How do corporate tax bases change when corporate tax rates change? With implications for the tax rate elasticity of corporate tax revenues

We construct a new database of extensive margin changes to multiple aspects of corporate tax bases for OECD countries between 1980 and 2004. We use our data to systematically document the tendency of countries to implement policies that both lower the corporate tax rate and broaden the corporate tax base. This correlation informs our interpretation of previous estimates of the relationship between corporate tax rates and corporate tax revenues, which typically do not include comprehensive measures of the corporate tax base definition. We then re-examine the relationship between corporate tax rates and corporate tax revenues. We find that accounting for unobserved heterogeneity attenuates the relationship between corporate tax rates and corporate tax revenues, and increases the implied revenue-maximizing tax rate. Controlling for our new tax base measures does not substantively impact the magnitude of this relationship.     

Practitioners' perceptions of the importance of specific corporate tax knowledge of new hires working in tax

This study reports accounting practitioners' perceptions of the importance of new hires having certain tax knowledge normally addressed and developed in a corporate tax class. Variables related to the administration of a tax course are also examined.The results suggest that topics dealing with Subchapter S Corporations, determination of the corporate tax liability, and definition of the corporation are perceived as most important and should be covered in depth. Collapsible corporations and preferred stock bailouts are considered the least important topics.The survey results also are analyzed by firm size (large, medium, and small). Respondents from small firms place more importance on the accumulated earnings tax than the respondents from large firms. Respondents from large firms place more importance on reorganizations than respondents from medium or small firms.When asked about corporate tax course administration, respondents recommend the use of the Internal Revenue Code (IRC) and Regulations as a supplement to a standard textbook. They think it is important for any new hire to have at least one corporate tax course and be familiar with corporate tax forms. The only disagreement among the respondents from the different size firms is related to the number of courses students should complete. The respondents from the large firms indicate one course in corporate tax is not sufficient while the respondents from the medium and small firms indicate it is.The study also compares practitioners' recommendations concerning the amount of coverage for various corporate tax topics with the coverage of the topics in two corporate tax textbooks.These results have implications for accounting academicians who teach corporate tax. The results are useful in determining course coverage and in identifying topics that need additional attention as well as areas that need to be deemphasized or eliminated. The results also provide insight into the corporate tax course administration.     

The politics of tax accounting in the United States: evidence from the Taxpayer Relief Act of 1997

The purpose of this study is to utilize prior research in US Congressional politics, the accounting/state relationship, and corporate political activity to analyze corporations' political activities during the development and passage of the United States' Taxpayer Relief Act of 1997. Our study provides evidence consistent with the notion that large corporations exercise considerable political power during the state's formulation of new tax accounting laws. These findings lead us to question the applicability of a strict pluralist model in accounting policy research and have implications for future research in corporate political activity, corporate tax accounting, and the political economy of accounting.     

IAS/IFRS in Belgium: Quantitative analysis of the impact on the tax burden of companies

The adoption of International Accounting Standards and the International Financial Reporting Standards (IAS/IFRS) in the European Union is part of the European Commission's global tax harmonisation policy whose aim is to establish a common (consolidated) corporate tax base. The paper shows that the impact of an IAS/IFRS-based tax accounting on the effective tax burden of Belgian companies is large and not uniform across sectors. Some sectors, like construction and automotive vehicles, experience much larger increases in effective tax burdens than others. Globally the impact is relatively important. The analysis is conducted using the European Tax Analyzer (ETA), a multi-period forward looking program. In a European context, an IAS/IFRS-based tax accounting will increase the effective corporate tax burdens in all selected countries. However, it will most probably maintain the current tax competitive positions of EU countries. The expected broadening of the tax base could constitute an opportunity to reduce the corporate income tax rate without changing the overall effective burden.     

Do Publicly Disclosed Tax Reserves Tell Us About Privately Disclosed Tax Shelter Activity?

We examine whether public disclosures of tax reserves recently made available through Financial Interpretation No. 48 (FIN 48) reflect corporate tax shelter activities. Understanding this relation is important to corporate stakeholders and researchers keen to infer the aggressive nature of a firm's tax positions from its tax reserve accrual. Our study links public disclosures of tax reserves with mandatory private disclosures of tax shelter participation as made to the Internal Revenue Service's Office of Tax Shelter Analysis. We find strong, robust evidence that the tax reserve is positively associated with tax shelters, while other commonly used measures of tax avoidance are not. Based on out‐of‐sample tests, we also show that the reserve is a suitable summary measure for predicting tax shelters. The tax benefits of tax shelters are economically significant, accounting for up to 48% of the aggregate FIN 48 tax reserves in our sample.     

Taxing multi-nationals under union wage bargaining

This paper investigates corporate taxation under separate accounting (SA) and formula apportionment (FA) in a model with union wage bargaining and multi-national firms. Under SA, we find that increases in the corporate tax rate raise the wage level of domestic workers, while they lower the remuneration of foreign workers. The main insight emerging from a tax competition game is that the endogenous wage level gives rise to an ambiguous fiscal externality, which may dampen the race-to-the-bottom in corporate tax rates. A switch to a tax system with FA principles reverses the impact of corporate taxes on negotiated wages. While increases in the corporate tax rate reduce domestic wages, they raise the wage level of foreign workers. In a tax competition game, the endogenous wage level gives rise to a positive fiscal externality that enforces the race-to-the-bottom in corporate tax rates.     

Determinants of the Variability of Corporate Effective Tax Rates: Evidence from Romanian Listed Companies

In this paper, I investigate the determinants of firm-specific corporate tax rates for nonfinancial companies listed on the Bucharest Stock Exchange over a twelve-year period (2000-2011). Using a fixed effects panel data estimation model to account for individual firm heterogeneity, I find that capital intensity, leverage, and loss carry-forward provisions negatively affect corporate effective tax rates; company size and labor intensity have no effect; and profitability has a positive effect. Going beyond the deterministic investigation, the paper cannot provide evidence of tax-planning activities for the companies considered. Moreover, legal differences between financial and tax accounting related to provisions are found to have a positive effect on firm-specific effective tax rates.     

THE ADOPTION OF PARTIAL DEFERRAL IN THE UK, 1977–78: EVIDENCE ON AN ACCOUNTING CHOICE

This study uses logit analysis to test the relationship between the UK deferred tax accounting decision in 1977–78, when SSAP 11 had been withdrawn and not yet replaced by SSAP 15, and a number of variables or corporate charac-teristics drawn from the largely American accounting policy choice and the more specific UK deferred tax literatures. The findings, of a significant association between several of these variables and the UK deferred tax accounting decision of 1977–78, suggest that further tests of the determinants of accounting policy choice in the UK should include variables that reflect direct, indirect and neutral managerial interests.     

新所得税准则对上市公司盈利能力影响分析

新所得税准则要求企业运用资产负债表债务法进行所得税核算。资产负债表债务法通过比较资产负债的计税基础计算出应纳税暂时性差异和可抵扣暂时性差异,进而确认当期递延所得税,调整当期的所得税费用,所得税费用的调整会影响企业当期的净利润,进而影响股东的每股收益。因此,暂时性差异会影响企业的盈利能力。本文采用统计分析方法,分析新所得税准则对上市公司盈利能力的影响。     

The impact of tax enforcement on corporate investment efficiency: evidence from the tax administration information system

Information technology is essential in tax enforcement. This study found that stronger tax enforcement after the tax administration information system reform improved corporate investment efficiency by reducing excessive investment expenditures. The effect is more significant under higher local government fiscal pressure, poorer external information environments, weaker external corporate governance, and stronger tax avoidance motivation. The main mechanism is based on the quality of the accounting information. This study enriches the literature on the economic consequences of tax enforcement and adds investment efficiency as an influential factor, which provides implications for international governments to use information technology to strengthen tax enforcement.     

Destination taxation and evasion: Evidence from U.S. inter-state commodity flows

Tax evasion has been an important issue in the accounting literature for several decades, but the focus has been on corporate income taxes. We develop a new way to examine tax evasion that focuses on corporate transactions, rather than corporate profits. Specifically, we examine how commodity flows respond to destination sales taxes, allowing for tax evasion as a function of distance between trade partners. After accounting for transportation costs, we find that the effect of taxes decreases as distance increases. This is consistent with the notion that longer distances between trade partners hinder government oversight and increase the likelihood of successful tax evasion. Our results are robust with respect to outliers, strategic neighbor effects, information sharing agreements and other re-specifications. These results are important to policymakers because they evidence the difficulty of enforcing destination taxation in open economies such as U.S. states and the European Union.     

Tax credit rating and corporate innovation decisions

The tax credit rating mechanism was formally implemented in 2014. As an important tax collection and management innovation, it has attracted the attention of regulatory authorities and scholars. Different from the literature that directly examines corporate tax compliance, we focus on the impact of tax credit rating implementation on corporate research and development (R&D) investment decisions. Using listed companies’ data from 2014 to 2019, we find that companies with higher tax credit ratings invest more in innovation, because the system helps managers identify R&D opportunities, alleviates corporate financing constraints and reduces agency costs. We confirm that tax credit ratings have manifold impacts on corporate information environments and business decisions, with better ratings positively affecting firms’ business decisions. This discovery can inform tax policy reform, encourage corporate innovation and construct social credit systems.     

Optimal capital structure under corporate and personal taxation

In this paper, a model of corporate leverage choice is formulated in which corporate and differential personal taxes exist and supply side adjustments by firms enter into the determination of equilibrium relative prices of debt and equity. The presence of corporate tax shield substitutes for debt such as accounting depreciation, depletion allowances, and investment tax credits is shown to imply a market equilibrium in which each firm has a unique interior optimum leverage decision (with or without leverage-related costs). The optimal leverage model yields a number of interesting predictions regarding cross-sectional and time-series properties of firms' capital structures. Extant evidence bearing on these predictions is examined.     

Does Social Capital Matter in Corporate Decisions? Evidence from Corporate Tax Avoidance

We investigate whether the levels of social capital in U.S. counties, as captured by strength of civic norms and density of social networks in the counties, are systematically related to tax avoidance activities of corporations with headquarters located in the counties. We find strong negative associations between social capital and corporate tax avoidance, as captured by effective tax rates and book‐tax differences. These results are incremental to the effects of local religiosity and firm culture toward socially irresponsible activities. They are robust to using organ donation as an alternative social capital proxy and fixed effect regressions. They extend to aggressive tax avoidance practices. Additionally, we provide corroborating evidence using firms with headquarters relocation that changes the exposure to social capital. We conclude that social capital surrounding corporate headquarters provides environmental influences constraining corporate tax avoidance.     

Tax avoidance,tax management and corporate social responsibility

This study examines the effect of three measures of corporate social responsibility (CSR) — corporate governance, community and diversity on tax avoidance in firms that use auditor‐provided tax services. This is one of the first studies, to our knowledge, to empirically relate tax avoidance, tax management and CSR literature. By separating the strengths and concerns for each CSR measure, we are able to analyze the effects of a firm's negative and positive social actions on tax avoidance. We find that the interaction of community concerns with tax management fees positively affects both GAAP and Cash ETR, while the interaction of corporate governance strengths and diversity concerns with tax management fees negatively affects Cash ETR. Our results are similar when we use Excess ETR that is not explained by firm specifics. We find additional evidence that CSR affects tax avoidance when we divide firms into portfolios based on CSR levels. Our findings suggest that future studies on tax avoidance and tax management should incorporate CSR.     

The effect of chief financial officers’ accounting expertise on corporate tax avoidance: the role of compensation design

Review of Quantitative Finance and Accounting - Accounting expertise is closely related to corporate tax planning, and hence, corporate chief financial officers (CFOs) with accounting expertise may...     

Tax Aggressiveness and Accounting Fraud

There are competing arguments and mixed prior evidence on whether firms that are aggressive in their financial reporting exhibit more or less tax aggressiveness. Our research contributes to resolving this issue by examining the association between aggressive tax reporting and the incidence of alleged accounting fraud. Relying on several proxies for tax aggressiveness to triangulate our evidence, we generally find that tax aggressive U.S. public firms are less likely to commit accounting fraud. However, we caution that our results are sensitive to how tax aggressiveness is measured. More specifically, four (two) of the five (three) proxies for firms’ effective tax rates (book‐tax differences) load positively (negatively) during the 1981–2001 period, implying that fraud firms are less tax aggressiveness. Our inferences persist when we isolate the 1995–2001 period in which accounting impropriety steeply rose and corporate tax compliance steeply fell. Moreover, we continue to find that tax aggressive firms are less apt to fraudulently manipulate their financial statements when we apply factor analysis to identify tax avoidance with a common factor extracted from the underlying proxies and match on propensity scores to ensure that the fraud and nonfraud samples have very similar nontax characteristics.     

Accounting and taxation: Conjoined twins or separate siblings?

This paper explores the relationship between accounting and taxation through the recent proposals for curbing corporate tax avoidance advanced by the Organisation for Economic Co-operation and Development (OECD) and the European Union (EU). The OECD is content to tweak pricing and fails to address the faultlines of accounting. The EU is promoting ‘unitary taxation’ and advocates a major reform of the way taxable profits are to be calculated. As IFRSs have reduced the usefulness of accounting numbers for taxation purposes, the EU has sought to recalibrate basic elements of accounting. This has considerable implications for the development of accounting.     

Taxation and the optimal constraint on corporate debt finance: why a comprehensive business income tax is suboptimal

The tax bias in favour of debt finance under the corporate income tax means that corporate debt ratios exceed the socially optimal level. This creates a rationale for a general thin capitalization rule limiting the amount of debt that qualifies for interest deductibility. This paper sets up a model of corporate finance and investment in a small open economy to identify the optimal constraint on tax-favoured debt finance, assuming that a given amount of revenue has to be raised from the corporate income tax. For plausible parameter values, the socially optimal debt-asset ratio is 2–3% points below the average corporate debt level currently observed. Driving the actual debt ratio down to this level through limitations on interest deductibility would generate a total welfare gain of about 5% of corporate tax revenue. The welfare gain would arise mainly from a fall in the social risks associated with corporate investment, but also from the cut in the corporate tax rate made possible by a broader corporate tax base.     

Corporate social responsibility and tax aggressiveness: An empirical analysis

This study examines the association between corporate social responsibility (CSR) and corporate tax aggressiveness. Based on a sample of 408 publicly listed Australian corporations for the 2008/2009 financial year, our regression results show that the higher the level of CSR disclosure of a corporation, the lower is the level of corporate tax aggressiveness. We find a negative and statistically significant association between CSR disclosure and tax aggressiveness which holds across a number of different regression model specifications, thus more socially responsible corporations are likely to be less tax aggressive in nature. Finally, the regression results from our additional analysis indicate that the social investment commitment and corporate and CSR strategy (including the ethics and business conduct) of a corporation are important elements of CSR activities that have a negative impact on tax aggressiveness.