Taxing investments in the Asia-Pacific region : the importance of cross-border taxation and tax incentives

This paper investigates the taxation of investments in the Asia-Pacific region. Our analysis is based on the methodology of Devereux and Griffith (1999, 2003) for determining effective average tax rates. This approach allows us to account for important national and international tax regulations. Our results show that the overall dispersion of effective tax burdens in Asia-Pacific ranges from 10.6% in Hong Kong to 40.4% in India for domestic investments (overall average of 23.4%). In 8 out of 19 jurisdictions covered, investments are, however, effectively taxed at a rate between 20% and 25%. If the investment is made by a foreign investor, cross-border taxation has a significant impact on the overall tax burden. In any of the Asia-Pacific jurisdictions, foreign direct investments by a Singaporean or a German parent company are on average taxed at 29.2% and at 32.8% in case of a US investor. Meanwhile, tax incentives for the stimulation of private investment reduce the effective average tax rate by 8.6 percentage points on average. Fiscal incentives targeted at investments in the high technology sector or the development of specific geographic areas result in the lowest effective tax burdens

The Computation and Comparison of the Effective Tax Burden in Four Asian Countries

The Asia-Pacific region has gained economic power among the world's economies and offers enormous sales opportunities for multinational companies. When considering foreign direct investment in countries from this region, the specific taxation framework constitutes one determinant to be accounted for. The paper provides a comparative analysis of the corporate tax regimes in four important Asian countries, namely China, India, Japan and Singapore. It is not limited to a comprehensive description of the tax systems, but goes to a detailed analysis of the effective average tax burden, which is relevant for investors' decisions on location, scale and mode of finance of a potential investment. The calculation is based on the European Tax Analyzer. This approach allows capturing different types of taxes borne by corporations, the respective tax bases and tax rates in great detail and hence extends the literature on company taxation in Asia. In addition, we seek to contribute to literate not only by establishing a country ranking based on the overall tax burden, but also by identifying the underlying tax drivers. In doing so, sensitivity analyses are run to examine the effects of altering model assumptions, thereby illustrating the sensitivity of the base case results to selected financial ratios. As corporate income taxes might affect investments in various industry sectors differently, the comparison of the effective average tax burdens is finally extended to corporations representing different industries.Effective Average Tax Burden, European Tax Analyzer, Asia

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. --Microsimulation Model,Corporate Taxation,Policy Analysis,Firm-Level Data

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. --tax reform,microsimulation,tax policy evaluation

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. --Microsimulation Model,Corporate Taxation,Policy Analysis,Firm-Level Data

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. --Tax reform,microsimulation,tax policy evaluation

Alternative Konzepte der Unternehmensbesteuerung vor dem Hintergrund aktueller Herausforderungen der deutschen Steuerpolitik

Die inhaltliche Ausrichtung dieser Dissertation erlaubt Aussagen zu vier bedeutenden und aktuellen Problemfeldern der deutschen Steuerpolitik: fehlende Finanzierungsneutralität, internationale Koordinierung, steuerliche Standortattraktivität und Umfang der Gewinnverlagerung ins Ausland. Methodisch berücksichtigt die vorliegende Arbeit, dass im steuerpolitischen Reformprozess den Aufkommenswirkungen und der Verteilung der Belastungseffekte einer Reform eine große Bedeutung zukommt. Daher findet im ersten Teil ein Mikrosimulationsmodell Anwendung, das um unternehmerische Verhaltensreaktionen erweitert wird. Darüber hinaus widmet sich eine gesonderte Analyse dem viel diskutierten Thema der Gewinnverlagerung durch multinationale Unternehmen. Dazu wird eine eigene Schätzung auf Basis eines Propensity-Score-Matching-Ansatzes vorgestellt

Assessing the impact of introducing an ACE regime : a behavioural corporate microsimulation analysis for Germany

In their famous Mirrlees review (2011) on reforming the tax system for the 21st century, the authors put forward the introduction of an allowance for corporate equity regime. In recent years, several countries introduced an ACE regime. The main feature of an ACE regime is that it removes tax distortions on marginal investment and finance distortions. Yet, by narrowing the tax base an ACE regime potentially requires an increase in tax rates which might affect location choices and profit shifting activity negatively. In this paper, we employ a microsimulation model to determine the consequences of introducing an ACE regime in Germany. The simulation results show that granting an ACE for corporate income tax purposes results in a revenue loss of about 18%. This could be financed by an increase of the combined profit tax rate by 6 percentage points. At firm level, our analysis illustrates the heterogeneous distribution of the reform effect accross the sample. For 50% of firms between the 25th and 75th percentile, introducing an ACE regime reduces tax payments between 35% and 2%. If the ACE is combined with a tax rate adjustment, the tax effect ranges between -32% and +7.1% for firms between the 25th and 75th percentile. With respect to behavioural responses on decision margins, we find that introducing the ACE reduces the mean debt-ratio by about 1.5 percentage points in the short run. For the capital-stock we arrive at a mean short-term increase of 2.4%. Finally, our computations show that the ACE regime with adjusted profit tax rate cannot be overall tax neutral. In particular, the increase in the profit tax rate required to finance the equity allowance induces intensified outward profit-shifting activities and affects location choices negatively. In the short-run the tax revenue is therefore shown to decline to about 95% of its original level

Extending taxation of interest and royalty income at source : an option to limit base erosion and profit shifting?

This paper discusses tax policy measures to reduce corporate tax avoidance by extending taxation in the source country without imposing double taxation. We focus on four options: Bilaterally restricting interest and royalty deductibility, introducing an inverted tax credit system, levying withholding taxes on all interest and royalty payments and levying withholding taxes as an anti-avoidance regulation. We calculate the tax revenue effects of introducing a minimum withholding tax on royalty payments and an inverted tax credit. For the withholding tax we find that the US would suffer the greatest tax revenue losses, while some other countries would increase their tax revenue. In general, gains and losses depend not only on net balances in royalty income flows but also on withholding tax and credit rules under the status quo. The inverted tax credit would increase tax revenue in particular in high-tax countries. Revenue redistribution would only arise if withholding taxes were replaced by the inverted credit