Corporation tax: a survey

The corporation tax is arguably the most well-studied tax found throughout the world. Countless numbers of professionals study the impact of corporate tax law on the affairs of the corporation. Yet, despite considerable resources that are expended on compliance, the tax in many countries raises only a small portion of revenue for governments. For example, in the G7 countries, taxes paid by corporations account for less than 8 per cent of tax revenues raised by governments, except for Japan where the corporation tax yields about 15 per cent of government revenue. This low revenue yield and high compliance cost have resulted in some experts and politicians questioning the usefulness of the corporate income tax.

European company tax reform : prospects for the future ; company taxation and the internal market

Unternehmensbesteuerung, Steuerreform, EU-Staaten, Corporate taxation, Tax reform, EU countries

The Changing Structure of Tax Policies for Foreign Direct Investment in Developing Countries

Developing countries keen to attract foreign direct investment (FDI) have typically used various preferential tax policies to be competitive. Tax holidays have been especially prevalent in the 1980s (Mintz [1990] and Shah [1995]) since they provide new foreign investors a low-tax regime for a qualifying period on the presumption that a company needs time to establish good levels of profitability.Working Paper Number 04-46

Tax holidays and investments

The tax holiday - an incentive frequently used in developing countries to encourage capital investments - offers benefits for short-term investments but could in fact penalize long-term capital investments. For some countries with high inflation rates and relatively fast writeoffs for depreciable capital, the effective tax rate on long-term investments is higher during the tax holiday than after. For one thing the tax law may require assets to be depreciated during the holiday. If so, the value of tax depreciation writeoffs may be lower than the true economic cost of depreciation. For another the tax benefit of nominal interest deductions associated with debt financing of capital are of no value to the firm during the holiday - whereas after the holiday they may be quite beneficial. After estimating the effective tax rates on capital for holiday and post holiday investments, the author concludes that for some countries the effecctive tax rate on long-term capital is higher during the holiday than after.International Terrorism&Counterterrorism,Public Sector Economics&Finance,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies

2007 Tax Competitiveness Report: A Call for Comprehensive Tax Reform

Canada has made slow but steady progress in improving its tax system, yet the effective tax rate on new business investment remains 11th highest in the world.tax reform, business taxation, marginal effective tax rates

Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada

We study corporate income tax competition when firms operating in multiple jurisdictions can shift income using financial planning strategies. Several such strategies, particularly intra-corporate lending, appear to be actively pursued by companies to reduce subnational corporate taxes in Canada. A simple theoretical model shows how interjurisdictional tax planning can give rise to asymmetries in jurisdictions’ tax policies, with one jurisdiction becoming a “tax haven” to attract taxable income through financial transactions, while others set higher statutory rates. Further, increased competition from tax havens may paradoxically lead to tax increases by high-tax jurisdictions. Analysis of data from administrative tax records suggests income shifting has pronounced effects on provincial tax bases in Canada. According to our preferred estimate, the elasticity of taxable income with respect to tax rates for "tax shifting" firms is 4.3, compared to 1.6 for other, comparable firms.

Squeaky Hinges: Widening the Door to Canadian Cross-border Investment

For the period 2001-2007, Canada ranked only 25th among 98 countries in its openness to world markets as measured by cross-border investment flows as a percentage of GDP. For inbound investment flows alone, it ranked 47th. Canada should look to dismantle barriers to both inbound and outbound foreign investment to increase business exposure to global competition.international policy, foreign direct investment, direct investment abroad

Taxation and the Financial Structure of German Outbound FDI

The paper analyzes the financial structure of outbound FDI during the period 1996-2002 by drawing on up to 54,022 firm-year observations of 13,758 German-owned subsidiaries. We find that the tax rate in the host country has a sizeable and significantly positive effect on leverage for wholly-owned foreign unlike partially-owned foreign companies. Most of the effect comes from increased intra-company borrowing, while third-party debt is not significantly affected by tax differences. While wholly-owned subsidiaries react more sensitively to tax rate differentials, they are less sensitive to macroeconomic influences like interest rates.foreign direct investment, financial structure, capital structure, taxation