Regulatory Compensation Limits and Business Performance - Evidence from the National Football League

Executives' compensation has been on the forefront of the public and political debate since the recent financial crisis. One of the measures publicly discussed is a general upper boundary to top management compensation packages ("salary cap", "maximum wage"). While such measures are novelties to the corporate world, the North American major sports leagues have been using maximum compensation regulations for decades. This paper exploits the 23-year experience with salary cap regulations from the National Football League (NFL). The results show a significant negative relation between the success of NFL teams and the amount of the net (after-tax) salary cap represented by the personal income tax rate of the teams' home states. A team from California (highest average tax rate) wins 2.256 games less per year and has an 11% reduced probability of making the playoffs than a team located in a no-tax state such as Florida or Texas. The paper contributes to and informs the ongoing public and political debate regarding the regulation of executive compensation, and its effects on the performance of the regulated entities.Series: WU International Taxation Research Paper Serie

Future Orientation and Taxes: Evidence from Big Data

The paper analyses whether various aspects of a country's tax system have a positive or negative influence on individuals' attitudes towards the future. These attitudes are measured by an analysis of Google search queries derived from Google Trends which allow constructing an online futureorientation index for a sample of 58 countries. There results of this analysis indicate that capital gains taxes and value added taxes discourage future-oriented behaviour. Also, high personal income tax rates at the lowest income brackets discourage, whereas - surprisingly - the top marginal rates could positively influence an individual's future orientation. The paper contributes to existing research in three ways: First, it expands the existing tax literature by providing evidence that taxes can influence very fundamental personal values, such as individuals' general attitudes towards their future. Second, it contributes to a vast body of cross-cultural studies on future orientation by introducing tax law. Third, by using Internet search patterns the paper introduces these large, automatically gathered data sets into scientific tax research, thereby opening the possibility for further research opportunities. (author's abstract)Series: WU International Taxation Research Paper Serie

The Effects of a Tax Allowance for Growth and Investment - Empirical Evidence from a Firm- Level Analysis

We contribute to the empirical literature on the debt bias of corporate income taxation through a firm-level evaluation of the European Commission's recent proposal of an Allowance for Growth and Investment (AGI). We use the introduction, the application and the repeal of a similar allowance in Austria during the early 2000s to evaluate the effects of the AGI on corporate equity and profit distribution. Our analysis provides evidence that such an allowance could increase corporate equity ratios by 5.5 percentage points and reduce profit distributions by 7.6 percentage points. These effects are stronger than those the previous literature for traditional Allowance for Corporate Equity (ACE) tax systems has identified. Additionally, we contribute to the recently expanding literature on the influence of ownership on tax planning as we find significant differences in the utilization of the AGI depending on individual specifics of the majority shareholder as well as depending on the number of shareholders of the respective firms.Series: WU International Taxation Research Paper Serie

Comparability Adjustments. A Literature Review

This paper aims at providing a comprehensive overview of existing literature on the topic of comparability adjustments. Based on existing literature the most commonly used adjustments can be categorized in two broad categories: "accounting and financial risks adjustments" and "strategic/market adjustments". With the exception of working capital adjustments, the lack of guidance and recognized standardized application will quite possibly lead to continued discrepancies in their use. Taxpayers continue to struggle with the immense amount of documentation as well as justification requirements when it comes to adjustments, as there is no clear path to follow and very few practical application examples, which would unify the application of adjustments. As seen, even though the topic of comparability adjustments has been around since before the first version of the OECD TP Guidelines, the topic is yet to be fully explored in both official guidance as well as literature, research and especially practical tools.Series: WU International Taxation Research Paper Serie

Practicing Experts' Views on BEPS: A Critical Analysis

In July 2013 the OECD, to tackle multinational tax avoidance, published its Action Plan against base erosion and profit shifting. The Action Plan suggests a variety of legislative and administrative measures to eliminate frictions from interactions between domestic tax laws and international tax treaties, including potential double non-taxation of businesses operating in several countries. By virtue of the OECD's structure, the proposed measures have been designed and developed predominantly by representatives from the tax administrations of OECD member countries. Our research investigates the views and opinions of other stakeholders in this process, namely tax experts from practice. We conduct a conjoint analysis, surveying experts in international taxation regarding their perceptions and beliefs on the effectiveness of the proposed actions. We find that experts rank actions that are aimed at enhancing international coordination and cooperation, as well as actions that reduce legal uncertainty, higher than other actions. Of lesser importance are antitreaty-abuse measures, further transparency at the taxpayer level and amendments to the definition of permanent establishment. (authors' abstract)Series: WU International Taxation Research Paper Serie

Common consolidated corporate tax base. Effects of formulary apportionment on corporate group entities.

The European Commission is currently working on a legislative draft to harmonise the corporate income tax provisions for multinational groups of companies throughout the European Union. For that purpose the European Commission has installed a working group with the mission to draft a Common Consolidated Corporate Tax Base (CCCTB) applicable for multinational companies. As the EU member states are not willing to surrender their taxing power to the supranational level of the EU each group entity's tax base would be determined by apportionment of the group's overall taxable income according to a predefined micro-economic factor based formula whereas the group income will be calculated by consolidating earnings beforehand separately determined by each group entity (preconsolidation income). The situs state of the particular group entity would then apply its statutory corporate tax rate on the apportioned tax base. This paper evaluates the effects of this prospective apportionment procedure on any given corporate group entity and finds that the share of the group's income allocated to a particular entity using the apportionment formula does regularly not equal the pre-consolidation income of the respective group entity. The reasons for this regular observable deviation can be found on the one hand in the concept of the apportionment formula and on the other hand in the specifics of the definitions of the apportionment factors. (author's abstract)Series: Discussion Papers SFB International Tax Coordinatio

CCCTB - The Employment Factor Game

The draft for a Common Consolidated Corporate Tax Base Directive in the European Union includes the suggestion for an apportionment formula which allocates taxable group profits to group member corporations. These allocated profits shall then be taxed in the respective Member States. The draft directive delegates the right to define one factor of the apportionment formula, the term "Employee" to the Member States, who are therefore free to choose a narrow or a broad definition, the latter including also atypical employment schemes. Using a game-theoretic approach the paper shows that the individually rational strategy of any Member State to define "Employee" broadly so as to maximize the volume of the apportionment factor and thus maximize the allocated share of taxable income is only the best solution when tax rate differences and differences in the volume of atypical employment schemes are disregarded. If such differentials and the corporate groups' reactions to different Member States' definitions are included in modelling the game's pay-offs a narrow definition of "Employee" yields the highest individual pay-offs to the Member States involved. This change of dominant strategies is triggered by the corporate group's shifting of the employment factor from high-tax to low-tax Member States. Our paper differs from previous research on the economic effects of the CCCTB apportionment formula as it is the first paper identifying and analysing the employment factor and its distorting effects. The paper discusses possible tax minimizing strategies for corporate groups by shifting workforce and develops a model to quantify these potential relocations. Furthermore the paper presents advice to policy makers in their "Employee" definition decision and shows how Member States could use this definition to both minimize outward factor shifting and maximize inward factor shifting.(authors' abstract)Series: WU International Taxation Research Paper Serie