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on Accounting and Auditing |
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Issue of 2017‒02‒19
eleven papers chosen by |
| By: | Evers, Maria Theresia; Meier, Ina; Spengel, Christoph |
| Abstract: | Aggressive tax planning efforts of highly profitable multinational companies (Base Erosion and Profit Shifting (BEPS)) have become the subject of intense public debate in recent years. As a response, several international initiatives and parties have called for more transparency in financial reporting, especially by means of a Country-by-Country Reporting (CbCR). In line with that, the OECD and the European Commission have recently presented proposals for a comprehensive disclosure of country-specific tax-related information for companies in all industry sectors. In our paper, we demonstrate that neither consolidated or individual financial statements nor other existing data sources seem to be an appropriate basis for providing such country-specific information. Instead, it would be necessary to define detailed and harmonized definitions and regulations to ensure comparability. The discussion on benefits and costs of a CbCR reveals that benefits (at least partially) lack a theoretical foundation and, overall, do not seem to outweigh associated costs. This holds true, in particular, since current tax planning activities are mainly based on the legal exploitation of gaps and loopholes in national and international tax law. Instead, we argue that tax legislators should limit profit shifting by enforcing tax rules and by closing gaps in tax law. In particular, we call for more tightened and standardized transfer pricing regulations and thin-cap rules to be adopted at an international level. |
| Keywords: | tax avoidance,profit shifting,multinational firms,tax reform,tax reporting,country-by-country reporting,international transfer pricing |
| JEL: | H20 H26 F23 K34 M41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:17008&r=acc |
| By: | Boahen, Eric; Mamatzakis, Emmanuel |
| Abstract: | This study examines the extent to which religious socials norms of the firms’ environment interacts with corporate governance and BIG4 audit to affect managers’ motivation to engage in misclassification so as to influence reported core earnings. Using a sample of 23,164 U.S. firm-year observations between 2000 and 2015, we show that religiosity complements corporate governance to mitigate classification shifting in both rural and urban areas. In a religious environment, we find that managers have disincentive to shift revenue items from and core expenses into special items to inflate reported core earnings to avoid market penalties and beat analyst forecast, even more so in the presence of board independence. In addition, we find that the interaction between religiosity and audit from big four auditors also lower the presence of misclassification. Overall, results show that religiosity complements corporate governance and audit against misclassifying revenue items or core expenses. |
| Keywords: | Religiosity, Classification Shifting, Corporate Governance, BIG4 and Audit Tenure. |
| JEL: | G3 M41 M42 Z12 |
| Date: | 2016–08–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76804&r=acc |
| By: | Åsa Johansson; Øystein Bieltvedt Skeie (OECD); Stéphane Sorbe; Carlo Menon |
| Abstract: | This paper exploits firm-level data from the ORBIS database to assess international tax planning by multinational enterprises (MNEs). Profit shifting to lower-tax rate countries is measured by comparing the profitability of MNE entities having different links to countries with different tax rates and thus different profit shifting opportunities. The paper also considers other aspects of tax planning that have been less documented in the empirical literature, such as the exploitation of mismatches between tax systems and preferential tax regimes, by comparing how profits reported by MNE entities are taxed relative to non-multinational entities with similar characteristics. The analysis builds on available unconsolidated financial account data, which, despite its limitations, is considered as the best existing cross-country firm-level data. Results are based on a very large sample of firms (1.2 million observations of MNE accounts) in 46 OECD and G20 countries and a sophisticated procedure to identify MNE groups. They provide robust evidence that MNEs shift profits to lower-tax rate countries and that large MNEs also exploit mismatches between tax systems and preferential tax treatment to reduce their tax burden. Overall, the estimated net tax revenue loss ranges from 4% to 10% of global corporate tax revenues. The empirical analysis also shows that strong “anti-avoidance” rules against tax planning are associated with reduced profit shifting, but also higher compliance costs for firms. Planification fiscale des entreprises multinationales : Des preuves basées sur des données internationales d'entreprises Ce document exploite les données d’entreprises de la base de données ORBIS pour évaluer la planification fiscale internationale des entreprises multinationales. Les transferts de bénéfices vers les pays à taux d'imposition inférieur sont mesurés en comparant la rentabilité des entités multinationales ayant des liens différents avec des pays ayant des taux d'imposition différents et donc différentes possibilités de transferts de bénéfices. Le document examine également d'autres aspects de la planification fiscale qui ont été moins documentés dans la littérature empirique, comme l'exploitation des disparités entre les systèmes fiscaux et les régimes fiscaux préférentiels, en comparant la façon dont les bénéfices déclarés par les entités multinationales sont imposés par rapport à des entités non-multinationales avec des caractéristiques similaires. L'analyse se fonde sur des données financières non consolidées, qui, malgré leurs limites, sont considérées comme le meilleur échantillon international de données d’entreprises existant. Les résultats sont basés sur un très grand échantillon d'entreprises (1,2 millions d'observations de comptes de multinationales) dans 46 pays de l'OCDE et du G20 et une procédure sophistiquée pour identifier les groupes multinationaux. Ils fournissent des preuves solides que les multinationales transfèrent leurs bénéfices vers les pays à taux d’imposition inférieur et que les grandes multinationales exploitent également les disparités entre les systèmes fiscaux et les traitements fiscaux préférentiels pour réduire leur fardeau fiscal. Au total, la perte de recettes fiscales nette estimée varie de 4% à 10% des recettes mondiales d’impôt sur les sociétés. L'analyse empirique montre également que des règles strictes « anti-évitement » contre la planification fiscale sont associés à des transferts de bénéfices réduits, mais aussi à des coûts de conformité plus élevés pour les entreprises. |
| Keywords: | base erosion, corporate income tax, firm-level data, multinational tax planning, profit shifting |
| JEL: | F23 H25 H26 H32 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1355-en&r=acc |
| By: | Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia; Iommi, Massimiliano |
| Abstract: | This paper uses a new cross-country cross-industry dataset on investment in tangible and intangible assets for 18 European countries and the US. We set out a framework for measuring intangible investment and capital stocks and their effect on output, inputs and total factor productivity. The analysis provides evidence on the diffusion of intangible investment across Europe and the US over the years 2000-2013 and offers growth accounting evidence before and after the Great Recession in 2008-2009. Our major findings are the following. First, tangible investment fell massively during the Great Recession and has hardly recovered, whereas intangible investment has been relatively resilient and recovered fast in the US but lagged behind in the EU. Second, the sources of growth analysis including only national account intangibles (software, R&D, mineral exploration and artistic originals), suggest that capital deepening is the main driver of growth, with tangibles and intangibles accounting for 80% and 20% in the EU while both account for 50% in the US, over 2000-2013. Extending the asset boundary to the intangible assets not included in the national accounts (Corrado, Hulten and Sichel (2005)) makes capital deepening increases. The contribution of tangibles is reduced both in the EU and the US (60% and 40% respectively) while intangibles account for a larger share (40% in EU and 60% in the US). Then, our analysis shows that since the Great Recession, the slowdown in labour productivity growth has been driven by a decline in TFP growth with relatively a minor role for tangible and intangible capital. Finally, we document a significant correlation between stricter employment protection rules and less government investment in R&D, and a lower ratio of intangible to tangible investment. |
| Keywords: | productivity growth,intangible capital,sources of growth,national accounts |
| JEL: | O47 E22 E01 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201608&r=acc |
| By: | Stéphane Sorbe; Åsa Johansson |
| Abstract: | This paper assesses how international tax planning affects real business investment by multinationals. Earlier studies have shown that corporate taxes reduce business investment. This paper shows that tax planning multinationals are less sensitive to corporate taxes than other firms in their investment decisions. This is presumably because tax planning multinationals do not face the full tax burden associated with their investments, since they shift part of the resulting profits to lower-tax rate countries. On average across industries, a 5 percentage point corporate tax rate increase is found to reduce investment by 5% in the long term. In industries with a strong presence of multinationals with profit-shifting opportunities, this effect is halved. These results obtained with industry-level data are confirmed by a firm-level analysis. Consistently with these results, the investment of tax planning multinationals is found to be more sensitive to taxes when strong rules against tax planning are in place. Planification fiscale internationale et investissement des entreprises Cet article évalue comment la planification fiscale internationale affecte l'investissement réel des entreprises multinationales. Des études antérieures ont montré que l’impôt sur les sociétés réduit l’investissement des entreprises. Cet article montre que les multinationales engagées dans la planification fiscale sont moins sensibles à l’impôt sur les sociétés que les autres entreprises dans leurs décisions d'investissement. C’est sans doute parce que les multinationales engagés dans la planification fiscale ne sont pas confrontées à la charge fiscale totale associée à leurs investissements, car elles transfèrent une partie des bénéfices qui en résultent dans des pays à taux d'imposition plus faible. En moyenne dans les différents secteurs, une augmentation du taux d'imposition des sociétés de 5 points de pourcentage réduirait l'investissement de 5% sur le long terme. Dans les secteurs avec une forte présence des multinationales avec des opportunités de transferts de bénéfices, cet effet est réduit de moitié. Ces résultats obtenus avec des données au niveau sectoriel sont confirmés par une analyse au niveau de l'entreprise. En cohérence avec ces résultats, l'investissement des multinationales engagées dans la planification fiscale serait plus sensible aux taxes lorsque des règles strictes contre la planification fiscale sont en place. |
| Keywords: | anti-avoidance rules, corporate tax, investment, multinational tax planning |
| JEL: | E22 F23 H26 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1361-en&r=acc |
| By: | von Schwerin, Axel; Buettner, Thiess |
| Abstract: | The paper explores the effect of a minimum tax rate on the tax policy of jurisdictions competing for investment and business location. The testing ground is the universe of local municipalities in the German federation which enjoy the autonomy to set the tax-rate of the local business tax. After experiencing problems with profit-shifting between jurisdictions, in 2004 a federal reform forced municipalities to charge a minimum tax rate on local business profits. As a consequence, low-tax municipalities, i.e. municipalities with tax rates below the minimum, had to adjust their tax policy. In the light of the theoretical literature on minimum tax rates in tax competition, we explore whether the reform has altered the tax-rate distribution beyond the effect on low-tax jurisdictions. More specifically, we test whether municipalities with tax rates above the minimum rate have reviewed their tax policy and decided to set higher tax rates. The empirical results point to significant effects in this regard. We show that the distribution has become more compressed in the bottom part after the reform. Moreover, our results provide quasi-experimental evidence on tax-competition effects in the sense that jurisdictions competing with low-tax jurisdictions have responded with setting higher tax-rates. |
| JEL: | H71 H23 H25 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145642&r=acc |
| By: | Eichfelder, Sebastian; Lau, Mona; Noth, Felix |
| Abstract: | We analyze the impact of the French 2012 financial transaction tax (FTT) on trading volumes, stock prices, liquidity, and volatility. We extend the empirical research by identifying FTT announcement and short-run treatment effects, which can distort difference-in-differences estimates. In addition, we consider long-run volatility measures that better fit the French FTT's legislative design. While we find strong evidence of a positive FTT announcement effect on trading volumes, there is almost no statistically significant evidence of a long-run treatment effect. Thus, evidence of a strong reduction of trading volumes resulting from the French FTT might be driven by announcement effects and short-term treatment effects. We find evidence of an increase of intraday volatilities in the announcement period and a significant reduction of weekly and monthly volatilities in the treatment period. Our findings support theoretical considerations suggesting a stabilizing impact of FTTs on financial markets. |
| Keywords: | financial transaction tax,market quality,announcement effect,short-run treatment effect |
| JEL: | G02 G12 H24 M41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:42017&r=acc |
| By: | Martin, Will |
| Abstract: | Current US proposals for destination-based corporate taxes that effectively combine a value-added tax (VAT) and a wage subsidy raise important policy questions for countries considering them, and for their trading partners. This tax/subsidy package would not create trade barriers or export subsidies, and any changes in trade would result from the measures’ distributional consequences or short-run impacts on output. The package would leave business profits and rents untaxed, placing the burden of the tax entirely on consumers, with no offset from exchange rate appreciation. If anything, its introduction could cause a short-run real exchange rate depreciation. A key concern regarding this package is its small, volatile, and vulnerable revenue yield. At current US consumption and labor shares of gross domestic product (GDP), a 20 percent corporate cash-flow tax with a wage subsidy would generate only around 2 percent of GDP in revenues, a result that could be obtained with much less volatility from a 2.8 percent tax without the wage subsidy. Under the tax/subsidy regime, revenues would become negative if consumption and labor shares returned to their historical norms, requiring increases in other taxes. A 20 percent tax would raise consumer prices by up to 27 percent, taking into account state sales taxes, sharply cutting the living standards of people on fixed incomes. The average combined consumption tax rate of 33 percent would be the highest in the world and more than double the world-average VAT rate, creating incentives for avoidance and evasion. |
| Keywords: | Value Added Tax; taxes; fiscal policies; labour market; labor market; remuneration; income; subsidies; trade; economics; international trade; living standards; cash flow, VAT; corporate tax; cash-flow taxation; GST; social VAT, F13 Trade Policy, International Trade Organizations; F41 Open Economy Macroeconomics; H22 Taxation and Subsidies: Incidence; H25 Business Taxes and Subsidies including sales and value-added (VAT); H26 Tax Evasion, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:fpr:ifprid:1606&r=acc |
| By: | Øystein Bieltvedt Skeie |
| Abstract: | This paper assesses the redistribution of foreign direct investments (FDI) and tax revenues among countries due to multinationals’ response to international differences in corporate tax systems. The paper briefly reviews the literature on the tax sensitivity of FDI and uses a consensus estimate of this sensitivity in combination with bilateral FDI data to compute hypothetical bilateral FDI positions in the absence of tax rate differences. In a second step, tax revenue effects are estimated by assuming a conventional rate of return on investment. For most OECD countries, the effects of tax rate differentials on FDI positions range between -15% and 15% of current FDI positions. The calculated effects of taxes on FDI reflect real investments as well as tax planning behaviours and the methodology cannot distinguish between these two channels. The methodology only captures part of the tax planning activities of multinationals, since some of these activities are not reflected in the size of the FDI positions. Différences internationales de fiscalité des entreprises, investissements directs à l'étranger et recettes fiscales Ce document évalue la redistribution des investissements directs étrangers (IDE) et des recettes fiscales entre les pays en raison de la réponse des multinationales aux différences internationales entre les systèmes d'imposition des sociétés. Le document examine brièvement la littérature sur la sensibilité des IDE à la fiscalité et utilise une estimation du consensus de cette sensibilité en combinaison avec des données d'IDE bilatéraux pour calculer les positions d'IDE bilatéraux hypothétiques en l'absence de différences de taux d'imposition. Dans un deuxième temps, les effets sur les recettes fiscales sont estimés en supposant un taux conventionnel de retour sur investissement. Pour la plupart des pays de l'OCDE, les effets des écarts de taux d'imposition sur les stocks d'IDE se situent entre -15% et 15% des stocks d'IDE effectifs. Les effets calculés de la fiscalité sur les IDE reflètent des investissements réels ainsi que les comportements de planification fiscale et la méthodologie ne permet pas de distinguer entre ces deux canaux. La méthodologie ne capte qu'une partie des activités de planification fiscale des multinationales, puisque certaines de ces activités ne sont pas reflétées dans la taille des stocks d'IDE. |
| Keywords: | corporate tax, foreign direct investment, multinational tax planning |
| JEL: | F21 F23 H25 H26 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1359-en&r=acc |
| By: | Stéphane Sorbe; Åsa Johansson; Øystein Bieltvedt Skeie |
| Abstract: | Multinational enterprises (MNEs) manipulate the location of their debts to reduce their corporate tax burden. Indeed, by locating debts in higher-tax rate countries, MNEs can deduct interest payments against a higher tax rate. This paper provides evidence of such manipulation of debt location. The analysis is based on a large sample of firm-level data from the ORBIS database. By comparing the indebtedness of MNE entities with similar characteristics but different debt shifting opportunities, the analysis suggests that a 1 percentage point higher tax rate is associated with 1.3% higher third-party debt. This is a lower bound estimate of debt manipulation, since it excludes the manipulation of internal debt. The analysis also shows that strict rules limiting interest deductibility (e.g. thin capitalisation or interest-to-earnings rules) can reduce debt manipulation. The possibility to locate debts in higher-tax rate countries reduces the effective cost of debt for MNE groups. The empirical analysis suggests that this can lead MNE groups to increase their overall external indebtedness, compounding the “debt bias” existing in most tax systems. Dette et planification fiscale des multinationales Les entreprises multinationales manipulent l'emplacement de leurs dettes pour réduire le montant de leur impôt sur les sociétés. En effet, en plaçant des dettes dans les pays à taux élevé d'impôt, les entreprises multinationales peuvent déduire les paiements d'intérêts contre un taux d'imposition plus élevé. Ce document fournit la preuve d'une telle manipulation de l'emplacement de la dette. L'analyse est basée sur un large échantillon de données d’entreprises de la base de données ORBIS. En comparant l'endettement des entités multinationales ayant des caractéristiques similaires mais différentes possibilités de manipuler l’emplacement leur dette, l'analyse suggère qu’un taux d'imposition de 1 point de pourcentage plus élevé est associé à une dette externe accrue de 1,3%. Ceci est une estimation de la limite inférieure de l’ampleur de la manipulation de la dette, car elle exclut la manipulation de la dette interne. L'analyse montre également que les règles strictes limitant la déductibilité des intérêts (par exemple des règles relatives à la sous-capitalisation ou de règles sur les ratios intérêts-bénéfices) peuvent réduire la manipulation de la dette. La possibilité de localiser les dettes dans les pays à taux d'imposition élevé réduit le coût effectif de la dette pour les groupes multinationaux. L'analyse empirique suggère que cela peut entraîner des groupes multinationaux à augmenter leur endettement global externe, ce qui aggrave le biais en faveur du financement par la dette existant dans la plupart des systèmes fiscaux. |
| Keywords: | capital structure, debt bias, interest-to-earnings, multinational tax planning, thin capitalisation rules |
| JEL: | G32 H25 H26 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1357-en&r=acc |
| By: | Stéphane Sorbe; Åsa Johansson |
| Abstract: | This paper investigates if tax planning by large multinationals distorts competition in their favour and allows them to crowd out other firms. The competitive implications of tax planning are frequently mentioned in the tax policy debate, but not yet documented empirically to our knowledge. This paper aims to fill this gap. Drawing on firm-level data from the ORBIS database, it compares price-cost mark-up rates of firms with different tax planning opportunities, using several proxy measures of these opportunities, such as links to tax havens. Tax-planning multinationals are found to have higher mark-up rates than other firms, even after controlling for other factors influencing mark-ups. However, the direction of causality is difficult to establish since a high mark-up can be a factor encouraging a firm to engage in tax planning. Based on a new indicator of industry concentration, the empirical analysis also shows that industries with a strong presence of tax-planning multinationals tend to be more concentrated than other industries, but less so when strong rules against tax planning are in place. Overall, the results support the hypothesis that large multinationals use their tax savings to crowd out other firms and ultimately obtain higher mark-ups. Planification fiscale internationale, concurrence et structure de marché Cet article examine si la planification fiscale par les grandes multinationales fausse la concurrence en leur faveur et leur permet d'évincer les autres entreprises. Les implications concurrentielles de la planification fiscale sont fréquemment mentionnées dans le débat sur la politique fiscale, mais pas encore documentées empiriquement à notre connaissance. Cet article vise à combler cette lacune. À partir des données d’entreprise de la base de données ORBIS, il compare les taux de mark-up prix-coûts des entreprises en fonction de leurs opportunités de planification fiscale, en utilisant plusieurs mesures indirectes de ces opportunités, telles que des liens vers des paradis fiscaux. Les multinationales engagées dans la planification fiscale se trouvent avoir des taux de mark-up plus élevés que les autres entreprises, même après ajustement pour d'autres facteurs qui influent sur ces taux. Cependant, la direction de la causalité est difficile à établir car un mark-up élevé peut être un facteur encourageant une entreprise de se livrer à la planification fiscale. Sur la base d'un nouvel indicateur de la concentration de l'industrie, l’analyse empirique montre également que les industries avec une forte présence des multinationales engagées dans la planification fiscale ont tendance à être plus concentrée que d'autres industries, mais que cette différence de concentration est atténuée quand des règles strictes contre la planification fiscale sont en place. Dans l'ensemble, les résultats soutiennent l'hypothèse que les grandes multinationales utilisent leurs économies d'impôt pour évincer d'autres entreprises et, finalement, obtenir des mark-ups plus élevées. |
| Keywords: | competition, corporate tax, multinational tax planning |
| JEL: | D43 F23 H26 L11 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1358-en&r=acc |