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Modelling corporate tax liabilities using company accounts: a new framework

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Author Info
Ahmed, S.
Abstract

This paper presents a micro-econometric approach to corporate tax modelling. Using firm level panel data of UK companies in three diverse sectors, the paper examines the impact of different variables on corporate tax liabilities of the firms. Many strong results stand out which suggest that firms reduce their tax liabilities through different channels and tax sheltering activities to maximise ‘after-tax’ profits. The evidence shows, inter alia, that not only are trading profits and capital gains important determinants of corporation tax payments but so also are their components, such as gross profit, cost of sales, expenses, and even one-off ‘exceptional items’ and ‘extraordinary items’. The results also indicate that firms’ size, organisational structure, investments, and financial and dividend policies are important factors impacting on corporate tax liabilities. Moreover, different tax reliefs and allowances are strongly associated with corporation tax payments asymmetrically. The findings have implications for microsimulation modelling, financial transparency, and corporate governance.

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Publisher Info
Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0412.

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Length: 46
Date of creation: Jan 2004
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Handle: RePEc:cam:camdae:0412

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Related research
Keywords: Corporate income tax; panel data; corporate structure; financial and dividend policy; revenue estimation and forecasting; microsimulation modelling;

Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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References listed on IDEAS
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