A decomposition algorithm for computing income taxes with pass-through entities and its application to the Chilean case
Barrera
J
author
Moreno
E
author
Varas
S
author
2020
English
Income tax systems with "pass-through" entities transfer a firm's income to shareholders, which are taxed individually. In 2014, a Chilean tax reform introduced this type of entity and changed to an accrual basis that distributes incomes (but not losses) to shareholders. A crucial step for the Chilean taxation authority is to compute the final income of each individual given the complex network of corporations and companies, usually including cycles between them. In this paper, we show the mathematical conceptualization and the solution to the problem, proving that there is only one way to distribute income to taxpayers. Using the theory of absorbing Markov chains, we define a mathematical model for computing the taxable income of each taxpayer, and we propose a decomposition algorithm for this problem. This approach allows us to compute the solution accurately and to efficiently use computational resources. Finally, we present some characteristics of Chilean taxpayers' network and the computational results of the algorithm using this network.
Income taxes
Markov processes
Networks
Algorithms
WOS:000511564300023
exported from refbase (http://ficpubs.uai.cl/show.php?record=1102), last updated on Thu, 27 Feb 2020 14:25:24 +0000
text
10.1007/s10479-017-2707-9
Barrera_etal2020
Annals Of Operations Research
Ann. Oper. Res.
2020
Springer
continuing
periodical
academic journal
286
1-2
545
557
0254-5330