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Asset Restructuring Of Tax Policy

Posted on:2004-09-27Degree:DoctorType:Dissertation
Country:ChinaCandidate:W P LiFull Text:PDF
GTID:1116360122475807Subject:Public Finance
Abstract/Summary:PDF Full Text Request
In the 21th Century, asset reorganization has become a way of direct investment and almost as important as "Green Field" investment. During the last twenty years, both economists and financiers worked hard on it.In the tax world, asset reorganizations which aim at tax benefit is deemed to be "a zero game" with Ministry of Finance. Financial experts have viewed the tax policy of asset reorganizations from different angel. They focused on one issue, namely the influence of the system of personal-corporate taxation on the incentive to asset reorganizations. The experts who agree with tax incentive to reorganizations believe, asset reorganizations are beneficial in their role as restructures of the industry, a tax subsidy to reorganizations may be socially optimal. Implicit in this reasoning would then be that the private market system fails to produce the optimal amount of reorganizations, Especially in the country which has a lot of small and middle-sized enterprises. As Auerbach and Reishus said that asset reorganizations could improve the efficiency by eliminating tax loss. Meanwhile, "The free-cash flow theory", "the trapped equity model", "the tax hypothesis" and "the client theory" have been developed. The experts who disagree with tax incentive to reorganizations believe, the observed bid-premier can be explained by tax savings, which are transferred from taxpayers to shareholders. "Tax-synergy" may affect the financial decisions of the firms so that investments are undertaken, which would not have been made without taxation. If asset reorganizations of other companies are favored, for example, the tax system is not neutral in this respect. One may call this the absence of "reorganization-neutrality" in the tax system. This non-neutrality can create divergences between private and social returns, and thus efficiency losses. Reorganizations done for tax reasons may produce efficiency losses if they, for example, result in an industrial structure which does not direct capital to uses with the lightest, pre tax, returns. And some experts even believe, the trend in the development of the iax system was, for quite some time, towards keeping high statutory tax rates, but simultaneously provide generous tax incentives that reducedthe tax base. The basic asymmetry of tax system may favor large concerns, which may be in a better position to take advantage of the provisions in the tax code in certain states of nature. The result may be lower expected average and marginal tax rates, and a lower cost of Capital, compared to newer and smaller companies. Large company, due to their expansive organizational structure, may be relatively slow to adapt to changing supply-demand situations compared to smaller and more flexible company. If this is true, the rate of Structural change and the rate of growth of the macro economy may be hampered. During the later parts of the eighties, several countries undertook ambitious tax reforms. A common trait of these tax reforms was a movement away from the high statutory tax rates-low tax base mold, toward lower rates and wider bases. This may be seen as a step toward reducing the inherent reorganization-bias in the former tax system. Besides the former experts we have discussed, there are neutral-viewpoint experts like Summers and Shleifer. They think that only if reorganization-bias in tax system results in the lots of uses of real resources and severe distortion of economy, it is undesirable in the society.In this paper, I accept the neutral-viewpoint. Based on the large ratio of small corporate in our.economy situation, I suggest that tax incentive to reorganizations should be provided as it doesn't result in severe economy distortion. Furthermore, I focus on the substantive effects of tax incentive policy, and make sure that it really improves the reorganization motive of corporate owners and managers. The concept of "substance over forms" is emphasized to prevent the misuse of tax incentive to reorganizations.The paper is divided into seven parts.The first ch...
Keywords/Search Tags:Asset Reorganizations, Capital Income Tax, Taxable Reorganizations, Tax-free Reorganizations, International Reorganizations
PDF Full Text Request
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