Corporate Taxation in a Dynamic World by Paolo M. Panteghini

By Paolo M. Panteghini

This e-book analyzes the industrial rules of contemporary company taxation. With recognize to the prevailing items it represents a novelty in at the very least respects. to start with, it analyzes not just the consequences of taxation on agencies' marginal offerings, but in addition makes a speciality of the impression of taxation on discrete offerings, similar to plant position, R and D funding, and new advertising courses. the second one novelty is represented through the applying of choice pricing concepts to company taxation. to provide an idea of the significance of ideas it really is enough to assert that managers are conscious that new enterprise courses are a chance and never a duty. which means they behave as though they owned option-rights. because of the partial irreversibility in their offerings, they be aware of that the workout of such thoughts reduces their enterprise flexibility.

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Once we have studied the optimal exit strategy we can focus on the optimal entry decision. 7). 32) allows us to conclude that W A WW = The reasoning behind this inequality is straightforward: the ability to exit ensures additional business flexibility. Given partial reversibility, therefore, the cost of undertaking the business activity is lower. 33). Given inequality W A WW > 13 13  ()31 is we have W 1 ? WW 1 . Moreover the term  2 () K2W WW 2 negative. It is therefore easy to ascertain that E1W ?

One of the first applications of corporate income tax occurred in Prussia, where, from 1891, separate tax treatment of corporate income was justified given the fact that companies were juridical subjects distinct from shareholders. This motivation was subsequently taken up by many authors, including Griziotti (1928) and Studenski (1940). In particular, Studenski (1940, p. 623) noted that “modern business enterprise is, to a large extent, no longer the personal venture of an individual producer, inseparable from his per2 In chapter 6 we will discuss the Dual Income Tax system, which splits income into labor and capital income by means of a presumptive method.

A similar device, known as Fiscal Transparency, was introduced in Italy in 2004. Under Italy’s tax system, corporate income is directly imputed to shareholders in proportion to their percentage of ownership, provided that: 1 5 For further details see chapter 6. 4 Appendix 51 1. shareholders are all natural persons; 2. the volume of revenue does not exceed the threshold of  5,164,569; 3. the corporation has no more than 10 shareholders (20 for cooperative companies). In principle both the US and Italian case imply the equality  s =  f and therefore entail that the organizational choice is unaected by taxation.

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