scholarly journals Assessing Profit Shifting in Lithuanian Firms

2021 ◽  
Vol 92 ◽  
pp. 02037
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova ◽  
Julijonas Kartanas
Keyword(s):  
Open Economy ◽  
Fixed Effects ◽  
Multinational Enterprises ◽  
Tax Avoidance ◽  
Value Added ◽  
Tax Rates ◽  
Profit Shifting ◽  
Tax Rate ◽  
Small Economies ◽  
Statutory Tax Rate

Research background: Multinational enterprises (MNEs) employ tax avoidance by ability to use differences in tax systems of various countries to successfully incur effective tax rate that is lower than the statutory one. Literature analysis revealed that previous research rarely concentrated on profit shifting practices in small economies. It mostly covered large countries (USA, Germany) or regions (e.g. Europe). Research on Lithuania, as a small open economy characterized by lower corporate income tax rates, is a relevant case for the analysis. Purpose of the article: The purpose of the article is to assess profit shifting via transfer mispricing in Lithuanian companies. Methods: Regression analysis with fixed effects was applied to a sample of 3,563 Lithuanian companies for the period of 2010–2018. The data was retrieved from Amadeus database. Findings & Value added: The results of testing profit shifting channel – transfer mispricing – showed that tax incentives significantly affect earnings of MNEs in the sample while results of domestic firms are puzzling. Earnings of multinationals in the sample are strongly affected by statutory tax rate difference between the subsidiary operating in Lithuania and the parent company in a foreign country. Such results may imply that in small economies like Lithuania (characterized by lower tax rates and lower tax avoidance costs) profit shifting via transfer mispricing is used by MNEs as a channel of corporate tax avoidance.

scholarly journals Will Problems Arise When Banks are Exempted from Thin Capitalization Regulation?

2018 ◽  
Vol 14 (3) ◽  
pp. 157-167
Author(s):  
Arfah Habib Saragih
Keyword(s):  
Fixed Effects ◽  
Quantitative Method ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Negative Effect ◽  
Thin Capitalization ◽  
Unbalanced Panel Data

This research was intended to provide empirical evidences that the exemption of banks from Minister of Finance Decree Number 169/PMK.010/2015 did not raise any significant problem on banks tax avoidance which was measured by effective tax rates. Quantitative method was used in this study by conducting regression-fixed effects method on unbalanced panel data. This study found that thin capitalization in banks did not impact effective tax rates significantly. Present research also found that the banks size and profitability were other determinants of the level of tax avoidance in the banks sample. Bank size and profitability had a significant and negative effect on effective tax rate.

scholarly journals DOES THE RECENTLY IMPLEMENTED REGULATION ON COUNTRY-BY-COUNTRY REPORTING DETER TAX AVOIDANCE?

2020 ◽  
Vol 17 (1) ◽  
Author(s):  
Nala Kurniawan ◽  
◽  
Anggari Saputra ◽  
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Empirical Literature ◽  
Tax Rates ◽  
Profit Shifting ◽  
Percentage Point Increase ◽  
Point Increase ◽  
Private Disclosure ◽  
Tax Payments

To adhere with Base Erosion and Profit Shifting (BEPS) Action 13, Indonesia enacted regulations concerning Transfer Pricing Documentation and Country-by-Country Reporting (CbCR) to address the issue of tax avoidance. Those regulations introduced the requirement of CbCR in Indonesia, where Multinational Enterprises (MNEs) operating in Indonesia are required to provide tax authorities with geographic breakdown of their profitability, tax payments, and activities wherever they operate. Using the newly implemented CbCR in Indonesia as a treatment for private disclosure requirement, this study examines the effect of CbCR on MNEs tax avoidance. Employing EUR 750 million consolidated revenue threshold for disclosure and utilizing regression discontinuity design as well as difference-in-differences analysis, we document a 4-8 percentage point increase in effective tax rates among affected MNEs, thus reflecting a decrease in tax avoidance in treatment firms. Our findings contribute (i) to the recent empirical literature on how CbCR as a private disclosure affects corporate tax avoidance behavior and (ii) to the policy evaluation whether CbCR regulation has achieved its objective.

scholarly journals Optimal fiscal policy in an open economy with capital income shifting and consumer cross-border purchases

Equilibrium ◽  
2015 ◽  
Vol 10 (2) ◽  
pp. 9
Author(s):  
Janusz Kudła ◽  
Agata Kocia ◽  
Katarzyna Kopczewska ◽  
Robert Kruszewski ◽  
Konrad Walczyk
Keyword(s):  
Fiscal Policy ◽  
Open Economy ◽  
Public Debt ◽  
Tax Avoidance ◽  
Income Shifting ◽  
Tax Rates ◽  
Consumption Tax ◽  
Capital Income ◽  
Marginal Rate ◽  
Tax Rate

The paper presents a fiscal policy model integrating tax avoidance, the complexity of tax systems and the fiscal solvency hypothesis within the traditional framework of tax competition. Furthermore, we take into account: taxation of consumption, possibility of capital income shifting and foreign goods purchases (untaxed in the destination country). We conclude that if fiscal policy is by no means unfettered the equilibrium can be allocation efficient, provided that the marginal rate of substitution between private and public goods is one. The changes in public debt affect tax rates in equilibrium differently: positively for the consumption tax rate and negatively for the labor tax rate. The change of the capital tax depends on the level of economic internalization. This approach is especially useful during a solvency crisis and can be applied to predict tax rates’ adjustment when the bonds issuance decreases or public debt accelerates.

scholarly journals Is Neoliberalism Still Spreading? The Impact of International Cooperation on Capital Taxation

2020 ◽  
Author(s):  
Lukas Hakelberg ◽  
Thomas Rixen
Keyword(s):  
International Cooperation ◽  
Tax Evasion ◽  
Negative Impact ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Capital Taxation ◽  
Profit Shifting ◽  
Tax Rate ◽  
Corporate Profits ◽  
The Impact

The downward trend in capital taxes since the 1980s has recently reversed for personal capital income. At the same time, it continued for corporate profits. Why have these tax rates di-verged after a long period of parallel decline? We argue that the answer lies in different levels of change in the fights against tax evasion and tax avoidance. The fight against evasion by households progressed significantly since 2009, culminating in the multilateral adoption of automatic exchange of information (AEI). In contrast, international efforts against base ero-sion and profit shifting (BEPS) failed to curb tax avoidance by corporations. We theorize that international cooperation is an intervening variable, countering the negative impact of tax competition on capital taxation by reducing the risk of capital flight. Under such conditions, domestic political pressures in favor of higher capital taxes can unfold. We confirm our argu-ment in a difference-in-difference analysis and through additional tests with data for up to 35 OECD countries from 2000-2017. Our central estimate suggests that the average tax rate on dividends in 2017 is 4.5 percentage points higher than it would have been absent international tax cooperation.

The Governance of Accounting Rules and Tax Rules: Analysis of SMEs' Tax Avoidance Strategies

2013 ◽  
Vol 3 (3) ◽  
pp. 26-34
Author(s):  
Hariyanti D. ◽  
Rohaya M.N ◽  
Normah O. ◽  
Rozainun A.A.
Keyword(s):  
Reporting System ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Tax System ◽  
Tax Rate ◽  
Avoidance Strategies ◽  
Tax Gap ◽  
Accounting Rules ◽  
The Government ◽  
Statutory Tax Rate

Objective- This study examined the governance of accounting rules and tax rules on the level of tax burdens paid by SMEs in Malaysia. According to the tax gap theory, taxpayers utilize the different rules between accounting and tax which is known as the dual reporting system in their tax avoidance strategies in order to pay lower taxes. The tax gap is the difference between the statutory tax rate (STR) and effective tax rates (ETRs). Methodology/Technique - This study analysed financial statements of 148 SMEs (740 firm-years) prepared for the years 2008 to 2012. Findings The statistical results revealed that the dual reporting system had caused a significant gap between the STR (the tax rate that SMEs supposed to pay) and ETRs (the actual tax rates paid by SMEs) in the Malaysia tax system. In addition, the findings provided evidence of the tax avoidance strategies utilised by SMEs which cause lower ETRs as follows: exempt income and tax incentives, disallowable expenses, absorbed losses and capital allowances, deferred tax expenses, size and leverage. Thus, the findings confirmed the tax gap theory in the SMEs tax system which implied a loss of tax revenue to the government due to tax avoidance activities. Findings The findings had provided useful feedbacks to the policymakers such as accounting bodies and the relevant tax authorities to address the issue and realign the two systems which are accounting standards and tax system to minimize the gap. Type of Paper Empirical paper Keywords: , Dual Reporting System; ETRs; SMEs; STR; Tax Gap

scholarly journals Corporate Taxation and the International Challenge

2014 ◽  
Vol 2014 (2) ◽  
pp. 113-131
Author(s):  
Peter Koerver Schmidt
Keyword(s):  
Income Tax ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Debt Financing ◽  
Tax Rates ◽  
Eu Law ◽  
Corporate Tax ◽  
Profit Shifting ◽  
Tax Rate ◽  
Avoidance Measures

Abstract It is argued th**at the higher degree of economic integration across borders and the international trend towards a reduction of corporate income tax rates have had a significant impact on the Danish corporate tax regime in recent years. Accordingly, during the last ten years the Danish statutory corporate tax rate has been lowered further, while several government actions at the same time have been taken in order to combat international tax avoidance and evasion. As a result, new anti-avoidance provisions have been introduced and some of the older anti-avoidance provisions have been tightened in order to prevent base erosion and profit shifting. Thus, to some extent Denmark has already tried to address a number of the key pressure areas mentioned in the recently published OECD BEPS report, such as international mismatches in entity and instrument characterization, the tax treatment of related party debt financing, transfer pricing and the effectiveness of anti-avoidance measures. However, the article concludes that these anti-avoidance provisions often suffer from being quite complex, very broad in scope and open to criticism from an EU law perspective.

scholarly journals Nasjonalrapport for Norge

2014 ◽  
Vol 2014 (2) ◽  
pp. 173-194
Author(s):  
Martin Børresen ◽  
Marius Pilgaard ◽  
Marie Bjørneby
Keyword(s):  
Multinational Enterprises ◽  
Transfer Pricing ◽  
Tax Rates ◽  
Corporate Tax ◽  
Profit Shifting ◽  
Tax System ◽  
Tax Rate ◽  
Return On Capital ◽  
International Obligations ◽  
Equity Finance

Abstract Since the Tax Reform of 1992 Norway has had a tax system of relatively low tax rates and broad tax bases. Norway, along with other Nordic neighbours, did quite early substantially reduce its statutory corporate tax rate - reduced from 50.8 to 28 per cent as part of the 1992 Reform. After 1992 the rate has been constant at 28 until it was reduced marginally to 27 in 2014. Since 1992 the principal objective in designing the corporate tax system has been to ensure resource effectiveness. The role of the corporate (and capital) income tax is therefore to secure public revenue but at the same time minimising distortion. An important feature of the system is therefore that normal return on capital is taxed at the same rate, irrespective of whether it is earned as business income or not. The Report identifies three main challenges to the current corporate tax system. The first challenge discussed is the system’s effects on investments. It cannot be overlooked that the corporate tax rate in Norway is currently higher than the tax rate of many countries Norway is commonly compared with (e.g. other Nordic countries). The Report suggests that this can contribute to a reduction in the level of investment in Norway. The second identified challenge is the tax distortion between debt and equity finance. The Report briefly discusses neutrality in financing through equal tax treatment of debt and equity finance. The Report then discusses the implications and differences of an ACE and a CBIT model in this context. The final challenge discussed is base erosion and profit shifting (BEPS). Differences in countries’ tax rules create vast opportunities for tax planning, and largely for the benefit of multinational enterprises (MNEs), inter alia through transfer pricing. The Report suggests that BEPS over time may imply a serious threat in maintaining the revenue from the corporate tax base. The Report then acknowledges that a reduction in the formal tax rate may only to some extent address the problem; which indicates a need to consider other supplementing measures. One such measure is the interest deduction limitation rule, made effective from 2014. The rule was introduced to address profit shifting in MNEs. More generally the Report recognises that Norway cannot freely introduce measures against BEPS following international obligations. Finally the Report mentions the appointment of a Tax Commission in 2013. The Commission’s mandate is to review the Norwegian corporate tax system in light of international developments. The Commission shall deliver its report in the autumn of 2014.

A Study of Perceived Ethicality of Low Corporate Effective Tax Rates

2017 ◽  
Vol 32 (1) ◽  
pp. 87-104 ◽  
Author(s):  
F. Todd DeZoort ◽  
Troy J. Pollard ◽  
Edward J. Schnee
Keyword(s):  
Mediation Analysis ◽  
General Public ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Perceived Fairness ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Policy Practice ◽  
Participant Group

SYNOPSIS U.S. corporations have the ability to avoid paying domestic taxes to achieve an effective tax rate that is much lower than the statutory federal tax rate. This study evaluates the extent that individuals differ in their attitudes about the ethicality of corporations avoiding domestic taxes to achieve low effective tax rates. We also examine the extent to which the specific tax avoidance method used by corporations to access a low effective tax rate affects perceived ethicality. Eighty-two members of the general public and 112 accountants participated in an experiment with two participant groups and three tax avoidance methods manipulated randomly between subjects. The results indicate a significant interaction between participant group and tax avoidance method, with the general public considering shifting profits out of the country to achieve a low effective tax rate to be highly unethical, while the accountants find tax avoidance from carrying forward prior operating losses to be highly ethical. Further, mediation analysis indicates that perceived fairness and legality mediate the effects of participant type on perceived ethicality. Mediation analysis also reveals that sense of fairness and legality mediate the link between tax avoidance method and perceived ethicality. We conclude by considering the study's policy, practice, and research implications.

Relationship between corporate social responsibility and tax avoidance: international evidence

2019 ◽  
Vol 15 (2) ◽  
pp. 244-257 ◽  
Author(s):  
Tao Zeng
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Tax Avoidance ◽  
Content Type ◽  
Tax Rate ◽  
Country Level ◽  
International Setting ◽  
Corporate Social ◽  
Statutory Tax Rate ◽  
The Relationship

Purpose This paper aims to examine the relationship between corporate social responsibility (CSR) and tax avoidance as well as how CSR and country-level governance interplay in affecting tax avoidance in an international setting. Design/methodology/approach This paper is an empirical work using listed companies from 35 countries and relying on several proxies for corporate tax avoidance activities including the difference between the statutory tax rate and the annual effective tax rate, the book-tax difference and the residual book-tax difference. Findings This study finds strong evidence that CSR is positively related to tax avoidance. It also finds that in countries with weak country-level governance, firms with higher CSR scores engage in less tax avoidance, implying that CSR and country-level governance are substitutes. Originality/value This paper is the first study that examines the relationship between CSR and tax avoidance in an international setting with different legal and institutional environment.

scholarly journals Assessing impact of base erosion and profit shifting on performance of subsidiaries of multinational corporations in Baltic countries

Equilibrium ◽  
2019 ◽  
Vol 14 (2) ◽  
pp. 277-293
Author(s):  
Egidijus Kundelis ◽  
Renata Legenzova
Keyword(s):  
Multinational Corporations ◽  
Empirical Research ◽  
Tax Avoidance ◽  
Empirical Literature ◽  
Company Performance ◽  
Tax Rates ◽  
Profit Shifting ◽  
Baltic Countries ◽  
The Baltic ◽  
The Impact

Research background: The problem of base erosion and profit shifting by multi-national corporations has been debated from different perspectives because of its multiple impact on the key actors in the economy. Studies refer to its positive impact on companies via corporate taxes saved, but its negative impact on governments via reduced tax collection. A number of empirical studies conducted in different countries support the substantial BEPS impact on company performance, but report differences in its magnitude. Other authors claim that, despite a wide range of tax avoidance opportunities available, tax avoidance is limited due to institutional measures imposed (tax audits, penalties for non-compliance) and high implementation costs. A majority of the previous empirical research covered large countries (USA, Germany) or regions (e.g. Europe), but there is a gap in the re-search assessing the BEPS impact on multinational corporations’ subsidiaries’ performance in countries with lower corporate income tax rates such as the Baltic countries. Purpose of the article: To assess the impact of base erosion and profit shifting on multinational corporations’ subsidiaries’ performance in the Baltic countries. Methods: Empirical research is conducted based on the framework employed by Hines and Rice (1994) to measure BEPS impact on company performance. Regression analysis with fixed effects was applied to a sample of 3,422 Latvian, Lithuanian and Estonian subsidiaries of multinational corporations, which are characterized by low corporate tax rates.  The data for the period of 2007–2015 was retrieved from the Amadeus database. Findings & Value added: The research revealed that Baltic countries’ tax differentials between multinational corporations’ parent and subsidiary countries might have a significant impact on the subsidiary’s financial performance. When the tax rate differences between Baltic and the foreign countries decrease by 1%, reported profits in Baltic countries increase by 2.3%, indicating profit-shifting behaviour. This is in line with the empirical literature and practices applied by multinational corporations. It is also in favour of anti-tax avoidance measures introduced by the EC to be adopted by Baltic and other EU countries.

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