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Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. A corporate tax is a tax on the profits of a corporation. Corporate tax rates vary widely by country, with some countries considered to be tax havens due to their low rates.
Corporate taxes can be lowered by various deductions , government subsidies , and tax loopholes , and so the effective corporate tax rate , the rate a corporation actually pays, is usually lower than the statutory rate; the stated rate before any deductions. Previously, the maximum U. Corporations may request a six-month extension to file their corporate tax returns in September. Installment payment due dates for estimated tax returns occur in the middle of April, June, September, and December.
Corporate taxes are reported on Form for U. Corporations are permitted to reduce taxable income by certain necessary and ordinary business expenditures. All current expenses required for the operation of the business are fully tax-deductible. Investments and real estate purchased with the intent of generating income for the business are also deductible. A corporation can deduct employee salaries, health benefits, tuition reimbursement, and bonuses. In addition, a corporation can reduce its taxable income by deducting insurance premiums , travel expenses, bad debts, interest payments, sales taxes, fuel taxes, and excise taxes.
Tax preparation fees, legal services, bookkeeping, and advertising costs can also be used to reduce business income. The two tax rates can differ strongly as a result of generous rules regarding tax credits, asset write-offs, income that is exempt from taxation, and so on Figure 4.
Higher effective corporate income tax rates increase the tax burden for incorporated firms, thus reducing the gains from entrepreneurship.
Hence, higher corporate income tax rates should have a negative effect on entrepreneurial activity. A worldwide cross-sectional data set of 80 countries shows that high statutory and high effective corporate income tax rates reduce business density and entrepreneurship entry rates [1]. A study from Portugal exploits a quasi-natural experiment where the corporate tax rate for start-ups was reduced in some regions and not in others [8].
The authors find that a reduced corporate tax rate increased firm entry and new firm job creation. The results from the worldwide and Portuguese studies support the argument that high corporate income tax rates reduce profits for incorporated businesses, thus reducing incentives for individuals to become entrepreneurs [1] , [8]. Moreover, income shifting may occur.
That is, entrepreneurs may decide not to incorporate their business, instead choosing other forms of entrepreneurship such as entrepreneurship through non-incorporated firms or informal entrepreneurship. The literature provides some tentative evidence about the latter: the size of the informal sector as a percentage of economic activity is shown to depend on the effective corporate income tax level [1]. Thus, corporate taxes not only affect entrepreneurship activity but also influence the allocation of resources between the formal and the informal sectors.
Further findings show that the effects of statutory and effective corporate income tax levels on entrepreneurship entry rates are of similar magnitude [1]. This is important for policymakers, as entrepreneurs do not seem to distinguish between the two corporate tax rates when making their occupational choice or deciding on their incorporation.
These results are partially confirmed by an alternative study [9]. Using a panel dataset of 39 industries in 17 Western European countries, a high effective average tax rate is shown to reduce the number of entrants per industry calculated as the number of newly registered firms in a particular industry divided by the number of active incumbents in that industry.
The negative effect of corporate income tax rates on industry entry rates is concave, suggesting that tax reductions only have an effect on entrepreneurship entry rates below a certain threshold tax level.
That is important for policymakers who are considering cutting corporate income tax rates in order to promote entrepreneurship activity. Reducing corporate income tax rates is found to be more effective in countries with higher-quality accounting standards [9]. Higher accounting standards make it more difficult for companies to hide profits, thereby increasing the effectiveness of corporate taxation as a policy instrument.
Thus, to increase entrepreneurship in countries with low-quality accounting standards it is necessary to combine lowering taxes with efforts to improve the quality of the accounting standards.
Figure 4 shows statutory and effective corporate income tax rates across selected countries. Large discrepancies between the two tax rates exist. In the US, for example, the statutory corporate income tax rate is Tax systems can differ in their progressivity, that is, the degree to which the tax rates increase with taxable income. A progressive tax system is shown to encourage entry into entrepreneurship [10].
With progressive rather than proportional income taxation, firm owners retain a smaller fraction of large profits, but a larger fraction of small profits. Some scholars argue that such a situation encourages risk-taking by risk-averse individuals, thus leading to higher entrepreneurship entry rates [11]. It should be noted, however, that this argument only holds true if the expected tax burden is held constant.
Entrepreneurship entry rates may also be negatively affected by tax-related administrative burdens and the complexity of the corporate income tax system. For example, Swiss cantons with more complex corporate income tax codes measured as the number of words in the cantonal corporate tax codes have lower municipal firm birth rates relative to other cantons [10].
This finding is in line with the results from another study that uses country-level data obtained from the World Bank Doing Business project [12]. This study finds that higher levels of the overall administrative tax burden have a negative effect on entrepreneurship entry rates.
Tax administrative burdens and the complexity of the tax system can be interpreted as indirect effects of the tax system. In a simple form, they constitute fixed operating costs that do not depend on the level of the firm's or the entrepreneur's profits. The entry of new firms will occur as long as firms or entrepreneurs expect profits to be greater than their fixed operating costs.
In addition to entrepreneurship rates, corporate income taxation also influences the types of new firms entering established markets. As such, corporate income taxation has an effect on both the quality and quantity of entrepreneurship. Using information on newly incorporated firms in 17 European countries between and , it is shown that decreasing effective corporate income tax rates by one unit leads to a decrease in the capital size of new firms by between 2.
This finding is in line with predictions from [10] , and can be interpreted as an indication of taxation being an entry barrier that only firms of a certain capital size can overcome. As the labor size of new firms is not equally affected by corporate income taxation [13] , raising corporate tax levels not only increases the capital size of firms, but also the capital to labor ratio. The main benefit of a tax group is that a loss incurred by one company can be deducted from the profits earned by other companies in the group.
The formation of a tax group is subject to certain conditions. In addition, the parent company and subsidiary must:. Subsidiary companies distribute their profits to their parent companies in the form of dividend. The participation exemption exempts the parent company from paying tax on dividends received from its qualifying subsidiaries. This prevents it being taxed twice within the same group of companies. The exemption applies to substantial holdings in resident and non-resident companies.
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