An implicit tax rate for non-financial corporations: Macro vs micro approach

Transcription

1 An implicit tax rate for non-financial corporations: Macro vs micro approach OECD Workshop on Effective Corporate Taxation Paris, 4 July 2006 Claudius Schmidt-Faber Emanuela Tassa

2 An ITR for non-financial corporations Outline 1) Definition of the ITR on capital and business income: advantages and main drawbacks 2) Splitting the ITR for non-financial corporations, financial corporations and households (incl. self-employed) 3) Comparison of the ITR on non-financial corporations with indicators based on accounting data 4) Conclusion 2

3 Context: Structures of the tax systems ITR on labour, consumption and capital 38,0 EU ,0 37,0 23,0 36,0 22,0 35,0 34,0 21,0 20,0 19,0 33,0 18,0 32,0 17,0 31,0 16,0 30, ,0 ITR Labour (left scale) ITR consumption ITR capital and business income 3

4 ITR with national accounts: advantages ITRs measure the effective tax burden by relating taxes (actually paid) to a proxy of the potentially taxable base taking into account all elements that influence them. Only National accounts allow to consistently investigating shifts from one area of taxation to another. No problems of representativeness Specific advantage of the publication Structures of the tax system : For splitting PIT-revenues no simple Mendoza-method is used. Most of the countries apply estimations based on individual taxpayers data 4

5 and main drawbacks Composite indicator for non-financial and financial corporations, households and self-employed cyclical mismatch of tax revenues and taxable income capital gains can not be included in the denominator concerning only households: all mortgage and interest payments for consumer loans are subtracted although not tax deductible in most countries private third-pillar pension benefits are not included in the denominator This makes the interpretation difficult one reason for trying to split ITR by sectors 5

6 ITR on capital for different sectors: Problems in splitting the ITR Sectoral mismatch of partnerships economic activity: profits of partnerships recorded in the corporate sector in national accounts tax payments are part of the PIT revenues assigned to households in national accounts => ITR on corporate income would underestimate tax burden Relevant for Germany, Austria, Portugal, Greece (Luxembourg, Denmark, Finland) Correction partly possible, but leads to ITR for all companies including self-employed 6

7 ITR on capital for different sectors ITR non-financial corporations (NA) Numerator: Taxes on capital and business income (mainly corporation tax for S11) Denominator: Net Operating Surplus of non-financial corporations + received interest, rents on land, dividends + property income attributed to insurance policy holders - paid interest, rents on land 7

8 ITR on capital for different sectors Split 1995 to ,0 EU15 weighted average, % 20,0 15,0 10,0 5,0 0, ITR capital and business income ITR non-financial corporations ITR financial corporations ITR households 8

9 ITR on capital for different sectors Rise in ITR Possible explanations for the increase: tax base broadening measures over-estimation of the average effective tax burden due to the sensitivity to the business cycle amplified by not including capital gains in the base relatively higher dividend payments as compared to interest and dropping interest rates But the importance of these different elements is hard to assess 9

10 1 ITR for non-financial corporations Available New Member States and EU15 40,0 2003, in % Slovakia 35,0 30,0 Czech Republic 25,0 Poland 20,0 EU15* weighted 15,0 10,0 Estonia 5,0 Latvia Lithuania 0,0 (*) PT imputed constant for

11 ITR for non-financial corporations Comparison with accounting data Q: Is the rise an artificial feature of national accounts data? Comparison with other backward looking indicators: Micro-oriented ITRs with accounting data of companies from the BACH-Database of the EC Do the different objectives and reporting rules play an important role? => Construction of ITR Bach (NA) using a definition similar to national account 11

12 ITR for non-financial corporations Comparison with Bach database National Accounts Profit and Loss Account 1 Output (P1) Total operating income (S.) 2 - Intermediate Consumption (P2) - Raw materials and consumables (5.a) Other external charges (5.b) 3 - Compensation of employees (D1) - Staff costs (wages and salaries and social security costs) (6.) 4 - Other taxes on production (D29) - Other operating charges and taxes (8.) 5 + Other subsidies on production (D39)? 6 - Consumption of fixed capital (K1) - Depreciation on intangible and tangible assets (7.a) 7 _ - Other value adjustments and provisions (7.c) 8 = Net operating surplus (B2n) = Net operating profit (V.) 9 + Property income received (from other + Financial income (9/11.) sectors) (D41, D42, D45 received) 10 - Interest and rent (D41 and D45 paid) - Interest and similar charges (13.) 11 _ - Value adjustments on financial assets (12.) 12 = Entrepreneurial income (B4 - D43rec) = Profit on ordinary activities before taxes (X.) 13 _ + Net extraordinary income ( ) 14 - Taxes on the income or profits of corporations. (D51B) - Taxes on profits (Y.) 15 = Entrepreneurial income after tax = Profit or loss for the financial year (21.) (B4-D43rec-D51B) 16 - Distributed income of corporations (D42) Net reinvested earnings on direct foreign investment (net D43) 17 = Primary income after tax (B5-D51B) 12

13 ITR for non-financial corporations ITR Bach ITR Bach = Taxes on profits/ Profit for the financial year ITR Bach (NA) = Taxes on profits/ (total operating income -raw materials - staff costs - other operating charges + financial income - interest) 13

14 ITR for non-financial corporations Comparison by country 1) 70,0 1999, in % 60,0 50,0 40,0 30,0 20,0 10,0 0,0 BE DK DE2) ES FR IT NL AT2) PT2) FI SE Top statutory tax rate 3) ITR-Bach ITR-Bach (NA concept) ITR NA (D44 corr) 1) For the ITRs average for 1998 to ) incl. self-employed. - 3) including surcharges and local taxes. 14

15 ITR for non-financial corporations Comparison of development for the EU15 1) Average , in % 70,0 60,0 50,0 40,0 30,0 20,0 10, ITR NA Bach ITR Bach ITR (NA concept) Top statutory tax rate (*) Excluding Greece, Ireland, Luxembourg and the UK. ITRs base weighted; statutory rate GDP weighted. 15

16 ITR for non-financial corporations Comparison of development Estimated annual average growth rate in % ITR NA 1) ITR Bach (NA) ITR Bach B 1,1 2,7 8,3 DK* -5,5-2,0-1,3 D 5,0-3,7-6,1 E 10,8-1,1-7,5 F 3,2 4,7-10,6 I 0,2 1,4-2,1 NL 1,9-5,3-4,3 A 3,0-0,3-1,1 P ** 10,3-8,9-22,1 FIN 1,6 5,1 2,3 S *** 3,5 2,5 3,2 EU 2) 2,8 0,9-2,5 * Bach ITRs 1995 to ** ITR NA 1995 to *** all ITRs 1995 to ) For Germany and Austria incl. self-employed. - 2) Without Greece, Ireland, Luxembourg and the UK 16

17 ITR for non-financial corporations Conclusions The ITR on non-financial corporations (NA) shows an increasing trend (similarly to the overall ITR) while the ITR Bach for the EU slightly decreases The divergence is partly related to different measurement concepts of profits, e.g. the ITR (NA) overestimates the increase in the tax burden The two indicators show the same trend in countries where the Bach data are based on statistically representative samples Different indicators are not interchangeable => No clear preference for one of the two. Forward looking rates should also be taken into account 17