Code Section 304: The Gift That Keeps on Giving

2019 ◽  
Vol 17 (1) ◽  
pp. 25-39
Author(s):  
Doron Narotzki ◽  
Melanie G. McCoskey
Keyword(s):  
Tax Avoidance ◽  
Tax Planning ◽  
Expected Loss ◽  
Legislative Change ◽  
Planning Tools ◽  
The Gift ◽  
Foreign Corporations ◽  
Jobs Act ◽  
The U.S ◽  
Jel Classifications

ABSTRACT The Tax Cuts and Jobs Act (TCJA) has created a unique opportunity to utilize Code Section 304 and Code Section 245A as powerful tax-planning tools. By utilizing the rules established for redemptions between related corporations under the anti-abuse provisions of Code Section 304 combined with the new 100 percent DRD of Code Section 245A, extracting earnings from affiliated foreign corporations tax-free has never been easier. This paper explains how these two code sections interact with each other and the resulting ability to extract certain foreign-sourced earnings tax-free. It also identifies incentives created by the TCJA to operate profitable businesses overseas and expected loss operations in the U.S. Finally, the paper offers a legislative change to close the tax avoidance loophole created by the TCJA. JEL Classifications: H2.

Brewing Up Controversy: A Case Exploring the Ethics of Corporate Tax Planning

2015 ◽  
Vol 30 (4) ◽  
pp. 311-327 ◽  
Author(s):  
Megan F. Hess ◽  
Raquel Meyer Alexander
Keyword(s):  
Real World ◽  
Ethical Issues ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Learning Assessment ◽  
Class Discussion ◽  
Corporate Tax ◽  
Tax Havens ◽  
Multinational Organizations ◽  
The U.S

ABSTRACT This instructional case explores the ethical issues surrounding the corporate tax-planning and tax-avoidance strategies of multinational organizations. Drawing on the real-world experiences of SABMiller, one of the world's largest beverage companies, this case provides a launching point for students to consider the ethics of corporate tax planning. The ethics of multinational tax practices, especially the use of tax havens, has recently become the focus of media and legislative debate in both the U.S. and the U.K., and many well-respected companies, such as General Electric, Apple Inc., and Starbucks are now feeling the pressure to reform. In a post-case learning assessment, students demonstrated significant improvement in their understanding and indicated that they enjoyed discussing this controversial issue. The “Implementation Guidance” section and Teaching Notes offer guidance for in-class discussion of the ethical and tax issues in this case.

Smoothness and the Value Relevance of Taxable Income

2015 ◽  
Vol 37 (2) ◽  
pp. 141-167 ◽  
Author(s):  
Michael A. Mayberry ◽  
Sean T. McGuire ◽  
Thomas C. Omer
Keyword(s):  
Value Relevance ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Additional Analysis ◽  
Taxable Income ◽  
Planning Strategy ◽  
Avoidance Strategy ◽  
Jel Classifications

ABSTRACT This study investigates whether the smoothness of estimated taxable income influences its value relevance. Contrary to research that finds that smoothness enhances the value relevance of book income, we find that smoothness reduces the value relevance of taxable income. We decompose the smoothness of taxable income into its innate and discretionary components and find that innate smoothness is not associated with the value relevance of taxable income. However, we find that discretionary smoothness is associated with a reduction in taxable income's value relevance, suggesting that discretionary smoothness either eliminates or reduces the information contained in taxable income. In additional analysis, we find that discretionary smoothness is also associated with higher levels of future tax avoidance, consistent with managers smoothing taxable income as part of their tax avoidance strategy. In combination, our results suggest that the reduced value relevance of estimated taxable income is a byproduct of managers' tax-planning strategy. JEL Classifications: G32; H25; H32; M41.

scholarly journals Opportunity Zones-The Symbiosis of Tax Incentives and Community Development

2020 ◽  
pp. 64-70
Author(s):  
Rachel Raskin, CPA ◽  
Sharon Brickman, CPA
Keyword(s):  
Community Development ◽  
Mutual Funds ◽  
American History ◽  
Tax Avoidance ◽  
Tax Incentives ◽  
Capital Gains ◽  
Economic Innovation ◽  
Jobs Act ◽  
American Cities ◽  
The U.S

U.S. lawmakers have created one of the greatest tax-avoidance opportunities in American history, while simultaneously serving underperforming American cities and neighbourhood’s (Bertoni 2018). Subchapter Z of The Investing in Opportunity Act (“The Act”), as part of the 2017 Tax Cuts and Jobs Act (TCJA), amended the Internal Revenue Code to provide major tax incentives for investments in designated “Opportunity Zones”. The tax incentives act as subsidies by allowing investors to defer the recognition of capital gains from the sale of appreciated assets if they are timely reinvested in opportunity zones (Bertoni 2018). According to the Economic Innovation Group (2018), there is approximately $6.1 trillion of unrealized capital gains in stocks and mutual funds in the U.S. economy. Under the direction of sophisticated investors, this capital can be channelled to revitalize depressed communities and create jobs, infrastructure, and other economic opportunities. In a press release, the Department of Treasury (2018) revealed that it anticipates $100 billion in private funds will be invested in opportunity zones over the next eight years. If the intention of the act comes to fruition, capital gains that investors realize from selling previous investments will be used to fuel growth in economically depressed areas.

scholarly journals An Overview of Academic Tax Accounting Research Drawing on U.S. Multinational Taxation

2020 ◽  
Vol 19 (3) ◽  
pp. 9-17
Author(s):  
Terry Shevlin
Keyword(s):  
Tax Reform ◽  
Tax Planning ◽  
Rate Of Return ◽  
Global Approach ◽  
Tax Rate ◽  
Accounting Research ◽  
Tax Research ◽  
Multinational Taxation ◽  
Jobs Act ◽  
The U.S

ABSTRACT Economics-based tax research in accounting draws heavily on the Scholes-Wolfson framework. The framework develops a global approach to tax planning where all parties, all taxes, and all costs are to be considered in effective tax planning. Effective tax planning is distinct from tax minimization as the goal of the former is to maximize the after-tax rate of return. The first empirical applications of the framework followed the passage of the Tax Reform Act of 1986. Taxation of multinationals has long been of interest to accounting (and other) researchers and continues to be of interest. The Tax Cuts and Jobs Act of 2017 changed many tax laws including how the U.S. taxes U.S. multinationals. Research examining the ramifications of this latest Tax Act is already well under way.

Do Investors Use Prior Tax Avoidance when Pricing Tax Loss Carryforwards?

2016 ◽  
Vol 38 (2) ◽  
pp. 27-49 ◽  
Author(s):  
Sean T. McGuire ◽  
Stevanie S. Neuman ◽  
Adam J. Olson ◽  
Thomas C. Omer
Keyword(s):  
Avoidance Behavior ◽  
Tax Avoidance ◽  
Tax Planning ◽  
High Variability ◽  
Data Availability ◽  
Taxable Income ◽  
Internal Revenue ◽  
Valuation Allowance ◽  
Tax Loss ◽  
Jel Classifications

ABSTRACT The Internal Revenue Code allows firms to carry excess tax losses forward to offset future taxable income and reduce taxes. Consistent with tax loss carryforwards (TLCFs) creating a significant asset, prior research finds that investors positively value TLCFs. However, investors face significant uncertainty about whether firms will have sufficient future taxable income to benefit from TLCFs. We hypothesize that investors' valuation of new TLCFs will vary with firms' prior tax avoidance behavior because it signals firms' abilities to generate taxable income to offset TLCFs through tax planning. We confirm that investors assign a positive value to new TLCFs and find that investors' valuation varies with firms' prior tax avoidance behavior. Investors positively value TLCFs when firms exhibit high variability in prior tax avoidance and high levels of prior tax avoidance. Our results are incremental to the effect of changes in the valuation allowance on investors' valuation of new TLCFs. JEL Classifications: M40; M41; M49. Data Availability: Data used in this study are available from public sources identified in the paper.

A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Stacie K. Laplante ◽  
Carla Carnaghan
Keyword(s):  
Tax Planning ◽  
Investment Model ◽  
Income Shifting ◽  
Tax Rates ◽  
Foreign Investments ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Joint Consideration ◽  
The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

Transocean and the History of Tax Inversions

2018 ◽  
Vol 34 (1) ◽  
pp. 1-12
Author(s):  
Susan M. Albring ◽  
Randal J. Elder ◽  
Mitchell A. Franklin
Keyword(s):  
Multinational Corporations ◽  
Economic Impacts ◽  
Income Taxes ◽  
Tax Rates ◽  
Corporate Tax ◽  
Corporate Income Taxes ◽  
History Of ◽  
Jobs Act ◽  
The U.S ◽  
Over Time

ABSTRACT The first tax inversion in 1983 was followed by small waves of subsequent inversion activity, including two inversions completed by Transocean. Significant media and political attention focused on transactions made by U.S. multinational corporations that were primarily designed to reduce U.S. corporate income taxes. As a result, the U.S. government took several actions to limit inversion activity. The Tax Cuts and Jobs Act of 2017 (TCJA) significantly lowered U.S. corporate tax rates and one expected impact of TCJA is a reduction of inversion activity. Students use the Transocean inversions to understand the reasons why companies complete a tax inversion and how the U.S. tax code affects inversion activity. Students also learn about the structure of inversion transactions and how they have changed over time as the U.S. government attempted to limit them. Students also assess the tax and economic impacts of inversion transactions to evaluate tax policy.

TAX PLANNING AND STATE AID UNDER THE EUROPEAN LAW

2021 ◽  
Vol 66 (05) ◽  
pp. 228-232
Author(s):  
Aygun Gunduz Guliyeva ◽  
Keyword(s):  
Key Words ◽  
Rule Of Law ◽  
Tax Avoidance ◽  
Tax Planning ◽  
State Aid ◽  
European Court Of Justice ◽  
European Law ◽  
The Rule Of Law ◽  
Court Of Justice ◽  
European Court

There is a strong link between funding criteria from government sources and the advantage and selectivity associated with classifying an event as government assistance. However, the selectivity criterion is very important when considering whether there is a banned state aid. Finally, the European Court of Justice no longer applies the rule of law and exclusion to selectivity. Instead, the selectivity review consists of two parts: whether a precaution is selective and whether preference is necessary and proportionate. Key words: EU, tax, tax avoidance, state aid, tax planning, competition

scholarly journals Pengaruh Perencanaan Pajak (Tax Planning) dan Penghindaran Pajak (Tax Avoidance) Terhadap Nilai Perusahaan

2021 ◽  
pp. 142-154
Author(s):  
Gea Delaya Tambahani ◽  
Tinneke E.M. Sumual ◽  
Cecilia Kewo
Keyword(s):  
Time Series ◽  
Cross Section ◽  
Tax Avoidance ◽  
Tax Planning ◽  
Purposive Sampling

Penelititan ini bertujuan mengetahui dan menganalisis pengaruh Perencanaan Pajak (Tax Planning) dan Penghindaran Pajak (Tax Avoidance) terhadap Nilai Perusahaan pada perusahaan manufaktur sektor industri konsumsi subsektor makanan dan minuman yang terdaftar di Bursa Efek Indonesia Tahun 2017-2019. Menggunakan data sekunder dan  metode penelitian kuantitatif. Teknik analisis yang digunakan yaitu regresi data panel, gabungan time series dan cross section. Menggunakan aplikasi pengolahan data Eviews 10 untuk memperoleh gambaran yang menyeluruh mengenai hubungan antara antara variabel satu dengan variabel lainnya. Sampel yang digunakan sebanyak 16 perusahaan manufaktur sektor industri barang konsumsi subsektor makanan dan minuman selama 3 periode dari tahun 2017-2019  dengan purposive sampling sebagaiimetode pengambilan sampel. Hasillpenelitian menunjukkan bahwa Perencanaan Pajak (BTD) berpengaruh positif dan tidak signifikan terhadap nilai perusahaan (PBV) dan penghindaran Pajak (ETR) berpengaruh negatiffdan tidak signifikan terhadap nilai perusahaan.

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