Taxes and Haven Activities: Evidence from Linguistic Cues

Users of Exhibit 21 cannot tell whether a tax haven subsidiary is actively operating or a dormant shell company. In this paper, we develop a new set of parsimonious measures to highlight the distinct mechanisms and tax effects of offshore sales to, as opposed to purchases from, tax haven countries, offering insights on the effects of certain types of offshoring activities on firms’ tax burdens. Our main measure has about three times the effect of the mere existence of a haven subsidiary in explaining firms’ effective tax rates. We detail the processes to predict the offshore activities in tax haven countries for firms without an Exhibit 21 and firms reporting no subsidiary operations in a tax haven country. Relative to the mere mention of a tax haven subsidiary in Exhibit 21, our new measures provide a richer information set to capture different types of economic activities in tax haven countries.

Boon or bane? On productivity and environmental regulation

As climate change has gained more attention in the last decade, effects of environmental regulation on productivity are important to design green tax reforms. This study examines the impacts of environmental taxes and spillovers on technical efficiency, using data on Central European manufacturing firms, from 2009 to 2017. The results highlight strong effects of environmental taxation on productivity. Besides, downstream energy taxation does not affect productivity, while upstream taxes decrease technical efficiency. Downstream pollution taxation decreases productivity, whereas upstream taxation spurs technical efficiency. This study contributes to the literature by investigating heterogeneous tax effects across industries, involving tax spillovers and considering endogeneity issues.

On the development of individual investment accounts: The active income option

Subject. This article examines the statistics on the prevalence of individual investment accounts of passive income (Type A) and active income (Type B) options and compares them with American IRA accounts. Objectives. The article aims to analyze the tax effects on individual investment accounts from the investor's point of view, highlighting Type B accounts, as well as identify obstacles to the development of individual investment accounts of this type. Methods. For the study, I used the methods of logical and statistical analyses. Conclusions and Relevance. The choice between individual Types A and B accounts is a balance between current and deferred tax effects, respectively. Individual investment accounts of Type B are infrequently used due to insufficient information support, investor distrust, market volatility, and excessive benefits on individual investment accounts of Type A. The results of the study can be submitted for discussion to the State Duma of the Russian Federation to reform individual investment accounts to subsequently legitimize amendments in the Tax Code of the Russian Federation and the Federal Law On the Securities Market.

Entity Structure and Taxes: An Analysis of Embedded Pass-Through Entities

We examine the effect of pass-through entities embedded in corporate structures on tax avoidance, tax uncertainty, and tax noncompliance using unique, confidential tax return data that link corporations and pass-through entities together through Schedules K-1. We develop measures of the use of pass-through entities such as the number and "connectedness" of pass-throughs within the structure, the presence of loss pass-throughs or asymmetric allocations of such losses, and connections to entities external to the firm. We predict and find that these features are associated with lower effective tax rates, higher current year additions to tax reserves, and larger amounts of proposed IRS audit adjustments, controlling for probability of audit selection. This large-sample evidence could help the IRS understand how pass-throughs affect compliance and financial statements users anticipate the tax effects related to entity structure

TAX EFFECTS ON THE ATTRACTIVENESS OF BUSINESS ENVIRONMENT: THE CASE OF MONGOLIA

The main aim of the present survey lies in studying the impact and making an evaluation of the main indicators of the tax environment on business support along with exposing some problems that should be regulated with the tax policy. The survey findings show that, when the suitability of tax rates of 7 types of main taxes followed presently in the country to the current business environment was studied, a conclusion was made that tax rates were inappropriate and a change was necessary; when types of taxes and their burden, tax payment and reporting, tax privileges, duplication of taxes, tax equity and fairness indicators were studied for their suitability, all indicators except tax payment and reporting did not make a positive impact on the business environment; when formation of a favorable tax environment to support the national industry was examined, a conclusion was made about lack of such environment; when factors determining this situation were investigated in detail, a regression equation showed impact of other indicators excluding the tax payment and reporting indicator; when compatibility of the Tax Law with the business environment and its impact was studied, a conclusion was made about its incompatibility with the present business environment. A multifactor regression assessment to study the impact of tax indicators and tax rates was made

Taxes and Economic Growth in OECD Countries: A Meta-analysis

This study performs a meta-analysis of the effect of taxes on economic growth in Organization for Economic Cooperation and Development (OECD) countries. A challenge with synthesizing tax estimates is that they measure different things. This follows because studies differ in the government budget constraints implied by their regression specifications. To address this problem, we use a taxonomy from Gemmell, Kneller, and Sanz that predicts the growth effects from various tax-spending-deficit combinations. We apply this taxonomy to 979 estimates from forty-nine studies of tax effects in OECD countries. Our headline result is that a 10 percent increase in taxes is associated with a decrease in annual gross domestic product (GDP) growth of approximately −0.2 percent when bundled as part of a TaxNegative tax-spending-deficit combination. The same tax increase is associated with an increase in annual GDP growth of approximately 0.2 percent when part of a TaxPositive fiscal policy package. All of our data, output, and programming code are publicly available at https://osf.io/ 6 bfgx/ .

Cross-border DCF valuation: discounting cash flows in foreign currency

The paper seeks to develop a comprehensive framework to cross-border discounted cash flow valuation. Although the literature on company valuation and on international financial management is vast, such a framework has not yet been proposed. We build upon well-known fundamentals and relevant contributions, e.g. on the derivation of the risk-adjusted rate of return. Relevant risks are exchange rate risk, business risk, financial risk, the risk of the tax effects induced by debt financing, and the risk of default. Additional tax effects beyond the well-known tax shield on interest expenses must be considered. Risk discounts from cash flows and risk premia to be added to risk-free interest rates are derived according to the global capital asset pricing model. A conceptual choice occurs not only between the foreign currency and the home currency approach, but also regarding the estimation of future exchange rates. The paper shows how a valuation can be implemented with or without consideration of covariances between cash flows and rate of returns with exchange rates. It also derives the discount rates if forward exchange rates are applied. We discuss the consequences of assuming the uncovered interest parity to hold. We assume deterministic debt and apply the adjusted present value approach. In addition, we derive the RADR to be used in the flow to equity and weighted average cost of capital approach. The paper addresses not only the valuation of a foreign company, but also the valuation of a domestic company that generates cash flows in foreign currency and/or uses debt in foreign currency.