Saeed Ahmed (University of Cambridge)

Modelling corporate tax liabilities using company accounts: a new framework

This paper examines different approaches to corporate tax modelling and presents a new framework to estimate corporate tax liabilities. Using firm level panel data of UK companies in three diverse sectors, the framework produces many strong results which have implications for microsimulation modelling, financial transparency, and corporate governance. The findings suggest that firms reduce their tax liabilities through different channels to maximise ‘after-tax’ profits. The evidence shows, inter alia, that not only are trading profits and capital gains important determinants of corporation tax 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, investment, and financial policy are important factors impacting on corporate tax liabilities. Moreover, different tax reliefs and allowances affect tax liabilities asymmetrically.

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

JEL Codes: C33, E17, G32, G35, H25, H32

Session: 5e   Room 2004   Category: Business demographics and performance 2

Paper