Literature Review:

 Determinants of Effective Tax Rate (EU firms)

Objectives:
examining common factors of the income tax base,
which affects ETRs

check consistency of factors in EU countries and compare with US. factors (inventory, leverage, depreciation tax
shield, and R&D intensity)

country book-tax conformity rules vs ETRs

Design/methodology/approach – Regression
Variables:
CETR=Current income tax expense/Pretax income, calculated by
INV=Inventory/lagged assets
LEV=Long-term liabilities/lagged assets
SIZE=Natural log(total assets)
ROA=Pretax income/lagged assets
PPE=Net plant, property, and equipment/ lagged assets
RDint=Research and development expense/sales
STR=Statutory tax rate.

Findings – Similar to studies of U.S. CETRs (and controlling for time and industry
membership)we find that firm debt tax shield, depreciation, and R&D intensity all significantly
affect
ETRs for EU firms. Additionally, we find that country book-tax conformity rules tend to
increase effective rates. Most importantly, we find that such tax base rules are potentially
as important as statutory rates in terms of their effects on ETRs.
From an international tax policy perspective, our finding that rules affecting the tax base
have as important an effect as the statutory rate implies that any conclusions based on
We find that, across EU countries, such factors are relatively consistent with factors
found in studies of U.S. companies' effective tax rates, which include inventory, leverage,
depreciation tax
shield, and R&D intensity.We also find that the presence of country book-tax conformity rules
increases
effective rates. Importantly, our finding that such tax base (or rule) effects are at least as
important as rate
effects adds to the international debate about uneven tax structures around the globe.

Major findings
firm debt tax shield, depreciation, and R&D intensity all significantly affect ETRs for EU firms
that country book-tax conformity rules tend to increase effective rates
factors are relatively consistent with factors found in studies of U.S. companies' effective tax
rates, which include inventory, leverage, depreciation tax shield, and R&D intensity.

Research Paper:
Namryoung Leea, Charles Swensonb,”Are Multinational Corporate Tax Rules as Important
as Tax Rates” N. Lee, C. Swenson / The International Journal of Accounting 47 (2012) 155–167

Namryoung Leea, et al [2] studied, “Are Multinational Corporate Tax Rules as Important as
Tax Rates”. The paper explains the firm debt tax shield, depreciation, and R&D intensity all
significantly affect ETRs for EU firms also country book-tax conformity rules tend to increase
effective rates. The factors are relatively consistent with factors found in studies of U.S.
companies' effective tax rates, which include inventory, leverage, depreciation tax shield, and
R&D intensity.