Investigating the Nexus between Financial Indicators and Corporate Income Tax in Europe

Corporate taxation, reflected by the effective corporate tax rate, represents one of the main tools for assessing the efficiency of the tax system, being the real expression of tax burden borne by the companies. The study investigates the factors influencing the effective tax rate. The database consists of 396 non-financial companies from Europe, from the energy sector, over a 10-year period, respectively 2014-2023. The originality of the research is represented by the sample analyzed, as there are few previous studies which analyzed the determinants of the effective tax rate of the energy companies. The energy sector is a field deeply affected by economic, health and political crises, but also by the armed conflict in Ukraine. There are estimated multiple regression models, using panel data, with fixed effects and random effects. The dependent variable is represented by the effective corporate tax rate, while the independent variables include profitability indicators (return on equity), asset structure indicators (capital intensity, inventory intensity), liquidity indicators (current ratio, quick ratio), indebtedness indicators (total indebtedness ratio), as well as other financial indicators (research & development intensity, market capitalization). The research shows that the main factors that have a negative impact on the dependent variable are return on equity, capital intensity, research and development intensity, and liquidity ratios. Moreover, market capitalization and total indebtedness positively impact the effective tax rate of the energy sector companies. The results confirm the main research hypotheses formulated based on the findings from previous studies in the field.