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Modelling corporate tax liabilities using company accounts: a new framework

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  • 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.

Suggested Citation

  • Ahmed, S., 2004. "Modelling corporate tax liabilities using company accounts: a new framework," Cambridge Working Papers in Economics 0412, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0412
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    Cited by:

    1. Saeed Ahmed, 2007. "Forecasting Profitability, Earnings, and Corporate Taxes: Evidence from UK Companies," SBP Working Paper Series 16, State Bank of Pakistan, Research Department.
    2. Richard Baldwin & Toshihiro Okubo, 2009. "Tax Reform, Delocation, and Heterogeneous Firms," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 741-764, December.
    3. Saeed Ahmed, 2006. "Corporate Tax Models: A Review," SBP Working Paper Series 13, State Bank of Pakistan, Research Department.

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    More about this item

    Keywords

    Corporate income tax; panel data; corporate structure; financial and dividend policy; revenue estimation and forecasting; microsimulation modelling;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • 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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