in their host country as well as by the tax rates in all the jurisdictions where the banking group operates. Then, we evaluate the effects that establishing tax neutrality between debt and equity finance has on systemic risk. We show that the degree of coordination in implementing the hypothetical tax reform matters. In particular, a coordinated elimination of the tax advantage of debt would significantly reduce systemic losses in the event of a severe banking crisis. By contrast, uncoordinated tax reforms are not equally beneficial. This is because national tax policies generate spillovers through cross-border bank activities and tax-driven strategic allocation of debt and asset risk across group affiliates.
    Keywords: Corporate tax, Debt bias, Debt shifting, Multinational banks, Leverage
    JEL: E32 F41 F44
    Date: 2018–11
  8. By: Nicodeme Gaetan; Caiumi Antonella; Majewski Ina
    Abstract: Despite sharp reductions in corporate income tax (CIT) rates worldwide, CIT revenues have not fallen dramatically in the last two decades. This paper investigates the recent developments in CIT in the European Union, by taking a closer look at the potential driving forces behind this puzzle. Using a unique dataset of national sectoral accounts, we decompose the CIT revenue to GDP ratio for the EU and find that while the decrease in the statutory rates has driven down tax collection, the effect was more than offset by a broadening of the taxable base and a slight increase in the size of the corporate sector. However, this result holds for the period 1995-2015 but not for the last decade where base broadening has not been able to match further cuts in rates.
    Keywords: Corporate Tax, Implicit Tax Rate, Tax Reforms, Incorporation, European Union
    JEL: E62 H25 O52
    Date: 2018–12
  9. By: Bermpei, Theodora; Kalyvas, Antonios Nikolaos
    Abstract: We examine the relationship between the tax enforcement effort of the internal revenue service (IRS) and the cost of bank loans in the US syndicated market. We measure tax enforcement by the rate of IRS audits and find that it decreases bank loan spreads. This finding holds in a series of robustness and sensitivity tests such as the use of alternative IRS tax enforcement measures, instrumental variable regressions, panel data estimations and a quasi-experimental framework of the Section 404b of the Sarbanes-Oxley (SOX) Act. We also find that the negative effect of IRS tax enforcement on loan spreads strengthens for smaller corporations. In addition, we show that stringent IRS tax enforcement decreases the probability that loan contracts will contain covenants. Overall, these findings suggest that banks acknowledge the informational and monitoring role of tax enforcement in the private debt market.
    Date: 2018–12–04
  10. By: Gianmarco Daniele (Bocconi University (Baffi Carefin) & Institut d’Economia de Barcelona (IEB)); Francisco Cavalcanti (Universitat de Barcelona & Institut d’Economia de Barcelona (IEB)); Sergio Galletta (Universitat de Barcelona, Institut d’Economia de Barcelona (IEB), Institute of Economics (IdEP) & University of Lugano (USI))
    Abstract: We observe that popularity shocks are crucial for electoral accountability beyond their effects on voters’ behaviors. By focusing on Brazilian politics, we show that the disclosure of audit reports on the (mis)use of federal funds by local administrators affects the type of candidates who stand for election. When the audit finds low levels of corruption, the parties supporting the incumbent select less-educated candidates. On the contrary, parties pick more-educated candidates when the audit reveals a high level of corruption. These effects are stronger in municipalities that have easier access to local media.
    Keywords: Political selection, corruption, competence, local election, political parties
    JEL: D70 D72 D73
    Date: 2018
  11. By: Egger, Peter; Erhardt, Katharina; Keuschnigg, Christian
    Abstract: This paper introduces a stylized theoretical framework to identify five different firm types depending on their financial situation and their ownership structure. Based on these firm types, the model explains the heterogeneous tax sensitivity of firm-level investments. Guided by the theoretical model, we empirically identify these partly latent firm types using a threshold estimation approach. The empirical analysis uses a large firm database for 17 countries allowing for a quantification of the regime-specific investment responses to taxation. We find important differences in the tax sensitivity of investment across firm-types for dividend as well as for corporate taxation. The impact of corporate taxation is up to 70% higher for entrepreneurial firms than for managerial firms. In contrast, dividend taxation has a comparable negative effect for cash-constrained managerial firms and entrepreneurial firms but no significant impact on their unconstrained counterparts.
    Keywords: Access to capital; corporate tax; Firm Heterogeneity; Manager-shareholder conflicts; Personal taxes
    JEL: D22 G32 H25 L21
    Date: 2018–11

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