For correspondence:-
Received: December 13, 2020 Accepted: March 4, 2021 Published: March 31, 2021
Citation: Thin Capitalisation, Effective Tax Rate and Performance of Multinational Companies in Nigeria. Account Tax Rev 2006; 5(1):45-59 doi:
© 2006 The authors.
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Abstract
How a company is capitalised determines the size of the earnings it reports for tax purposes. Multinational Companies (MNCs) usually can structure their financing arrangements to take advantage of tax laws to enjoy tax benefits. However, some MNCs are folding up their operations while others are relocating to other countries. To this end, this study investigated the thin capitalisation and performance of MNCs in Nigeria. The study adopted the ex post facto research design and obtained relevant data from financial statements of sampled MNCs for the period 2014 to 2018. The study deployed descriptive, correlation and regression analyses as data analytical techniques. The findings indicated that thin capitalisation, interest expenses rate, effective tax rate, and capital intensity have a positive but insignificant association with MNCs financial performance. The study further revealed that managerial efficiency has a negative but insignificant association with financial performance. The study concludes that thin capitalisation practices enhance the financial performance of multinational companies in Nigeria and recommends that tax authorities initiate tax reforms aimed at reducing the statutory corporate tax rate.
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