Taxation in Finance and Accounting: An Introduction to Theory and Practice

308 Pages·2023·7.6 MB·English

by  Joaquim Miranda Sarmento

Springer Texts in Business and Economics
Joaquim Miranda Sarmento
Taxation in
Finance and
Accounting
An Introduction to Theory and Practice
Springer Texts in Business and Economics
Springer Texts in Business and Economics (STBE) delivers high-quality instruc-
tionalcontentforundergraduatesandgraduatesinallareasofBusiness/Management
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solidmethodologicalbackground,oftenaccompaniedbyproblemsandexercises.
Joaquim Miranda Sarmento
Taxation in Finance
and Accounting
An Introduction to Theory and Practice
JoaquimMirandaSarmento
Advance/CSG,ISEGLisbonSchool
ofEconomicsandManagement
UniversidadedeLisboa
Lisbon,Portugal
ISSN2192-4333 ISSN2192-4341 (electronic)
SpringerTextsinBusinessandEconomics
ISBN978-3-031-22096-8 ISBN978-3-031-22097-5 (eBook)
https://doi.org/10.1007/978-3-031-22097-5
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To my daughters Madalena and Catarina, my
Wife Alexandra and the memory of my
parents.
Toallmystudentswhohelpmetoimprovemy
classes and write this book
Acknowledgements
Joaquim Miranda Sarmento gratefully acknowledges financial support from
FCT-Fundação para a Ciencia e Tecnologia (Portugal), national funding through
researchgrantUIDB/04521/2020.
vii
About the Book
Taxation is becoming more and more relevant for firms’ and managers’ decisions,
mainly due to the impacts of Taxation on firms’ and projects’ performance, profit-
ability, and value. This book providesan introductory overview of Taxation inthe
fieldsofFinanceandAccounting.ItcoversseveralfundamentaltopicsofTaxation,
such as income, corporate and value-added Tax, tax planning and management,
internationaltaxation,EUtaxharmonization,andtransferprices.Thisbookintends
to provide the reader with an understanding of these topics’ main concepts and
principles, regardless of specific country contexts in law. With this book, readers
shouldunderstandthefundamentalsofTaxationataconceptualandpracticallevel.
Using theory and practical examples, cases and exercises, readers will understand
Taxationatabroaderlevelwithoutbeingconcernedaboutcountry-specificissues.
ix
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 TaxationPrinciplesandConcepts. . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 TheDefinitionofTaxationandTaxes. . . . . . . . . . . . . . . . . . . . 9
2.2 CharacteristicsofaTaxSystem. . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 SourcesofTaxLaw. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 ClassificationsofTaxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.5 TaxableEvent.. . . . . .. . . . . .. . . . .. . . . . .. . . . . .. . . . . .. 18
2.6 ApplyingTaxesonTime. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.7 ApplyingTaxesinJurisdiction. . . . . . . . . . . . . . . . . . . . . . . . . 20
2.8 TaxEnforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.9 TaxIncidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10 TaxExemptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.11 Taxpayers/TaxPersons. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.12 TaxPeriodandTaxSeason. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.13 TaxBaseandTaxAmount. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.14 TaxRates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.15 TaxExpenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.16 TaxAvoidanceandTaxEvasion. . . . . . . . . . . . . . . . . . . . . . . 26
2.17 TaxGap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.18 TaxAdministration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.19 AdministrativeTaxProcedures. . . . . . . . . . . . . . . . . . . . . . . . 28
2.20 TaxCompetition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.21 TaxHarmonization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.22 EnvironmentalTaxes. .. . . . . .. . . . .. . . . . .. . . . . .. . . . .. . 33
2.23 TaxationandEthics. . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. 35
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3 TaxationinEconomics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.1 TaxationonDemandandSupply. . . . . . . . . . . . . . . . . . . . . . . 39
3.2 TaxationandLaborSupply. . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.3 TaxationandEfficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.4 MacroeconomicEffectsofTaxation. . . . . . . . . . . . . . . . . . . . . 50
xxii
xii Contents
3.5 FiscalPolicy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.6 RevenuesandExpenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.7 DeficitandDebt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
3.8 Taxationand(In)Equality. . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.9 TaxationandExternalities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
3.10 TaxEffort. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
3.11 TaxExpenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4 TaxationinAccounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.1 MainDefinitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.2 TaxesintheBalanceSheetandtheP&L. . . . . . . . . . . . . . . . . 76
4.3 AccountingforCorporateTax. . . . . . . . . . . . . . . . . . . . . . . . . 79
4.4 AccountingforVAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
4.5 DeferredTaxAssets/Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 81
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5 TaxationinFinance. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. . . .. 87
5.1 MainDefinitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
5.2 DecisionsonTaxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5.3 TaxesandCosts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
5.4 TaxesandtheInvestmentDecision. . . . . . . . . . . . . . . . . . . . . 92
5.5 TaxesandtheFinancingDecision. . . . . . . . . . . . . . . . . . . . . . 93
5.6 TaxesandtheDividendDecision. . . . . . . . . . . . . . . . . . . . . . . 106
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
6 IncomeTax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
6.1 IncomeTaxDefinitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
6.2 MainPrinciples. . . .. . . . . . .. . . . . . . .. . . . . . . .. . . . . . . .. 113
6.3 IncomeTaxStructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
6.4 TypesofIncomeTaxRates. . . . . . . . . . . . . . . . . . . . . . . . . . . 118
6.5 ExercisesandSolutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
7 CorporateTax.. . . .. . . .. . . .. . . .. . . .. . . .. . .. . . .. . . .. . . .. 127
7.1 CorporateTaxDefinitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
7.2 MainPrinciples. . . .. . . . . . .. . . . . . . .. . . . . . . .. . . . . . . .. 127
7.3 CorporateTaxConcepts—HowtheTaxWorks?. . . . . . . . . . . . 131
7.4 IncomeandCosts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
7.5 DepreciationandAmortizations. . . . . . . . . . . . . . . . . . . . . . . . 136
7.6 Grants(Subsidies). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
7.8 TaxLossesCarryforward. . . . . .. . . . . . .. . . . . . . .. . . . . . .. 151
7.9 LoanInterestDeductionandLimits. . . . . . . . . . . . . . . . . . . . . 154
7.10 CorporateTaxRates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
7.11 CorporateTaxDeclarationsandPayments....... ........ . 156