Effective tax rate

The effective tax rate for legal entities is defined as the quotient of the actual tax burden and the company's earnings before taxes . For natural persons , the effective tax rate can be defined as the ratio of the tax amount in income tax to gross income .

Instead of the nominal tax burden determined by the tax tariff, which results from the legal framework, the economic tax burden of alternative courses of action should be determined as a tax-related reduction of economic targets in the form of a percentage . Tariff , tax base and time effects of the tax alternatives are reduced to one number.

Calculation models

There are different calculation models for determining effective tax rates. The term “forward-looking concepts” summarizes the effective tax rate concepts that reflect the tax burdens of future investment objects. They are assigned two tasks in the literature: on the one hand, they should be used to support investment or location decisions and, on the other hand, they should disclose tax preferences or disadvantages for real investments.

The group of forward-looking concepts includes the analytical effective tax rate models from King / Fullerton and Devereux / Griffith, which are based on neoclassical investment theory , as well as the effective tax rates derived from a financial plan-oriented company model such as the European Tax Analyzer .

Differences in the models

There are differences between the model approaches in the choice of the economic target and in the scope of the tax base components included. In the King / Fullerton model as well as in the ETA, the return on the investment property is used as the economic target value . While the return in the King / Fullerton model is derived from arbitrage-free goods and capital markets, in the case of the ETA it is determined from the final values ​​of the underlying financial plans and can thus be seen as a business contribution to the effective tax discussion.

The King / Fullerton model allows only a limited number of input parameters to determine the effective tax rates , such as the pre-tax return as well as the economic and tax depreciation rate of the imputed asset. The after-tax return is determined analytically from these input parameters using an optimization approach or an arbitrage equilibrium. The compactness of the model is bought at the cost of a large number of limiting assumptions. The analysis is limited to marginal investments with an infinite term and an exponentially decreasing payment flow curve . In addition, the modeling of tax bases is limited to elements that do not require the anticipation of uncertain expectations, i.e. essentially to depreciation .

EATR ( effective average tax rate ) is an indicator for measuring the tax burden of companies in an international context. The EATR is the weighted mean of the nominal tax rate and the effective tax rate. The latter indicates the tax burden on an investment . This in turn corresponds to the capital market interest rate after taxes .

${\displaystyle EATR={\frac {r-r_{s}}{r}}}$

with = pre- tax return, = post-tax return ${\displaystyle r}$ ${\displaystyle r_{s}}$

Literature and Sources

• Otto H. Jacobs , Christoph Spengel: Effective Tax Burden in Europe, Center for European Economic Research , Mannheim 2002, ISBN 3-790-81470-9
• Christoph Spengel: International corporate taxation in the European Union. Tax impact analysis, empirical findings, reform considerations, IDW 2003, ISBN 3-802-11023-4
• Lothar Lammersen: Comparisons of tax burdens: fields of application and limits in tax planning and tax effects theory, Wiesbaden 2005, ISBN 3-835-00096-9

Individual evidence

1. ↑ Wolfgang Frimmel: "The effective tax burden of companies", section 2, page 25  ( page no longer available , search in web archives )  Info: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. (PDF; 608 kB)  
2. ↑ DIW: "Effective income tax burden: splitting procedure in Germany favors married couples compared to Great Britain" in DIW weekly report no. 17.2012, page 8, box 2 (PDF; 267 kB)