Taxation regulation of the BriCs' innovative Companies

• Author: E. Makeeva - I. Mikhaleva
• Position: National Research University Higher School of Economics (Moscow, Russia)
• Pages: 41-62

BRICS LAW JOURNAL Volume VI (2019) Issue 1

TAXATION REGULATION

OF THE BRICS’ INNOVATIVE COMPANIES

ELENA MAKEEVA,

National Research University Higher School of Economics (Moscow, Russia)

IRINA MIKHALEVA,

National Research University Higher School of Economics (Moscow, Russia)

DOI: 10.21684/2412-2343-2018-6-1-41-62

The question as to whether tax rate inuences capital structure remains unresolved,

though the amount of research conducted on the issue grows every year. This question

is particularly important for innovative companies for two reasons. First, R&D spending

and the level of innovativeness among rms are crucial indicators of a country’s overall

economic performance. The second reason is that tax incentive programs today are applied

by governments with increasing frequency. There is a strong lack of tax rate inuence on the

capital structure of innovative companies and tax incentive programs impact on the debt-

to-equity ratio particularly. This research is intended to help ll this gap. The question as to

the inuence of tax rate as well as inuence of R&D taxation programs on capital structure

will be studied via the econometrics approach – that is, through panel regressions. The time

frame to be considered is from 2012 until 2015. Four hypotheses connected with taxation

inuence on capital structure in BRIC countries were investigated. These hypotheses dier

according to which indicator of the structure of capital is taken as the basis of the analysis.

This investigation may be useful for governments or other analysts to estimate ETR inuence

on capital structure choice and assist in making a decision between increasing the tax rate

(and thereby collect more taxes) versus stimulating companies to take on less debt and less

risks. The results highlighted in this paper show an absence of signicant impact vis-à-vis

the tax rate on the capital structure and also indicate an absence of a signicant impact

of tax incentive programs on capital structure.

Keywords: R&D; innovative companies; R&D taxation programs; effective tax rate;

taxation policy.

BRICS LAW JOURNAL Volume VI (2019) Issue 1 42

Recommended citation: Elena Makeeva & I rina Mikhaleva, Taxation Regulation of

the BRICS’ Innovative Companies, 6(1) BRICS Law Journal 41–62 (2019).

Table of Contents

Introduction

1. Literature Review

1.1. The Inuence of Tax Incentive Programs on Innovation

1.1.1. Causality Between Tax Incentive Programs and Performance

1.1.2. On R&D Tax Incentive Programs

2. Methods

2.1. Introduction to the Research Method

3. Data

3.1. Data Sources for BRIC Countries

3.2. Data Sources for Data Set on Tax Stimulating Programs

4. Hypotheses and Model Specication

4.1. On the BRIC Countries Data Set

4.2. On the BRIC Countries Model Specication

5. Results

5.1. Results Anticipated

5.2. Results Obtained from the BRIC Countries Data Sample

Conclusion

Introduction

Information and intangible assets such as knowledge seem to play a central

role in economic success in the 21st century, both on micro and macro levels of

investigation. Innovative knowledge is what matters today, and what distinguishes

winners from losers. From a macroeconomic perspective, it can mean that a country

which successfully implements innovative knowledge in dierent economic and

social spheres has a good chance to outpace competitors in terms of economic

progress in a relatively short period of time. On the microeconomic level, it means

that a rm which has high R&D spending is incentivized to lead innovative progress

and develop existing production either qualitatively or quantitatively, and in a few

years may well have a competitive advantage over its rivals.

Recent studies on capital structure contradict each other when it comes to

naming the factors inuencing rms’ choice of nancing operations. One of the main

issues here is whether corporate tax rate aects capital structure choice and, if and

where it does so, to what specic extent it has such an eect. This issue is particularly

important in studies of innovative companies for the following reasons: since R&D