Christoph Spengel

Profit Shifting and 'Aggressive' Tax Planning by Multinational Firms: Issues and Options for Reform

This paper discusses the issue of profit shifting and ‘aggressive’ tax planning by multinational firms. The paper makes two contributions. Firstly, we provide some background information to the debate by giving a brief overview over existing empirical studies on profit shifting and by describing arrangements for IP-based profit shifting which are used by the companies currently accused of avoiding taxes. We then show that preventing this type of tax avoidance is, in principle, straightforward. Secondly, we argue that, in the short term, policy makers should focus on extending withholding taxes in an internationally coordinated way. Other measures which are currently being discussed, in particular unilateral measures like limitations on interest and license deduction, fundamental reforms of the international tax system and country-by-country reporting, are either economically harmful or need to be elaborated much further before their introduction can be considered.

Reform der Einkommens- und Unternehmensbesteuerung durch die Duale Einkommensteuer

Derzeit werden zwei Konzepte für die im Jahr 2008 geplante Reform der Unternehmensbesteuerung diskutiert: zum einen die Duale Einkommensteuer des Sachverständigenrates in Zusammenarbeit mit dem Max-Planck-Institut für Geistiges Eigentum, Wettbewerbs- und Steuerrecht sowie dem Zentrum für Europäische Wirtschaftsforschung und zum anderen die Einheitliche Unternehmensteuer, die von der Kommission „Steuergesetzbuch“ der Stiftung Marktwirtschaft ausgearbeitet wurde. Was beinhalten die beiden Konzepte?

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.

Impact of tax rate cut cum base broadening reforms on heterogeneous firms: Learning from the German tax reform 2008

The German corporate tax reform of 2008 has brought about important cuts in corporate tax rates, which were at the same time accompanied by significant changes in the determination of the tax base for both major German corporate taxes - corporate income tax and trade tax. The reform followed the distinct and internationally prevalent pattern of tax rate cut cum base broadening. Its implications are thus not unique to Germany. Especially in view of the current economic crisis, questions on the distribution of the tax burden among firms of different characteristics have arisen and still remain at the heart of the academic and political debate in Germany and other countries. In this paper we present a new corporate microsimulation model, ZEW TaxCoMM, which allows for the coherent micro-based analysis of revenue implications of tax reforms and the distribution of tax consequences among heterogeneous firms. The model processes firm-level financial accounting input data and derives the firm specific tax base and tax due endogenously in accordance with the tax code. To smooth out distortions between the sample and the population of German corporations, the sample is extrapolated on the basis of the corporate income tax statistic. The simulation results show inter alia that the average annual relief as measured by the average decline in the effective tax burden on cash flow amounts to 2.8 percentage points for large corporations and to 6 percentage points for small corporations. Furthermore, the results illustrate that firms with low profitability, high debt ratio and high capital intensity benefit least from the reform. As to tax revenues, the reform induced decrease amounts to € 9.8 billion and the trade tax gains fiscally in importance.

Taxation, R&D Tax Incentives and Patent Application in Europe

The focus of this paper is on effects from tax incentives for research and development inputs (R&D) and corporate income tax on business R&D and patenting behaviour. First, we provide a theoretical discussion of tax planning with R&D and intellectual property (IP) ownership. Further, we employ firm-specific micro-data on patent applications of European corporations at the European Patent Office to test reactions on changes in R&D tax incentives and corporate tax burden. We find a positive impact of R&D tax incentives and a negative impact of the statutory corporate income tax rate on patenting. R&D incentives rather influence the tendency to invest in R&D, whereas the tax burden rather influences the scale of R&D investment and the count of patent applications.

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.

Concept and Necessity of a Common Tax Base — an academic introduction

The European Single Market aims to promote the convergence of economic performance (Article 2 EC Treaty), to protect economies against distortions of competition (Article 3 (1) EC Treaty) and to ensure an efficient allocation of resources (Article 98 EC Treaty). The Union’s own political objectives follow these guidelines. The strategic goal announced at the Lisbon summit in 2000 is to “become the most competitive and dynamic knowledge-based economy in the world by 2010.”1 In the meantime, the Union reaffirmed its commitment to this objective several times.2

Konzernsteuerquote und Investitionsverhalten

ZusammenfassungKapitalmarktorientierte Unternehmen in Deutschland orientieren sich in zunehmendem Maße an der Konzernsteuerquote. Diese unterscheidet sich in wesentlichen Aspekten von den in der Forschung gängigen Maßen der effektiven Besteuerung, die auf dem neoklassischen Investitionsmodell basieren. Dies wirft die Frage auf, ob und wie sich das Investitionsverhalten ändert, wenn die maßgebliche Größe die Konzernsteuerquote ist. Es lässt sich analytisch zeigen, dass wichtige unternehmerische Entscheidungen bei Berücksichtigung der Konzernsteuerquote anders ausfallen als im neoklassischen Investitionsmodell. Wir vergleichen die Entwicklung der Konzernsteuerquote im Zeitablauf mit anderen Maßen der effektiven Besteuerung für mehrere OECD-Länder.SummaryDue to the increasing importance of the stock market for firms throughout the world, the IAS Effective Tax Rate (ETR) becomes a more and more decisive indicator for the evaluation of management performance. Compared with an effective tax rate based on the standard neoclassical model, the ETR is different in some substantial aspects. The question arises whether and how corporate investment behaviour changes, if the ETR is the decisive indicator for the management. In this paper we show that some important firm decisions are altered depending on whether the ETR or the neoclassical model is considered. We provide some empirical hints that the ETR might be crucial for firm behaviour and that governments set tax parameters as if this were the case. However, it remains an open question why the ETR (and not some other indicator) has gained so much importance.

The Effective Average Tax Burden in the European Union and the USA: A Computer-based Calculation and Comparison with the Model of the European Tax Analyzer

In this paper we present a computer-based model (so-called European Tax Analyzer) for the international computation and comparison of company tax burdens. The methodology follows the forward-looking concepts for the measurement of effective average tax rates (EATR) on the basis of a model-firm. The EATR is computed for investments generating economic rents (i.e. pure profits above the market interest rate). In contrast to the prevailing approaches for calculating EATR based on separate and isolate investment projects the model-firm approach allows to calculate EATR for more complex and realistic conditions that are relevant for the decision making. Due to its flexibility another important advantage of the model-firm approach is the possibility to include the most relevant and complex provisions of the tax codes (i.e. tax systems, taxes, tax rates, and tax bases). A concrete computation and comparison of the EATR of corporations and their shareholders in five different countries reveals the wide spread between the national EATR. Moreover, for the time series 1995-2000 it could be shown that the differences between the EATR have declined a little. In spite of this convergence, however, tax distortions of competition did not become significantly less.

ZEW Corporate Taxation Microsimulation Model (ZEW TaxcoMM)

Current political discussions in Germany and other European countries illustrate the importance accorded to revenue and distribution effects of tax reforms. Whereas widely recognized concepts of effective tax measures can provide important insights into the incentives of taxation they do not allow robust revenue estimations or distribution analyses. Hence there is need to supplement existing quantitative tax models by approaches apt for these issues of policy analysis. Against this background, this paper puts forward a corporate microsimulation model allowing an ex-ante evaluation of tax reforms with regard to distributional consequences and revenue effects. Central feature of the model is the processing of financial statements included in the DAFNE data base of the Bureau van Dijk. The firm-level data is supplemented by survey data on tax accounting practices. The focus of the paper is on the documentation of the model set-up. Its application will be addressed in future publications.