Andreas Oestreicher

Tax Harmonisation in Europe: The Determination of Corporate Taxable Income in the EU Member States

The aim of this paper is twofold. First, we want to examine whether and if so, to what extent, the concept of International Financial Reporting Standards (IFRS) meets the requirements of a Common Consolidated Corporate Tax Base (CCCTB) for the EU-wide activities of multinationals as proposed by the European Commission. Second, we estimate the consequences on the effective levels of company tax burdens in selected EU member states if IFRS are considered as a tool for defining the tax base. Our analysis reveals that IFRS could provide elements of a common and harmonised European tax base in certain areas. In particular, tax accounting still has to follow the realisation principle. Therefore, IFRS ?fair value-accounting? cannot be adopted for tax purposes. A transition to tax accounting on the basis of IFRS has only minor effects on the effective tax burdens of companies.

Common Corporate Tax Base (CCTB) and Effective Tax Burdens in the EU Member States

The article assesses the impact of a Common Corporate Tax Base (CCTB) as promoted by the European Commission and the related Working Groups on the effective tax burdens of companies in all 27 EU member states. The results shall help to evaluate the economic consequences of introducing a harmonized set of tax accounting rules for EU-based companies. The proposals for a CCTB covered here include depreciation on intangibles, machinery, buildings, furniture and fixture, simplified valuation of inventories, determination of production costs for stocks, treatment of costs for R&D as part of production costs, provisions for future pension payments, provisions for legal obligations, avoidance of double taxation regarding dividend income, and loss relief. The proposed options for a CCTB are applied for average EU-27 corporations of different size as well as for model companies belonging to different economic sectors.

The Revenue Consequences of Using a Common Consolidated Corporate Tax Base to Determine Taxable Income in the EU Member States

This paper provides an assessment of the revenue consequences that would result from implementation of a common consolidated corporate tax base (CCCTB). We find that the total tax revenue of the EU member states is reduced by 4.56% under a compulsory CCCTB and by 4.65% under an optional CCCTB. The revenue effect for the individual member states is particularly dependent on the nominal tax rate. According to our findings, the Czech Republic, Italy, Latvia, Poland, and Slovakia would profit from a compulsory CCCTB, whereas Ireland and the Netherlands would stand to suffer the greatest losses.

Corporate Average Tax Rates Under the CCCTB and Possible Methods for International Loss-Offset

This paper provides an assessment of the potential consequences for average corporate tax rates that would result from implementation of a Common Consolidated Corporate Tax Base (CCCTB) as proposed by the European Commission, and of possible methods for achieving an EU-wide loss-offset for multinational groups. To this end, we apply a comparative-static micro-simulation approach based on ten-year data for a sample of 119,645 European domestic and multinational groups taken from the AMADEUS database. We find that through making CCCTB mandatory in the EU, the extension of intra-group loss-offset possibilities and use of formula apportionment would enhance the attractiveness of the EU as an investment location. The mean of the average tax rates in the member states would be reduced by 0.77 per cent for domestic groups and by 2.15 per cent for multinational groups. Furthermore, the paper reveals that a mandatory CCCTB would reduce the variation in average tax rates across the member states as well as the existing differences among domestic and multinational groups. An optional CCCTB, however, would increase the inter-jurisdictional variations between average tax rates and favours multinational groups, thus creating incentives for cross-border investment. The methods for cross-border group relief considered here would constitute less efficient mechanisms for achieving loss-offset than a CCCTB. Our findings show that these alternative loss-offset mechanisms would not guarantee relief to the same extent and are less effective in terms of inter-jurisdictional and intersectoral neutrality. However, in contrast to optional CCCTB each of the three methods would ensure equitable treatment of domestic and multinational groups.

Taxation and Corporate Group Structure - Evidence from a Sample of European Multinationals

We empirically analyze the influence of tax considerations on the structure of investments of a parent company based in one EU member state that holds subsidiaries in a different member state. We show that group taxation, deductibility of financing expenses, or participation write-downs and additional taxes on intragroup dividends may factor into the parent company’s decision on the structure of investments as tax parameters. We find empirical evidence that a vertical structure with a pure holding interposed is implemented more often if a domestic parent entity is required for the formation of a tax group, the semi-elasticities being 0.568 and −0.343.

Die Einstufung des Fehlerrisikos im handelsrechtlichen Jahresabschluß anhand von Regressionen aus empirisch bedeutsamen Erfolgsfaktoren

SummaryIn order to assess accounting and financial statement according to the audit risk approach type and extent of performed audit procedures have to be reduced depending on the risk that accounting and financial statement are misstated. To determine the risk of material misstatement in a highly impartial manner this paper presents an approach that allows calculating the risk of misstatement using regression equations on significant risk items. This approach is based on identifying descriptive risk features and establishing regression equations out of data from 48 enterprises and three years. While descriptive risk features are extracted from the competition model and the findings of success factor research, the transformation of the misstatement risk into operational figures was performed by assessing documented recognitions. The regression analysis showed that the risk of misstatement can be assessed truly with the identified risk items to a high probability. Furthermore the components of the regression function give hints on particular structures and strategies which are of major importance for the risk of misstatement and the determination of main audit areas.

The CCCTB Option – An Experimental Study

The objective of this paper is to look into the probability that, given the choice, corporate groups would opt for taxation on a consolidated basis. Consolidation would allow them to offset losses crossborder but remove the opportunity to exploit international tax-rate differentials between entities via transfer pricing. We present a laboratory experiment in which we investigate to what extent a corporation would be inclined to take up the consolidation option and how this would impact on the corporation s location of investment and its transfer pricing activities involving locations outside the consolidated group. We use a 2-by-2 treatment design with two levels of tax-rate differential between two investment locations, and two different remuneration functions allowing the participants to act as owners or managers of a company.

Future Value of the Tax Base and Effective Company Tax Burden

The analysis in this section comprises three steps. First, the options for a Common Corporate Tax Base (CCTB) examined in the study are described. Second, the corporate tax bases and the effective tax burdens under current national tax provisions in each member state are measured. Third, the impacts on the size of the tax bases and on the effective tax burdens resulting from the application of a CCTB are measured and analysed. In this context, the question as to what extent an exclusive harmonisation of the tax base will effectively reduce the current EUwide differences in effective company tax burdens is also examined. The study therefore also provides evidence of the extend to which CCTB would increase or decrease the EU-wide spread between the national tax bases and the effective tax burdens. Steps two and three are performed at first for a benchmark case of a large company representing an average EU-27 corporation. A second benchmark case represents an average EU-27 SME.

Comments on Julie Roin: “Transfer Pricing in the Courts: A Cross-Country Comparison”

Based on a brief summary of the research question, on the methodological approach, and on the results of the paper under discussion the following comments on Julie Roin’s paper focus on two major concerns involving both methodological aspects and the expected subject of transactional profit methods. A first reservation concerns the low number of court cases which may hardly provide a reliable basis for general statements both in terms of numbers and the selected sample. This reservation results from a review of the court cases subjected to analysis and a classification of these cases by type of transaction. The second reservation concerns the expected characteristics of (one-sided) profit methods in relation to the (two-sided) profit split method. It emerges that these methods differ in more aspects than they have in common. The use of one-sided profit methods does not necessarily take place in the context of a profit split methodology and should also not be confused with replacing the arm’s length prices with a version of formulary taxation. Doubt may arise, however, whether a simple allocation of profits using one or more allocation keys is in line with the behavior of third parties dealing at arm’s length.