Deductibility of Provisions under the CCCTB Proposal and Its Effects on Companies: The Case of Poland

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The aim of the paper is to empirically examine the scale and the distribution of the tax advantage which emerges when provisions for future liabilities are deductible from taxable earnings, as proposed in the CCCTB concept. The paper concentrates on Poland -a country for which the expected economic effects of this proposal are still controversial and ambiguous. The results are also relevant for other European countries in which provisions are currently treated in a different way for financial and for tax accounting purposes. The analysis is based on the information from financial statements of 250 companies from the period 2007 -2012. The microsimulation method in a multi-period setting is implemented. The results show that in case provisions are deductible for tax purposes the tax due decreases by 5,6 % or and by 9,8 % on average, depending on the liquidity situation of companies. The tax advantage is distributed differently among companies. The majority of taxpayers is expected to gain from the reform. Only for single companies there is an increase in tax, induced by the existing, restricted tax loss carry forward rules. The median change in CIT amounts to -1 % and -2 %. Terms of use: Documents in EconStor may

Provisions for Future Liabilities and Effective Corporate Income Tax Rate

“…The above described results extend those obtained in Leszczyłowska [2015]. Analyzing the distribution of the changes in corporate income tax, she observed that the reduction in the multi-period tax due induced by the deductibility of provisions ranges from 1% for the median company in the group of firms with positive cash flow to 2% for the median company in the group of firms with negative cash flow.…”

“…Additionally, they simulated the consequences in case the common tax base is optional as well as the effects of that concept on compliance costs. Leszczyłowska [2015] concentrated on the tax advantage caused by the accelerated deduction of provisions under the CCTB proposal from the perspective of Polish taxpayers. She examined empirically the scale and the distributional effects of these tax advantages.…”