There is a large body of literature indicating that the financial decisions of firms are systematically affected by company taxation (see Graham, 2003, for a comprehensive survey). Most importantly, interest on debt is deductible from the tax base, while the return on equity is not and, therefore, firms have an incentive to raise leverage above the optimal level without taxation.
The tax-induced advantage of debt increases with the statutory corporate tax rate, and it exists irrespective of whether a firm is owned by a domestic or a foreign shareholder. A multinational firm, however, is able to minimize its tax payments by allocating debt over all locations where it operates. The tax savings due to debt shifting depends on the differential between the parent and the host country statutory corporate tax rates. Accordingly, multinationals can reduce their tax payments by shifting debt from a low-tax jurisdiction to a high-tax jurisdiction taking advantage of the high-interest deduction in the high-tax jurisdiction (see, e.g., Mintz and Smart, 2004, for a theoretical analysis).
In the past decade, the financial sector has undergone large transformations in most countries around the world. Perhaps the most important factor behind these changes was the enactment of financial liberalization policies. These policies, including market deregulation, privatization of financial intermediaries, strengthening financial sector supervision and regulation, and reduction of barriers to international capital flows, were aimed at increasing the scope for market forces to operate in credit markets, thereby reducing the cost of credit or increase its availability.
In 2006, the Office of Management and Budget (OMB) requested that all Federal agencies break down agency business lines or “segments” using an enterprise architecture approach called Segment Architecture. Segment architecture is a businessdriven, resultsoriented architecture that is performed for an identified “segment” or portion of an enterprise. Segment architecture defines clear relationships between business goals, business capabilities, and performance improvement to ensure that IT investment is driven to support the mission and deliver business value. It is a bridge between enterpriselevel plans and specific project planning or architecture. Such analysis is conducted by the Office of the Chief Information Officer (OCIO) by collaborating with the program offices to enhance the effectiveness of business and IT modernization and transformation initiatives.
Business Gateway (BG) was selected as the Small Business Administration’s (SBA’s) second segment to undergo such an analysis. Business Gateway is the federal EGovernment initiative that provides a onestop resource for compliance information, forms, and government contacts to help the nation’s businesses comply with federal, state, and local laws and regulations. Currently, SBA is the managing partner for this initiative, and Business Gateway has the potential in the future to “graduate” out of its current EGov status to become a fully SBAowned program. The objectives of the segment architecture are to identify capabilities required to support continued growth, to promote performance by identifying improvement opportunities, to produce an actionable roadmap to realize these opportunities, and to help Business Gateway prepare for eventual integration into the SBA.
