Profit Shifting and the Marginal Tax Rate: What Determines the Shift-to-Loss Effect?

The article is devoted to the issues of the methodology of the analysis of the base erosion and profit shifting (BEPS) for the development of managerial approaches to counteracting these destructive phenomena in Ukraine. Eleven types of data sources identified by the OECD that can be used for BEPS analysis are determined. It is shown that most sources of information for the purposes of analyzing the scale and effects of BEPS have significant limitations: their absence or limited representativeness in some countries; regulatory restrictions on access to data; lack of most financial data to reflect the activities of multinational corporations (MNCs). The indicators that testify to BEPS or dangerous phenomena of financial abuse, which are reflected in reporting, are analyzed, namely: 1) disconnect between financial and real economic activities; 2) high profit rates of low-taxed affiliates of top global MNCs; 3) high profit rates of MNC affiliates in lower-tax locations; 4) MNCs vs. "comparable" non-MNC effective tax rate differentials; 5) profit shifting through intangibles; 6) profit shifting through interest. It is proved that for Ukraine the calculation of a number of indicators can be complicated due to the delay in the publication of official data; lack of appropriate statistical reporting. In general, indicators show that they provide limited information about financial transactions and cannot reliably relate any changes and their reflection to BEPS. Therefore, the implementation of measures to combat BEPS should be based not only on the results of calculations of OECD indicators, but also on other empirical studies that provide reliable information on the development of income transfer between countries.

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Transfer Pricing and Location of Intangibles - Spillover and Tax Avoidance through Profit Shifting

Journal of Management Accounting Research ◽

10.2308/jmar-19-052 ◽

2020 ◽

Author(s):

Rebecca Reineke ◽

Katrin Weiskirchner-Merten

Keyword(s):

Empirical Evidence ◽

Transfer Pricing ◽

Home Bias ◽

Tax Avoidance ◽

Optimal Location ◽

The Other ◽

Profit Shifting ◽

Tax Rate ◽

Length Range ◽

A Company

This study examines how spillovers affect a multinational company's choice of an intangible's location and the corresponding transfer price for using this intangible. Our model uses a company with a domestic division in a high-tax country and a foreign division in a low-tax country, where each division's activities generate spillovers on the other division's income. In contrast to previous studies, our analysis incorporates an intangible's optimal location when the company trades off tax minimization and efficient activities. By locating the intangible abroad, the company reduces its tax liability, whereas locating the intangible domestically yields more efficient domestic division activities. For a high spillover of the domestic division, the company locates the intangible domestically. Our model supports empirical evidence regarding intangibles' location that is interpreted as "home bias". Additionally, we show how variations in regulatory parameters-arm's length range and tax rate differential-affect the divisions' activities and the intangible's location.

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Marginal Tax Rate

10.1007/springerreference_1902 ◽

2011 ◽

Keyword(s):

Marginal Tax Rate ◽

Tax Rate

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Estimating Adjustment Frictions Using Nonlinear Budget Sets: Method and Evidence from the Earnings Test

American Economic Journal Applied Economics ◽

10.1257/app.20170717 ◽

2020 ◽

Vol 12 (1) ◽

pp. 1-31 ◽

Cited By ~ 1

Author(s):

Alexander M. Gelber ◽

Damon Jones ◽

Daniel W. Sacks

Keyword(s):

Adjustment Cost ◽

Marginal Tax Rate ◽

Tax Rate ◽

The Social ◽

Before And After ◽

Short Run ◽

Earnings Test ◽

Social Security Earnings Test ◽

The Cost ◽

Induced Changes

We introduce a method for estimating the cost of adjusting earnings, as well as the earnings elasticity with respect to the net-of-tax share. Our method uses information on bunching in the earnings distribution at convex budget set kinks before and after policy-induced changes in the magnitude of the kinks: the larger is the adjustment cost, the smaller is the absolute change in bunching from before to after the policy change. In the context of the Social Security Earnings Test, our results demonstrate that the short-run impact of changes in the effective marginal tax rate can be substantially attenuated. (JEL H24, H31, H55, J22, J31)

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The Wage Response to a Reduction in Income Tax Rates: The Israeli Tax Reform

The B E Journal of Economic Analysis & Policy ◽

10.1515/bejeap-2019-0043 ◽

2020 ◽

Vol 20 (2) ◽

Author(s):

Roni Frish ◽

Noam Zussman ◽

Sophia Igdalov

Keyword(s):

Income Tax ◽

Tax Reform ◽

Tax Rates ◽

Rate Reduction ◽

Or Education ◽

Marginal Tax Rate ◽

Tax Rate ◽

Percentage Points ◽

Wage Earners ◽

Income Tax Reform

AbstractThis study examines the effect of an income tax reform on wages. An Israeli reform implemented in 2003–2009 reduced individuals’ marginal income tax rate by 7–17 percentage points. We utilized the differential and non-monotonic marginal tax rate reduction, and used Israel Tax Authority panel data of wage earners, merged with Labor Force Surveys. We found that in the business sector, the elasticity of reported gross wages relative to the net-of-tax rate is about 0.1. The wage earners in the lowest wage quintile were not affected by the tax reform, those in the second and third quintiles did not respond to the tax cut, but elasticity increased with wage, reaching about 0.4 in the upper decile. We did not find statistically significant differences in elasticity by gender, ethnicity, or education.

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The Aging of the Baby Boomers: Demographics and Propagation of Tax Shocks

American Economic Journal Macroeconomics ◽

10.1257/mac.20160419 ◽

2020 ◽

Vol 12 (2) ◽

pp. 167-193

Author(s):

Domenico Ferraro ◽

Giuseppe Fiori

Keyword(s):

Labor Force ◽

Baby Boomers ◽

Unemployment Rate ◽

Age Groups ◽

Marginal Tax Rate ◽

Structural Shocks ◽

Tax Rate ◽

Tax Shocks ◽

Tax Changes ◽

Tax Cuts

We study how the changing demographic composition of the US labor force has affected the response of the unemployment rate to marginal tax rate shocks. Using narratively identified tax changes as proxies for structural shocks, we establish that the responsiveness of the unemployment rates to tax changes varies significantly across age groups: the unemployment rate response of the young is nearly twice as large as that of the old. This heterogeneity is the channel through which shifts in the age composition of the labor force impact the response of the unemployment rate to tax cuts. We find that the aging of the baby boomers considerably reduces the effects of tax cuts on aggregate unemployment. (JEL E24, E62, H24, H31, J21)

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Depreciation rules and small business longevity

Journal of Entrepreneurship and Public Policy ◽

10.1108/jepp-01-2012-0006 ◽

2014 ◽

Vol 3 (1) ◽

pp. 10-32 ◽

Cited By ~ 3

Author(s):

Don Bruce ◽

John Deskins ◽

Tami Gurley-Calvez

Keyword(s):

Small Business ◽

Small Businesses ◽

Recovery Period ◽

Business Activity ◽

Initial Attempt ◽

Marginal Tax Rate ◽

Policy Makers ◽

Content Type ◽

Tax Rate ◽

The Usa

Purpose – When a small business purchases a capital asset, its cost for tax purposes is spread over the useful life of the asset through the process of depreciation. It has become common in the USA for policy makers to enhance depreciation rules in an effort to increase business investment in a less-costly manner than across-the-board marginal tax rate cuts. Indeed, short-term depreciation policies are often billed by policy makers as a way to save America's small businesses. However, little is known about the actual effects of depreciation policies on small business activity. This paper aims to discuss these issues. Design/methodology/approach – In this initial attempt to test the political claims regarding the importance of depreciation rules, the paper uses a 12-year panel of tax returns for Schedule C sole proprietors to empirically examine whether more generous depreciation policies influence small business activity at the extensive margin. Specifically, the paper estimates a series of multivariate models to explain sole proprietors’ decisions to remain in business as functions of their financial, demographic, and tax situations, including measures of the present discounted value (PDV) of a stream of tax deductions for depreciated capital under various rule structures. Findings – Throughout the analysis, the authors are unable to find evidence that favorable depreciation rules lead to greater rates of entrepreneurial longevity among Schedule C sole proprietors. Originality/value – Discrete choice results suggest that increases in the PDV of tax reductions from depreciation (e.g. depreciating the value earlier in the recovery period) might actually lead to higher probabilities of small business exit, while survival analysis finds no clear influence of depreciation on spells of small business activity.

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