nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2019‒08‒12
eleven papers chosen by

  1. Is mandatory country-by-country reporting effective? Early evidence on the economic responses by multinational firms By De Simone, Lisa; Olbert, Marcel; Spengel, Christoph
  2. Should There Be Lower Taxes On Patent Income? By Gaessler, Fabian; Hall, Bronwyn H.; Harhoff, Dietmar
  3. Safe Harbour Regimes in Transfer Pricing: An African Perspective By Ezenagu, Alexander
  4. Fiscal justice in Brazil: pathways to progress By Luana Passos; Dyeggo Rocha Guedes; Fernando Gaiger Silveira
  5. The corporate tax, apportionment rules and employment: Evidence using policy discontinuity at U.S. state borders By Kakpo, Eliakim
  6. 消費税における閾値と小規模企業の集積 : 2019年増税への展望 By 市川, 翼; アルドチェルワン, メナカ; 恩地, 一樹
  7. Using Machine Learning to Detect and Predict Corporate Accounting Fraud (Japanese) By USUKI Teppei; KONDO Satoshi; SHIRAKI Kengo; SUGA Miki; MIYAKAWA Daisuke
  8. Role of Credit Reference Bureau On Financial Intermediation: Evidence from The Commercial Banks in Kenya By Mungiria, James; Ondabu, Ibrahim
  9. Exchange Rate Driven Balance Sheet Effect and Capital Flows to Emerging Market Economies By Can Kadirgan
  10. Household Balance Sheets and Consumption Responses to Income Shocks By Cho, Yunho; Morley, James; Singh, Aarti
  11. Ownership Structure, Board of Directors and Firm Performance: Evidence from Taiwan By Aziz Jaafar; Lynn Hodgkinson; Mao-Feng Kao

  1. By: De Simone, Lisa; Olbert, Marcel; Spengel, Christoph
    Abstract: Over the past decade, policymakers, non-profit organizations, and the media have demanded greater transparency by multinational firms regarding their global operations and tax payments. These demands are motivated by the assumption that multinational firms engage in aggressive planning strategies to minimize their global tax bill, for instance through operations in tax havens and profit shifting to low-tax jurisdictions. Accordingly, tax transparency is high on the political agenda. The political action resulted in the OECD proposal to require multinational firms to disclose their global operations and tax payments on a country-by-country basis to tax authorities. Since 2016, such country-by-country reporting (CbCR) is mandatory for firms operating in the European Union. While the EU policymakers adopted CbCR primarily in response to perceived harmful tax practices of multinational corporations, the effects of such increased disclosure on corporate decisions is an open but economically and politically relevant question as firms might not only alter their tax strategies but also change their real global footprint in terms of investment in assets or employees.
    Date: 2019
  2. By: Gaessler, Fabian (MPI-IC Munich); Hall, Bronwyn H. (MPI-IC Munich); Harhoff, Dietmar (MPI-IC Munich)
    Abstract: A \"patent box\" is a term for the application of a lower corporate tax rate to the income derived from the ownership of patents. This tax subsidy instrument has been introduced in a number of countries since 2000. Using comprehensive data on patents filed at the European Patent Office, including information on ownership transfers pre- and post-grant, we investigate the impact of the introduction of a patent box on international patent transfers, on the choice of ownership location, and on invention in the relevant country. We find that the impact on transfers is small but present, especially when the tax instrument contains a development condition and for high value patents (those most likely to have generated income), but that invention itself is not affected. This calls into question whether the patent box is an effective instrument for encouraging innovation in a country, rather than simply facilitating the shifting of corporate income to low tax jurisdictions.
    Keywords: patent box; ip box; innovation tax; beps; epo; invention incentive; patent ownership;
    JEL: H32 K34 O34
    Date: 2019–08–05
  3. By: Ezenagu, Alexander
    Abstract: Applying transfer pricing rules in Africa poses great difficulties. There are few reliable comparables to benchmark prices and terms fixed by related entities in their transactions with each other. This means that jurisdictions struggle with applying the arm’s length principle in intra-firm dealings, as prescribed by tax treaties and domestic laws. Furthermore, the requirement for an individual facts and circumstances analysis in transfer pricing promotes subjectivity in transfer pricing audit and administration. This subjectivity creates an environment of uncertainty for taxpayers and potential investors, who find it hard to predict tax outcomes. In addition, the requirement for individual facts and circumstances analysis in transfer pricing is resource-intensive, time-consuming and complex to implement for all – especially the tax authority, who is in competition with large accounting firms to arrive at an appropriate tax return for the taxpayer. This is where safe harbour regimes may be useful. Safe harbour regimes are established to reduce the burden of tax compliance and ease administration of the tax system, while at the same time providing tax certainty. For taxpayers subject to transfer pricing rules of taxing jurisdictions, safe harbour regimes have the potential to reduce the compliance burden involved in establishing an arm’s length price for transactions entered into with related entities. For tax authorities, safe harbour regimes can help to ensure effective management of limited resources needed for tax enforcement. Finally, they may be used to secure and increase corporate income tax of taxing jurisdictions. Both the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TPGs) and the UN Practical Manual on Transfer Pricing for Developing Countries (UN Practical Manual) recommend the application of safe harbour regimes to small- and medium-sized enterprises (SMEs) and small transactions, which are deemed to carry low tax risk, though creating significant compliance and enforcement burdens on taxpayers and tax authorities, respectively. The guiding reasons for introducing safe harbour regimes for rich countries are to reduce the compliance costs and burden for taxpayers, and enforcement burden for tax authorities. For African countries, increasing and guaranteeing corporate income tax collection is equally important. Appreciating this additional policy objective can help the effective introduction and design of appropriate safe harbour regime(s) for African countries. This paper makes the case for the cautious introduction and use of safe harbours by tax authorities in African countries, to achieve increased revenue collection, tax efficiency, certainty, simplicity, convenience, and to circumvent complicated comparability analysis.
    Keywords: Economic Development, Finance, Governance, Trade,
    Date: 2019
  4. By: Luana Passos (IPC-IG); Dyeggo Rocha Guedes (IPC-IG); Fernando Gaiger Silveira (IPC-IG)
    Abstract: "The purpose of this paper is to clarify the debate around the importance of fiscal justice in the promotion of equity and possible pathways to achieve it. To that end, the study included an analysis of the Brazilian tax system and of the existing literature on its distributive role and its efficiency. The findings point to inefficient taxation that is still very unequal, but with clear room for improvement. To increase efficiency and promote economic growth, we propose a change in the taxation of goods and services through the creation of a value-added tax (VAT) and changes in payroll so as to make it tax-exempt. Five pathways are suggested to improve fiscal injustice: a reduction of indirect taxation; changes to the rates and thresholds for personal income tax; the reintroduction of taxation of profits and dividends; the institution of a tax on large fortunes; and an increase in social spending. The current fiscal and economic crisis in Brazil points to the need for fiscal reform under these terms to ensure both efficiency and equity". (...)
    Keywords: Fiscal justice, Brazil, pathways, progress
    Date: 2019–03
  5. By: Kakpo, Eliakim
    Abstract: A recent set of empirical works highlights a puzzling asymmetric response of labor market outcomes to the corporate tax. This paper explores a potential source of this disparity, using differentials in profit accounting rules across U.S. states. I exploit policy discontinuities at state borders by pairing counties in states featuring a tax change with their contiguous counterparts in control states. I notice that corporate tax cuts do not boost employment while tax hikes reduce job creation. The incidence of tax increases on employment seems limited in states with a single sales factor apportionment formula and pronounced in states that use a triple factor apportionment rule. I present a basic conceptual framework that explains this pattern.
    Keywords: Keywords: Tax incidence, Profit-shifting, Corporate tax, Profit apportionment, Employment.
    JEL: H22 H25 H71
    Date: 2018–08
  6. By: 市川, 翼; アルドチェルワン, メナカ; 恩地, 一樹
    Abstract: 本稿は帝国データバンクの大規模データを用い消費税の免税点の影響を検証する。集積動機を明らかにするため、2014年の消費税増税を準実験の機会と捉え、集積推計法を用い企業度数分布の歪みを増税前後で比較する。分布が益税の増加に反応していないことから、事務負担回避が集積の理由だと示唆される。また、歪みが発生させる経済的損失を考察するため、集積行動の形態も検討する。間接的エビデンスは租税回避を示唆している。推計では、免税点は約5万7千社の行動を歪ませ、それに伴い毎年170億円規模の益税が発生している。, We examine the behavior of small firms near the exemption threshold under Japan's value-added tax (VAT). We employ Teikoku Data Bank's large-scale firm database and find visible bunching of firms just below the threshold of 10 million yen. To better understand the motive for bunching, we utilize the 2014 VAT hike as a quasi-experiment, since it increased the financial benefit of VAT exemption. Despite the increased financial incentive, the relative bunching mass remains unchanged, suggesting that the cost of complying with tax regulations motivates the bunching behavior. We also consider whether those bunching firms make real adjustments or conduct tax avoidance. We find indirect evidence favoring the tax-avoidance hypothesis. Our estimates suggest that the VAT threshold distorts the behavior of 57,000 firms, resulting in lost tax collection of 17 billion yen per annum. With Japan facing another round of VAT hike in October 2019, our research provides additional insights to inform the forthcoming policy change.
    Keywords: 消費税, 集積推計法, 租税回避, Value-added tax, Bunching estimator, Tax avoidance
    JEL: H25 H26 H32
    Date: 2019–07
  7. By: USUKI Teppei; KONDO Satoshi; SHIRAKI Kengo; SUGA Miki; MIYAKAWA Daisuke
    Abstract: In this paper, we examine to what extent the employment of machine learning technique contributes to better detection and prediction of corporate (i.e., firm-level) accounting fraud. The obtained results show, first, that the capacity to detect accounting fraud increases substantially by using the machine learning-based model. Second, a similar improvement in predictive power is also confirmed. Such higher performance is due to both the employment of the machine learning technique and the higher dimensions of predictors. Third, we also confirm that a larger variety of data, such as corporate governance-related variables, which have not necessarily been used as main predictors in the extant studies, contribute to better detection and prediction to some extent. These results jointly suggest the existence of various unexploited information sources which are potentially useful for the detection and prediction of corporate accounting fraud.
    Date: 2019–07
  8. By: Mungiria, James; Ondabu, Ibrahim
    Abstract: This study discusses the role of the Credit Reference Bureau on financial intermediation among the commercial banks in Kenya. The study uses a descriptive survey research design. The study population consists of all the 45 commercial banks licensed by the central bank of Kenya under the banking act as at 31st May 2019. The study adopts a census population approach to study all the banks. The study uses secondary data collected from annual supervision reports of CBK, and the respective bank's audited accounts relate to the total loans, total non-performing loans, and interest earned on investments. Also, the credit reports done annually by reference bureaus were used to obtain data for the period between 2010 and 2018. Quantitative data collect was analyzed using the latest SPSS software, version 22.0. The study applies both descriptive and inferential statistics. Results generated are then presented in tables and explanations given in prose. Inferential statistics included the Pearson correlation analysis and Correlational relationships among the number of loans offered defaulted loans and the interest earnings on loans by commercial banks bank in Kenya. Linear regression analysis was conducted to establish the significance of the variables. ANOVA was used to test the relationship between independent variables and dependent variable. The Chi-Square test was also performed. Both the mean of the study and the mean before the introduction of CRB were used to check if there is a statistical difference between the means. The study establishes that credit reference bureau checks have a role in the financial intermediation (non-performing loans) in commercial banks in Kenya. Further, the study found that non-performing loans have a negative correlation with credit reference bureau checks. It can, therefore, be concluded that a relationship exists between credit reference bureau information and the level of financial intermediation as shown through non-performing loans in Kenya commercial banks.
    Keywords: Credit reference bureau, financial intermediation, commercial banks in Kenya
    JEL: G2 G32
    Date: 2019–06–29
  9. By: Can Kadirgan
    Abstract: Turkish firm-level data suggests that firms borrowing from domestic banks have, on average, a higher degree of currency mismatch than firms with direct access to international financial markets. Higher FX exposure for the former group implies that their balance sheet are more likely to deteriorate when the local currency depreciates. This risk might in turn spillover onto creditors, potentially affecting the financial health of domestic banks. In a set of emerging market economies, I indeed find that when global liquidity tightens, domestic banks are more adversely affected by the above described channel, than firms with direct access to international financial markets. When the US$ index is countercyclical over the global credit cycle, countries whose foreign currency liabilities are heavily weighted in US$ experience a larger valuation effect. Using this variation to identify the exchange rate driven balance sheet effect, I find that banking sectors in countries heavily indebted in US$ have more difficulties accessing foreign funds when global liquidity tightens. In the same countries, this additional hindrance is however absent for firms with direct access to international financial markets. I develop a partial equilibrium model whose predictions are consistent with these results. The results favor the implementation of FX-related macro prudential policies during periods of abundant global liquidity. These policies should reinforce the financial stability of the banking system at a potential reversal of global funds.
    Keywords: FX debt, Balance sheet effect, Capital flows, Banks, Systemic risk, Global liquidity
    JEL: E0 F0 F3
    Date: 2019
  10. By: Cho, Yunho; Morley, James; Singh, Aarti
    Abstract: We examine how households with different homeownership status and balance sheet positions respond to income shocks using panel datasets for the United States and Australia. Mortgaged homeowners and households with high debt and low levels of liquid assets have larger responses to transitory income shocks, especially in the United States. Time-varying estimates suggest that mortgaged homeowners exhibited particularly high sensitivity to transitory income shocks when debt levels were high during the Great Recession in the United States and the recent housing boom in Australia. Meanwhile, in both countries, households with higher wealth have more consumption insurance against permanent income shocks.
    Keywords: Household balance sheets; Transitory income shocks; Permanent in-come; Consumption insurance.
    Date: 2019–07
  11. By: Aziz Jaafar (Bangor University); Lynn Hodgkinson (Bangor University); Mao-Feng Kao (National Dong Hwa University)
    Abstract: Purpose Using a dataset of listed firms domiciled in Taiwan, the main aim of this paper is empirically assess the effects of ownership structure, board of directors on firm value. Design/methodology/approach Using a sample of Taiwanese listed firms from 1997 to 2015, the study uses a panel estimation to exploit both the cross-section and time-series nature of the data. Furthermore, a 2SLS regression model is used as robustness test to mitigate the endogeneity issue. Findings Our main results show that the higher the proportion of independent directors, the smaller the board size, and together with a two-tier board system and no CEO duality, the stronger the firm’s performance. With respect to ownership structure, block-holders’ ownership, institutional ownership, foreign ownership and family ownership, are all positively related to firm value. Practical implications Although the Taiwanese corporate governance reform concerning the independent director system which is mandatory only for newly-listed companies is a successful, the regulatory authority should require all listed companies to appoint independent directors to further enhance the Taiwanese corporate governance. Originality/value First, unlike much of the previous literature on western developed countries, this study examines the effects of corporate governance mechanisms on firm performance in a newly-industrialised country, Taiwan. Second, while a number of studies use a single indicator of firm performance this study examines both accounting-based and market-based firm performance. Third, this study addresses the endogeneity issue between corporate governance factors and firm performance by using two stage least squares (2SLS) estimation, and details the econometric tests for justifying the appropriateness of using 2SLS estimation
    Keywords: corporate governance, independent directors, board characteristics, ownership structure
    JEL: M40 G34
    Date: 2019–03

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