Investment allocation in Slovakia and Ukraine in terms of effective corporate tax rates
-
DOIhttp://dx.doi.org/10.21511/imfi.17(3).2020.25
-
Article InfoVolume 17 2020, Issue #3, pp. 332-344
- 769 Views
-
103 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Since countries differ in their traditions, cultures or different tax systems, investment allocation can be a difficult task for some investors. Effective tax rates present indicators of the real corporate tax burden and consider the impact of all legislation elements. This paper deals with the effective taxation of selected intangible and tangible assets. The analysis will be processed by calculating average and marginal tax rates (EATR and EMTR) according to the methodology of the Centre for European Economic Research (ZEW). Then, the relationship between these two tax rates was calculated, and the relationship was identified that evaluates the most optimal criteria between location, amount and source of investment financing. The analyzed period is the year 2020. The analysis is a quantification of the amount of the tax rates for a hypothetical investment. The next step in the analysis is a calculation of the tax shield, which expresses tax saving of investment and the economic income of project, including taxation, and means financial benefit for an investor. The results have shown that Ukraine is a better choice for the investor, as this country reached lower values of effective tax rates for all other types of assets, except land, than Slovakia. In the case of own funds financing, there is a difference between 10.7% and 11.6%, and in the case of debt financing, the difference ranged from 10.8% to 11.7%. The exception was land, the rates for which were higher than in Slovakia by 0.70%. This paper has confirmed the research hypothesis that Ukraine is a more tax-attractive country than Slovakia.
Acknowledgment
This research was supported by VEGA project No. 1/0430/19 “Investment decision-making of investors in the context of effective corporate taxation”.
- Keywords
-
JEL Classification (Paper profile tab)H20, H21, H25
-
References33
-
Tables2
-
Figures2
-
- Figure 1. Development of tax revenues in Slovakia
- Figure 2. Development of tax revenues in Ukraine
-
- Table 1. Input assets for Slovakia (SK) and Ukraine (UA)
- Table 2. Calculated values of EATR and EMTR
-
- Andrejovská, A., & Konečná, V. (2019). Investors’ decision on the context of the effective taxation of agricultural companies. Slovak Journal of Food Sciences, 13(1), 1040-1050.
- Arachi, G., & Biagi, F. (2005). Taxation, Cost of Capital and Investment: Do Tax Asymmetries Matter? Giornale degli Economisti e Annali di Economia, 295-321.
- Baker, & McKenzie. (1999). Survey of the Effective Tax Burden in the European Union. Report commissioned by the Ministry of Finance in the Netherlands. Hague.
- Barrios, S., Nicodème, G., & Sanchez Fuentes, A. J. (2014). Effective Corporate Taxation, Tax Incidence and Tax Reforms: Evidence from OECD Countries. EconPapers, 1-59.
- Bayer, O. (2011). Vládní daňové predikce: Ex ante odhady a ex post hodnocení přesnosti v České republice. Český finanční a účetní časopis, 1, 42-54.
- Bird, R. M., Martinez-Vazquez, J., & Torgler, B. (2008). Tax effort in developing countries and high income countries: The impact of corruption, voice and accountability. Economic Analysis and Policy, 38(1), 55-71.
- Blechová, B. (2008). Charakteristika přístupů používaných v EU pro hodnocení efektivního daňového zatížení příjmu korporací. In CD od Participants’ Reviewed Papers from XIII. International Conference: Teoretické a praktické aspekty veřejných financí (pp. 1-11). Praha: VŠE.
- De Laet, J. P., & Wöhlbier, F. (2008). Tax burden by economic function A comparison for the EU Member States.
- Devereux, M. P., & Griffith, R. (1999). The Taxation of Discrete Investment Choices. Revision 2. (Working Paper Series W98/16, 1-57). Institute for Fiscal Studies.
- Devereux, M. P., & Griffith, R. (2003). The Impact of Corporate Taxation on the Location of Capital: A Review. Economic Analysis and Policy, 33(2), 275-292.
- Devereux, M. P., Griffith, R., & Klemm, A. (2004). Why has the UK corporation tax raised so much revenue? Fiscal Studies, 25(4), 367-388.
- Dyreng, S., Hanlon, M., Maydew, E. L., & Thornock, J. R. (2017). Changes in corporate effective tax rates over the past 25 years. Journal of Financial Economics, 124(3), 441-463.
- Feld, L. P., & Heckemeyer, J. H. (2011). FDI and taxation: A meta-study. Journal of Economic Surveys, 25(2), 233-272.
- Giannini, S., & Maggiulli, C. (2002). The effective tax rates in the EU Commission study on corporate taxation: Methodological aspects, main results and policy implications (No. 666) (CESifo Working Paper).
- Gupta, A. S. (2007). Determinants of tax revenue efforts in developing countries (Working Paper No. 07/184). International Monetary Fund.
- Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3), 127-178.
- Income Tax Act 595/2003 Coll. As later amended.
- King, M. A., & Fullerton, D. (1984). The taxation of income from capital: A comparative study of the United States, the United Kingdom, Sweden, and Germany. NBER Books.
- Korotkevych, O. V., & Nazukova, N. M. (2016). Methodological approaches for estimation of tax burden on investments into the fixed capital. Investments: Practice and Experience, 7, 17-23.
- Kubascikova, Z., Tumpach, M., Juhaszova, Z., Turebekova, B., & Saparbayeva, S. (2019). Contextual Non-financial Information Analysis of Annual Reports. Paper presented at 16th Annual International Scientific Conference on European Financial Systems (pp. 334-344).
- Kubátová, A., & Říhová, L. (2012). Regression analysis of factor affecting corporate tax revenues in OECD countries. Politická ekonomie, 4, 451-470.
- McKenzie, K. J., Mintz, J. M., & Scharf, K. A. (1997). Measuring effective tax rates in the presence of multiple inputs: a production based approach. International Tax and Public Finance, 4(3), 337-359.
- Nazukova, N. M. (2015). Theoretical framework of the assessment of the tax burden on capital investment. Economics and Forecasting, 2, 21-32. (In Ukrainian).
- Nicodème, G. (2001). Computing effective corporate tax rates: comparisons and results (No. 153). Directorate General Economic and Financial Affairs (DG ECFIN) (MPRA Paper No. 3808, 48). European Commission.
- OECD. (2018). Corporate Effective Tax Rates: Model Description and Results from 36 OECD and Non-OECD Countries [online] (OECD Taxation Working Papers, No. 38). Paris: OECD Publishing.
- Papcunová, V., & Novaková, B. (2019). Real Estate Tax as Part of Municipal Tax Incomes (Case Study). Paper presented at 13th International Scientific Conference on Public Economics and Administration (pp. 321-330).
- Petrukha, S., & Nazukova N. (2015). Effective average tax rates as a criterion of investment in agricultural sector of national economy. Economist, 5, 18-24.
- Šimková, N. (2016). Effective Average Tax Rate of Capital Applied to the Slovak Conditions. Politická ekonomie, 1, 1-14.
- Stetsko, M. V. (2015). The influence of default probability in the rate of spending on borrowed capital. Finance of Ukraine, 8, 88. (In Ukrainian).
- Tecl, J. (2018). Measurement of labour taxation. European Financial and Accounting Journal, 13(1), 5-18.
- The Tax Code of Ukraine.
- Vegh, C. A., & Vuletin, G. (2015). How is tax policy conducted over the business cycle? American Economic Journal: Economic Policy, 7(3), 327-70.
- ZEW. (2018). Effective Tax Levels Using Devereux/Griffith Methodology. Project for the EU Commission. TAXUD/2013/CC/120.