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|Other Titles: ||An Empirical Investigation into Firms' Choices between Five-year Exemption from Corporate Income Tax and Shareholder Investment Tax Credits|
Five-year exempt from corporate income tax;Shareholder investment tax credit;Tax planning;Statute for Upgrading Industries
|Issue Date: ||2010-09-17 11:17:32 (UTC+8)|
To encourage the development of the newly-emerging strategic industries, the Statute for Upgrading Industries (Taiwan) provides two important alternatives of tax incentives to stimulate companies' investments in the qualified strategic industries. Companies that invest in the qualified strategic industries may select either a period of five-year exemption from corporate income tax on income derived from those investments or the investment tax credits for their corporate (individual) shareholders up to 20% (10%) of dollar amount of the qualified investments. Similar tax incentives had been granted to qualified investments in important venture capital and important technology-based enterprises during 1995-1999. Using 1995-2001 data of listed companies applying for those qualified investments, this study examines firms' decisions on the choice between the two tax incentives, and empirically investigates into the factors associated with the choice decisions. The decision to choose either of the two tax incentives provides an opportunity to examine whether the tax planning of firms is pursuing the maximum tax benefits of shareholders. In addition, by examining the factors associated with the choice decisions, our study also contributes to the understanding of how firms trade off nontax costs with tax benefits in achieving optimal values of the firms. Our empirical results show that ceteris paribus, companies whose qualified investments are funded by shareholders' cash investment tend to select the tax incentive of investment tax credits for their shareholders. The result is possibly due to that for every qualified investment project, if the firm chooses shareholder investment credit, the granted amount of tax credit is in proportion to the percentage of the qualified project funded by shareholders' cash investment in the project. Therefore, the greater the percentage of the qualified project funded by shareholders' cash investment, the greater tax benefits for the company to choose investment tax credit for its shareholders. Further, after implementation of the Imputation System, companies having greater effective tax rates are more likely to choose the shareholder investment tax credits, because income tax paid at the corporate level can be distributed to shareholders as imputation credit and used to offset shareholders' personal income tax, thereby reducing companies' incentive to cut down corporate income tax. Finally, after implementation of the Imputation System, the Taiwanese government is gradually scaling down income tax credits available to the individuals. The tax credit of investing in the newly-emerging strategic industries becomes one of the few tax credits that are still available to the individuals in the current tax system. Therefore, we also find that firms investing in the newly-emerging strategic industries are more likely to choose the shareholder investment tax credits to grasp the shrinking opportunity of obtaining tax credits for their individual shareholders. We, however, do not find evidence on the association between shareholder structures and the choice of the two incentives. Further, there remain a substantial percentage of firms choosing the incentive of corporate five-year tax exemption after implementation of the Imputation System. The results suggest that in choosing the two tax incentives, companies are not bound to pursue the objective of maximizing shareholders' tax benefits.
|Data Type: ||article|
|Appears in Collections:||[會計學系] 期刊論文|
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