Table Of Content

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 Science and Economics. The series is comprised of self-contained books with a broadandcomprehensivecoveragethataresuitableforclassaswellasforindividual self-study. All texts are authored by established experts in their fields and offer a 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 #TheEditor(s)(ifapplicable)andTheAuthor(s),underexclusivelicensetoSpringerNatureSwitzerland AG2023 Thisworkissubjecttocopyright.AllrightsaresolelyandexclusivelylicensedbythePublisher,whether thewholeorpartofthematerialisconcerned,specificallytherightsoftranslation,reprinting,reuseof illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similarordissimilarmethodologynowknownorhereafterdeveloped. Theuseofgeneraldescriptivenames,registerednames,trademarks,servicemarks,etc.inthispublication doesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevant protectivelawsandregulationsandthereforefreeforgeneraluse. The publisher, the authors, and the editorsare safeto assume that the adviceand informationin this bookarebelievedtobetrueandaccurateatthedateofpublication.Neitherthepublishernortheauthorsor theeditorsgiveawarranty,expressedorimplied,withrespecttothematerialcontainedhereinorforany errorsoromissionsthatmayhavebeenmade.Thepublisherremainsneutralwithregardtojurisdictional claimsinpublishedmapsandinstitutionalaffiliations. ThisSpringerimprintispublishedbytheregisteredcompanySpringerNatureSwitzerlandAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland 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