The Costs of Corporate Tax Complexity

2021 ◽  
Vol 13 (2) ◽  
pp. 467-500
Author(s):  
Eric Zwick
Keyword(s):  
Small Firms ◽  
Cost Benefit Analysis ◽  
Cost Benefit ◽  
Tax Rates ◽  
Corporate Tax ◽  
Corporate Behavior ◽  
Research Designs ◽  
Tax Returns ◽  
Code Complexity ◽  
Tax Loss

Does tax code complexity alter corporate behavior? We investigate this question by studying the decision to claim refunds for tax losses. In a sample of 1.2 million observations from the population of corporate tax returns, only 37 percent of eligible firms claim their refund. A simple cost-benefit analysis of the tax loss choice cannot explain low take-up, motivating an exploration of how complexity alters this calculation. Research designs exploiting tax preparer switches, deaths, and relocations show that sophisticated preparers increase claim rates for small firms. Imperfect take-up has implications for measuring marginal tax rates and for the design of fiscal policy. (JEL D22, D61, E62, H25, K34)

Implicit Taxes Amid Race to the Bottom in a Global Tax Game

2020 ◽  
Vol 27 (2) ◽  
pp. 42
Author(s):  
Igor Semenenko ◽  
Junwook Yoo ◽  
Parporn Akathaporn
Keyword(s):  
Capital Mobility ◽  
Tax Rates ◽  
Corporate Tax ◽  
Firm Level ◽  
Race To The Bottom ◽  
Tax Subsidy ◽  
Tax Subsidies ◽  
Level Data ◽  
Tax Returns ◽  
Tax Hypothesis

Growing tax competition among national governments in the presence of capital mobility distorts equilibrium in the international corporate tax market. This paper is related to the literature that examines impact of international tax policies on corporate accounting statements. Employing international firm-level data, this study revisits the race-to-the-bottom hypothesis and documents that tax exemptions lowering effective tax rates relative to statutory rates increase pre-tax returns. This finding directly contradicts the implicit tax hypothesis documented by Wilkie (1992), who provided empirical evidence on inverse relationship between pre-tax return and tax subsidy. We also find evidences that relative importance of permanent versus timing component depends on the geography and that decline in corporate tax rates reduces impact of tax subsidies on profitability. Our findings suggest that tax subsidies play a different role than in 1968-1985, which was examined by Wilkie (1992). These results are consistent with the race-to-the-bottom hypothesis and income shifting explanation

International Transfer Pricing and Tax Avoidance: Evidence from Linked Trade-Tax Statistics in the United Kingdom

2020 ◽  
Vol 102 (4) ◽  
pp. 766-778 ◽  
Author(s):  
Li Liu ◽  
Tim Schmidt-Eisenlohr ◽  
Dongxian Guo
Keyword(s):  
United Kingdom ◽  
Multinational Firms ◽  
Transfer Pricing ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Corporate Tax ◽  
The United Kingdom ◽  
Tax Returns ◽  
Medium Level ◽  
Transfer Prices

This paper employs unique data on export transactions and corporate tax returns of UK multinational firms and finds that firms manipulate their transfer prices to shift profits to lower-taxed destinations. It shows that the 2009 tax reform in the United Kingdom, which changed the taxation of corporate profits from a worldwide to a territorial system, led to a substantial increase in transfer mispricing. It also provides evidence for a trade creation effect of transfer mispricing and estimates substantial transfer mispricing in non-tax-haven countries with low- to medium-level corporate tax rates, and in R&D intensive firms.

How Well Do Compustat NOL Data Identify Firms with U.S. Tax Return Loss Carryovers?

2003 ◽  
Vol 25 (2) ◽  
pp. 1-17 ◽  
Author(s):  
Lillian F. Mills ◽  
Kaye J. Newberry ◽  
Garth F. Novack
Keyword(s):  
Return Loss ◽  
Tax Incentives ◽  
Matched Sample ◽  
Corporate Tax ◽  
Research Setting ◽  
Corporate Acquisitions ◽  
Misclassification Errors ◽  
Tax Returns ◽  
Foreign Operations ◽  
Tax Loss

Although Compustat net operating loss (NOL) data are an underlying component of most proxies of corporate tax incentives, there is little empirical evidence regarding how Compustat NOLs relate to firms' tax-loss positions per their U.S. tax returns. We use confidential U.S. tax return data for a sample of large corporations over the period 1981–1995 to compute firms' U.S. tax-loss carryovers and construct a matched sample with Compustat data. We then evaluate how well Compustat NOL data works as an indicator of firms' U.S. tax-loss positions, identify sources of misclassification errors, and investigate the effectiveness of using additional Compustat data screens. We find that screening for U.S. current income tax or total pretax income successfully reduces certain types of misclassification errors. We conclude that care should be used in constructing U.S. tax-loss proxies, particularly when the research setting involves firms with foreign operations or corporate acquisitions activity.

The Elasticity of Corporate Taxable Income: New Evidence from UK Tax Records

2014 ◽  
Vol 6 (2) ◽  
pp. 19-53 ◽  
Author(s):  
Michael P. Devereux ◽  
Li Liu ◽  
Simon Loretz
Keyword(s):  
Tax Revenue ◽  
Tax Rates ◽  
Corporate Tax ◽  
Marginal Rate ◽  
Tax Rate ◽  
Taxable Income ◽  
Corporation Tax ◽  
Tax Returns ◽  
The Difference ◽  
New Evidence

We estimate the elasticity of corporate taxable income with respect to the statutory corporation tax rate using the population of UK corporation tax returns. We analyze bunching in the distribution of taxable income at kinks in the marginal rate schedule. We decompose this elasticity into an elasticity of total income with respect to the corporation tax rate, and an elasticity of the share of income taken as profit with respect to the difference between the personal and corporate tax rates. This implies a marginal deadweight cost at the £10,000 kink of around 29 percent of tax revenue. (JEL G32, H24, H25, L25)

Tax Rates in Small and Large Firms

1987 ◽  
Vol 12 (2) ◽  
pp. 41-52 ◽  
Author(s):  
Davinder Singh ◽  
Ronald P. Wilder ◽  
Kok Poh Chan
Keyword(s):  
Firm Size ◽  
Small Firms ◽  
Manufacturing Industry ◽  
Size Group ◽  
Tax Rates ◽  
Large Firms ◽  
Corporate Tax ◽  
Industry Group ◽  
Administrative Expenses ◽  
The Relationship

This study examines the relationship between firm size and tax rates. Contrary to other recent studies, these findings demonstrate that corporations in the smallest size group pay the highest effective corporate tax rates. 1 It is suggested that the higher tax rates of small firms can be explained in terms of selling, general and administrative expenses. Selling, general and administrative expenses as a ratio to sales are more than 50% higher for small corporations than for the largest firms in the non-durable manufacturing industry group.

scholarly journals Is There a Cost-Effective Means of Training Microenterprises?

2019 ◽  
Vol 34 (Supplement_1) ◽  
pp. S63-S67
Author(s):  
Wyatt Brooks ◽  
Kevin Donovan ◽  
Terence R Johnson
Keyword(s):  
Small Firms ◽  
Lower Cost ◽  
Cost Benefit Analysis ◽  
Effective Means ◽  
Cost Benefit ◽  
Cost Effective ◽  
Short Paper ◽  
Mentorship Program ◽  
Managerial Skills ◽  
Classroom Training

Abstract Despite billions of dollars spent by policy institutions and academics, very few programs designed to increase managerial skills among microenterprises are cost-effective. This short paper highlights a mentorship program designed to provide managerial skills to Kenyan microenterprises, and it provides a detailed cost-benefit analysis. For each dollar spent on a treated firm, average profit increases by 1.63 USD; the result stems from both a higher program impact and lower cost relative to existing training programs. Motivated by this increased cost-effectiveness, the study then compares the program to the large literature focusing on “supply-side” interventions designed to increase managerial capacity in small firms, and it highlights particular margins on which mentorship improves on classroom training and also where training should focus.

scholarly journals Implicit Taxes Amid Race to the Bottom in a Global Tax Game

2020 ◽  
Vol 27 (1) ◽  
pp. 44
Author(s):  
Igor Semenenko ◽  
Junwook Yoo ◽  
Parporn Akathaporn
Keyword(s):  
Capital Mobility ◽  
Tax Rates ◽  
Corporate Tax ◽  
Firm Level ◽  
Race To The Bottom ◽  
Tax Subsidy ◽  
Tax Subsidies ◽  
Level Data ◽  
Tax Returns ◽  
Tax Hypothesis

Growing tax competition among national governments in the presence of capital mobility distorts equilibrium in the international corporate tax market. This paper is related to the literature that examines impact of international tax policies on corporate accounting statements. Employing international firm-level data, this study revisits the race-to-the-bottom hypothesis and documents that tax exemptions lowering effective tax rates relative to statutory rates increase pre-tax returns. This finding directly contradicts the implicit tax hypothesis documented by Wilkie (1992), who provided empirical evidence on inverse relationship between pre-tax return and tax subsidy. We also find evidences that relative importance of permanent versus timing component depends on the geography and that decline in corporate tax rates reduces impact of tax subsidies on profitability. Our findings suggest that tax subsidies play a different role than in 1968-1985, which was examined by Wilkie (1992). These results are consistent with the race-to-the-bottom hypothesis and income shifting explanation

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