Tax competition
Tax competition ( English tax competition ) is the competition between states or within a state between authorities , using the tax policy by configuration of the control system of the competitiveness of their own economic strength, or as a business location for taxpayers to be attractive.
General
International tax competition requires cross-border economic activities, i.e. foreign trade ( export , import ), foreign direct investment , interbank trade , multinational companies , arbitrage or speculation . Taxation is neither within a state nor internationally, there is a tax differential . This does not exist by chance, but is also the result of tax competition. Internationally, the terms high tax country , low tax country and tax haven have emerged for this . Favorable tax conditions in individual states lead to tax evasion and lower tax revenues in the high-tax countries .
Prerequisite for tax competition is the freedom of establishment for companies and the free movement of persons for individuals , their business or residence to be allowed to choose freely, because the seat is decisive for the State Taxation.
species
The OECD distinguishes between "harmful" ( English harmful ) and "harmless" ( english harmless ) tax competition. Among other things, she sees the free-rider problem as harmful when companies use the infrastructure of one state but relocate their tax base to another country or when tax havens and their users leave the financing of global public goods to the taxpayers of high-tax countries. “Poaching” in tax bases to which other countries are entitled or the implementation of investments that are made in a particular country, primarily for tax reasons, without a real location decision being made, are also considered harmful. Finally, the OECD identified three practices that are disadvantageous for high-tax countries, namely countries with generally low income taxation ( tax havens ), countries with a tax system that only benefits certain incomes ( harmful privileges ) and countries with a tax rate applicable to all below that of a high-tax country, the but is still essential for tax revenue.
Domestic tax competition arises from tax sovereignty , which in Germany lies not only with the federal government (for federal taxes ) but also with the states (for state taxes ) and municipalities (for municipal taxes ) . For example, municipalities levy different business taxes by applying different rates . The lower they are, the more likely new businesses will settle in a municipality.
statistics
Since 2000, there has been a significant decrease in the average tax rates for taxes on profits in the EU15 countries by 28% of the original level. The decrease in income taxes is offset by a moderate decrease in income tax rates of almost ten percent and an increase in sales tax rates of 11 percent. The significant decline in corporate income tax rates can be seen as an indication of the potentially high relevance of tax competition in the area of corporate taxation . Whereas in 1981 the EU average corporate income tax rate in the then EU10 was 47.1%, corporate profits in the EU28 had to be taxed at an average of 21.6% in 2018 (see profit ratio ). Germany also followed the trend and reduced the corporate income tax rate from 60% to around 30% today with two major tax reforms in 2000 and 2008. Over the entire period, however, Germany's corporate income tax rate was always above the EU average.
In 2017, countries worldwide reported the following corporate taxes:
| country | Corporate taxes 2017 in% |
|---|---|
| Switzerland | 8.5 |
| Bulgaria | 10.0 |
| Ireland / Cyprus | 12.5 |
| Latvia / Lithuania | 15.0 |
| Romania | 16.0 |
| Croatia | 18.0 |
|
Poland / Slovenia / Czech Republic / United Kingdom |
19.0 |
| Estonia / Finland | 20.0 |
| Switzerland | 20.65 |
| Slovakia | 21.0 |
| Denmark / Sweden | 22.0 |
| Portugal | 22.5 |
| Norway | 24.0 |
| Spain / Malta / Netherlands / Austria | 25.0 |
| Canada | 26.5 |
| Luxembourg | 27.08 |
| Greece | 29.0 |
| Germany | 29.83 |
| Belgium | 33.99 |
| Japan | 34.38 |
| France | 34.43 |
| United States | 39.25 |
The trend here is that small states such as Ireland, Malta or Cyprus have relatively low tax rates compared to larger states such as Germany, France or Spain.
If one examines the average of the corporate income tax rates between small states and territorial states over time, the following picture emerges:
| year | Small states profit taxes in% |
Territorial states profit taxes in% |
|---|---|---|
| 1998 | 32.6 | 40.0 |
| 1999 | 32.1 | 38.8 |
| 2000 | 30.3 | 38.4 |
| 2001 | 28.9 | 35.8 |
| 2002 | 27.2 | 35.6 |
| 2003 | 25.8 | 35.5 |
| 2004 | 24.3 | 35.1 |
| 2005 | 22.7 | 34.6 |
| 2006 | 22.6 | 34.2 |
| 2007 | 22.0 | 33.1 |
| 2008 | 22.1 | 29.9 |
| 2009 | 22.1 | 29.9 |
| 2010 | 21.4 | 29.9 |
| 2011 | 21.2 | 29.8 |
| 2012 | 21.1 | 29.4 |
| 2013 | 21.5 | 29.6 |
| 2014 | 21.2 | 29.2 |
| 2015 | 21.2 | 28.7 |
| 2016 | 21.1 | 27.7 |
| 2017 | 20.6 | 26.9 |
| 2018 | 20.7 | 26.9 |
The table shows a lower level of corporate income tax rates in the group of small states. The averages of corporate income tax rates developed relatively parallel. In 1998, the average corporate income tax rate in the small European states was 32.6%, which is 6.4 percentage points below the average corporate income tax rate in large territorial states, which was 40.0%. In 2018, the average corporate income tax rate for small locations was 20.7% and that of large states was 26.9%, which corresponds to a difference of 6.2 percentage points. This means that the small European locations with their corporate income tax rates are still well below the level of the large European countries.
economic aspects
States also align their national goal with the tax system with which they want to tax their taxpayers. The states know the influence of taxation on business location decisions . The lowering of tax rates and targeted state subsidies ( investment protection , investment aid ) open up the possibility for states to attract new companies in order to generate additional tax revenues and achieve economic growth . Tax competition can therefore be triggered by countries that lower their tax level or by countries that increase them.
In 1936, John Maynard Keynes , in his General Theory of Employment, Interest and Money, warned against excessive taxation of the rich because it would drive them into tax evasion . A trade-off of progressive taxation consists in the fact that above a variable threshold it impairs taxpayers' willingness to perform and can motivate them to tax evasion or tax evasion. Income or wealth millionaires , in particular, are usually very mobile and relocate abroad when they face significant tax disadvantages.
It is also worth taking advantage of the international tax differential for multinational companies . For example, a group company in the high-tax country can supply intermediate consumption or intermediate goods to a sister company in the low-tax country at artificially low transfer prices (taking into account the arm's length principle ), resulting in excessive profit in the low-tax country and too low a profit in the high-tax country. Conversely, a group company in the high-tax country could purchase intermediate consumption from its sister company in the low-tax country at excessive but permissible prices. As a result, an artificially generated higher profit is achieved in the low-tax country, while the profit is too low in the high-tax country. The tax avoidance strategy of the Double Irish With a Dutch Sandwich ( German two Irish companies with an intermediate Dutch company ) aims as a contract to use Irish and Dutch tax law in such a way that no or only minimal taxes are incurred in the multinational corporation.
The property “low tax country” is an advantage when choosing a location for business start-ups , because corporate taxation is an important location factor . Alfred Weber , according to (1909) the three influence locational factors transport costs , labor costs and agglomeration advantages the choice of location , the transport costs play a central role in the system of Weber. They are the most important factor in determining the optimal location. Countries with special tax breaks ( English tax resorts ) include countries with special discounts for shipping (such as Panama or Liberia ; flags of convenience ). The states with no income, corporation or with only lower income tax burden as Bahamas or Bermuda called tax havens ( English tax paradises ), in the low-tax countries ( English tax shelters such as Gibraltar ) are the income tax rates significantly (20% to 30%) among comparable tax rates the high tax countries (such as Denmark or France ).
Following a G20 summit in Los Cabos in June 2012, the OECD published a report in 2013 and an action plan with 15 individual measures in 2015 to counter undesired profit cuts and shifts. With the so-called BEPS project ( English Base Erosion and Profit Shifting ), profit shifting opportunities that result from tax systems that have not been coordinated are to be eliminated.
National tax competition
National tax competition describes the competition between different locations within a state in order to achieve location advantages through an attractive tax system.
Tax competition in Germany
The internal German tax competition results mainly from the fact that the municipalities can set an individual assessment rate for the trade tax as an essential municipal tax . As an attractive business location, Frankfurt am Main has a high rate of assessment of 490%, while the municipality of Norderfriedrichskoog levied a rate of assessment of 0% until 2003 (from 2004: minimum rate of 200%).
Tax competition in Switzerland
In Switzerland , taxes for both natural and legal persons have been significantly reduced in 18 of 28 locations measured in the last 10 years. Due to the federal character of the Swiss tax system, the tax burden differs massively depending on where you live. The cantons of Obwalden , Schwyz and Zug are particularly cheap for natural persons . The cantons of Zug and Nidwalden in particular offer attractive conditions for legal entities.
The fact that taxes in Switzerland are rather low compared to other countries can be attributed, among other things, to the federal tax system and the direct democratic instruments. This creates considerable tax competition between the individual regional authorities. Both the cantons and the communes set their own tax rates , assessment bases and various indirect taxes . Depending on the canton, there are different co-determination rights. A change in the Federal Constitution is necessary for a change in the VAT rate , whereby both the people and the cantons must be achieved in the vote . In addition, the tax systems of some cantons have special characteristics. A flat tax applies to the cantonal taxes of the cantons of Obwalden and Schaffhausen . The canton of Obwalden chose this system after the Swiss Federal Supreme Court banned the introduction of a degressive tax system. Some cantons also offer foreigners who are not employed in Switzerland the option of flat-rate taxation . The canton of Zug has another peculiarity: Foreign income from holdings and mixed companies is exempt from cantonal taxes.
International tax competition
International tax competition refers to tax competition between locations in different countries or different countries as a whole. Income taxes are particularly relevant here . International tax competition is the competition between countries to lower company taxes in order to improve the attractiveness of the location.
Origin and appearance
The tax rates on corporate profits have been reduced significantly and continuously in all major industrialized countries since the mid-1980s, on an unweighted average from 48% in 1982 to 33% in 2003. This went hand in hand with a broadening of the tax base through the reduction of benefits, Restrictions on loss compensation and depreciation options , regulations on shareholder debt financing or restricted options for creating tax-effective provisions . This strategy, known as tax-cut-cum-base-broadening (reducing the nominal tax rate while at the same time broadening the tax base ), is an expression of the intensified tax competition.
However, the prerequisite for this trend to continue is that an international tax comparison will only be made using nominal tax rates in the future. Methodologically, this approach is already very questionable, as the tax burden results from the multiplication of the tax base by the tax rate, so the tax rate and tax base are equally important factors. The tax-cut-base-broadening method produces ever more colorful flowers. In 2008 the Czech Republic introduced a flat tax with a tax rate of 15% and thus apparently has a lower income tax than the Slovak tax law (Slovakia) . The assessment basis for income tax, however, is the “super gross income” in which the non-wage costs are added to the gross income. If the tax base was the same as in Slovakia, the tax rate would have to be at least 20% and would be higher than in Slovakia.
- For clarification
Slovakia: assessment base (net income + ancillary wage costs - allowance etc.) 19%
Czech Republic: assessment base (net income + ancillary wage costs + ancillary wage costs - allowance etc.) 15%.
Favoring tax competition in the EU
Within the EU and the internal market , tax competition is essentially fostered by the four European fundamental freedoms (i.e. freedom of movement and freedom of services, goods and capital) that also extend to direct taxes and thus also to corporate taxes , as these are national Almost ruled out defensive measures to restrict tax competition. Since its ruling in January 1986, the European Court of Justice (ECJ) has also claimed responsibility for direct taxes within the EU with a view to perfecting the internal market and has since then significantly influenced the law of direct taxes in more than 100 rulings. This jurisprudence is intended to make tax competition within the EU possible and has since led to a significant reduction in tax burdens within the member states. Due to the restrictions resulting from these Community legal obligations, the member states have little room to evade tax competition.
Targets of tax competition
The aim of reducing corporate tax rates is the acquisition of international investors , and the broadening of the tax base is aimed at securing national tax revenue . Due to the increased attractiveness of the location, such a tax policy can be advantageous even if the opposing effects of lowering the tax rate and broadening the tax base on the capital use costs relevant for investment decisions by location-bound companies cancel each other out partially or even completely.
Lowering corporate taxes is a policy measure to attract companies that are looking for a (new / additional) location (legal tax evasion ). In addition, politicians can promise tax exemptions for a limited period of time or tax certain types of income at a lower rate ( license box ). In times of globalization and internationalization, tax competition plays a major role as a location factor .
See also
literature
- Literature on tax competition in the catalog of the German National Library
Individual evidence
- ↑ Lüder Gerken / Jörg Märkt / Gerhard Schick, International Tax Competition, 2000, p. 50
- ↑ Barbara Dehne, Upper and Lower Limits of the Tax Burden in a European Perspective , 2004, p. 157
- ↑ OECD (Ed.), Harmful Tax Competition - An Emerging Global Issue , 1998, p. 19 ff.
- ↑ OECD (Ed.), Harmful Tax Competition - An Emerging Global Issue , 1998, p. 14
- ↑ OECD (Ed.), Harmful Tax Competition - An Emerging Global Issue , 1998, p. 17
- ↑ OECD (Ed.), Harmful Tax Competition - An Emerging Global Issue , 1998, p. 19 f.
- ^ Family Business Foundation (ed.), International Tax Competition , 2018, p. 22
- ^ Family Business Foundation (ed.), International Tax Competition , 2018, p. 22
- ↑ BMF, The most important taxes in international comparison , 2018, p. 18 f.
- ^ Family Business Foundation (ed.), International Tax Competition , 2018, p. 83
- ^ John Maynard Keynes, General Theory of Employment, Interest, and Money , 1936, p. 314
- ↑ Thomas Meyer, Theory of Social Democracy , 2005, p. 335
- ↑ Steffen Ganghof, Tax Competition , in: Fritz W. Scharpf / Vivien A. Schmidt (Eds.), Welfare and Work in the Open Economy vol. II, 2000, p. 601
- ↑ Lorenz Jarass / Gustav M. Obermair, Fair and efficient corporate taxation , 2015, p. 118
- ↑ Alfred Weber, On the location of industries , first part: Pure theory of location , 1909, p. 16 ff.
- ^ OECD, Action Plan on Base Erosion and Profit Shifting , 2013
- ↑ Florian Oppel, The BEPS Project of the OECD / G20 - Core Contents of the Final Reports and Effects on German (International) Tax Law , in: Steuerrecht in Brief (SteuK), 2016, p. 53
- ↑ ECJ, judgment of January 28, 1986, Az .: Case C-270/83, Slg. 1986, 273 - avoir fiscal
- ↑ Colloquium of the Federal Ministry of Finance on the tax jurisdiction of the European Court of Justice No. 1, bundesfinanzministerium.de ( Memento of the original from July 21, 2011 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- ↑ Colloquium of the Federal Ministry of Finance on the tax jurisdiction of the European Court of Justice, 2.4 (Politics and Science Panel), bundesfinanzministerium.de ( Memento of the original from July 21, 2011 in the Internet Archive ) Info: The archive link was automatically inserted and not yet checked. Please check the original and archive link according to the instructions and then remove this notice.
- ^ Philip Genschel, Thomas Risen, Susanne Uhl: The causes of European tax competition . In: Ingeborg Tömmel (Ed.): The European Union, Governance and Polica-Making . PVS-Politische Vierteljahresschrift, special issue, 40/2007, VS-Verlag, 2007, ISBN 978-3-531-14979-0 , pp. 297–322, jacobs-university.de ( page no longer available , search in web archives ) Info : The link was automatically marked as broken. Please check the link according to the instructions and then remove this notice. (PDF)
- ↑ BT-Drs. 15/4300 of November 18, 2004, Annual Report 2004/05 of the Advisory Council on the Assessment of Overall Economic Development , p. 531
