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

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