Table 4 - uploaded by Christoph Spengel
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Deductible Expenses under the proposed Council Directive and Deviation from International Tax Practice
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After intensive and extensive preparation, the European Commission released the long-awaited proposal for a Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) on March 16, 2011. In the context of the Europe 2020 Strategy, major objectives of the proposed CCCTB are the elimination of transfer pricing concerns, the removal of doubl...
Context in source publication
Context 1
... the heart of these differences are questions regarding the valuation (e.g. the initial measurement of costs) and the timing (e.g. the treatment of provisions) of relevant business expenses. As presented in Table 4, minor differences arise in this regard from the valuation of stock items and work-in-progress (Articles 21 and 29) and from the treatment of bad debt receivables (Article 27). By contrast, major differences are identified for the recogni- tion and measurement of provisions for legal obligations (Article 25) and pension provisions (Article 26). ...
Citations
... CCCTB) by the European Commission for the EU, Spengel, C., Ortmann-Babel, M., Zinn, B., and Mantenaer, S. (2012)[2] simulate effect of the proposal on the tax burden of member states. The study finds tax burden to be generally unaffected, albeit, some gainer and looser states were found (but not mentioned).However, in a similar work restricted to Belgium, Roggedman, A., Verleyen, I., Van Cauwenberge, P. and Coppen, C. (2014)[3] find that the adoption of the Open Journal of Business and Management common base will significantly increase the average tax burden by 16%. ...
... Furthermore, this argument supports the implementation of the Common Consolidated Corporate Tax Base (CCCTB) concept. The idea of CCCTB is that the European Union member states harmonize their profit determination rules (Spengel et al., 2012) and that groups that operate cross-border within the European Union have to calculate a consolidated European tax profit (European-Commission, 2015). The member states in which the company operates then share this consolidated tax base according to an agreed formula. ...
... The member states in which the company operates then share this consolidated tax base according to an agreed formula. Each member state taxes its share of this tax profit with the national tax rate (Schreiber, 2013;Spengel et al., 2012). Since the consolidated EU-IFRS profit concept can be a subjectively rational decision criterion, we have arguments to take this concept as CCCTB tax base. ...
This paper examines whether a one-book-system that takes the commercial law profit definition as tax base (the so-called authoritative principle) is adequate from an evolutionary point of view. We consider firstly the case that European International Financial Reporting Standards (EU-IFRS) are relevant for all statements with the authoritative principle based on EU-IFRS. Secondly, we examine the fact that EU-IFRS focus on the consolidated annual accounts and that the national accounting principles are relevant for individual statements. Tax law analysis under genuine uncertainty requires a framework and we present such a framework. It entails an interpretation of equality of taxation, a hypothesis on the functioning of markets, an interpretation of realizable and desirable market goals, tax effects hypotheses, and action hypotheses for personal and corporate companies under genuine uncertainty. Contrary to the mainstream of accounting literature, from our evolutionary point of view, the authoritative principle is adequate. The reason is that commercial profit is an adequate instrument to achieving the tax goal equality of taxation in the sense of reducing expectable tax avoidance decisions. This is the case because according to evolutionary action hypotheses as well as tax effects hypotheses, commercial profit can be a subjectively rational decision criterion for personal and corporate companies alike. Equality of taxation is for its part in line with the evolutionarily interpreted social values freedom of choice and equality before the law. Since we focus on the question if the existing commercial profit concept can be an adequate tax base, we do not discuss whether we would have more reasons to take a conservative profit concept as tax base rather than EU-IFRS. Just as little, we analyze whether it is better to take EU-IFRS profit as tax base although national accounting principles are relevant for individual statements.
... For instance, Zagler (2009) advocates excluding assets, whereas Hellerstein and McLure (2004) approve of it as the sole appropriate allocation factor. Another point is the exclusion of intangible assets, seen as reasonable because of their manipulability (Sørensen, 2004;Mueller, 2010). However, the revenue generated by intangible assets is taken into account when calculating the tax base. ...
The significant contribution of R&D to economic development and sustainability has been shown by various studies. Therefore, governments offer different fiscal instruments to attract R&D, especially regarding multinational entities (MNEs). One of the fiscal instruments are tax incentives for R&D. Furthermore, the EU has been working on the switch from Separate Taxation (ST) to Common Consolidated Corporate Tax Base (CCCTB) for longer than a decade, which will lead to harmonized R&D tax allowances, however without harmonizing the tax rates. Hence, this study aims at analyzing how ST and CCCTB impact the location of MNEs' R&D activities, tax burden and countries' tax revenue through a case study. The results show that, under ST, tax jurisdictions can stimulate MNEs’ R&D activities by means of attractive tax allowances and lower tax rates. Especially for high-tax countries, the tax allowances represent an important tool for attracting R&D activities. However, under CCCTB, the location of R&D activities additionally depends on the Formula Apportionment (FA) factors of the tax base, where the countries cannot exert a direct influence. Hence, the reduction of tax rates remains the only tool left to Member States, which can lead to revenue loss on the whole. Furthermore, the FA of the tax base under CCCTB mitigates the impact of any dislocation of R&D to a low-tax country, which, under ST, leads to larger tax savings of MNEs and its impact on jurisdictions’ tax revenue is greater.
... We have chosen to base our estimates on the CCCTB proposal, which includes a formula-apportionment scheme for imputing the consolidated tax base to the various countries where firms have production facilities. A number of studies offer evaluations of the potential impact on total revenue and cross-country distribution of introducing the CCCTB while keeping the national statutory rates at their pre-reform level (Spengel et al., 2008;Spengel et al., 2012;PWC, 2008;Ernst & Young, 2011). In most cases, the reform is shown to have a minor impact on corporate effective tax rates and on overall CIT revenue, but some studies find a non-negligible redistribution across countries. ...
... 6. Summary of existing studies on CCCTBSpengel et al. (2012) This study uses average effective tax rates and the European Tax Analyser model-firm simulation (to quantify the change in effective tax burdens). ...
This is the independent report produced for the High Level Group on Own Resources of the European Union. It presents an analysis of the challenges and potential solutions to reform the EU Own Resources. The study demonstrates how the financial flows generated by the EU budget are quite different to the net balance obsession of member states. There is a need to fit the budget resources and also the expenditures to the realities of the European Union, what it needs and how it works. The report presents an analysis of possible resources and also a strategy to negotiate the budget to make it fit for the future..
... Kromě kvalitativní analýzy se vybrané příspěvky snaží kvantifi kovat důsledky na daňové náklady fi rem s využitím veřejně nedostupných dat z daňových přiznání (Eberhartinger a Klostermann 2007), modifikovaných dat z účetních závěrek za období předcházející první aplikaci IFRS nebo počítačové simulace životního cyklu podniku (Jacobs et al., 2005;Haverals, 2007;Oestreicher a Spengel, 2007). Spengel et al. (2012) potvrzují intuitivní závěr, že aplikace IFRS pro zdanění může signifi kantně změnit výši efektivní daňové sazby, neboť defi nice zdanitelného zisku a jeho vazba na účetní zisk je oslabena. Z českých autorů se tématu věnuje např. ...
The worldwide adoption of the International Financial Reporting Standards (IFRS) has not affected financial reporting only, but it has also impact on taxation systems. Countries with a high level of book-tax conformity (dependence) have to solve whether and at what extent to allow IFRS results for the corporate taxation. The paper deals with the specifics of Czech Republic, which is an example of open small economy with relatively high subordination of accounting to taxation purposes. To allow IFRS in tax fillings of those entities preparing statutory financial statements in compliance with IFRS may thus represent a comparative advantage for Czech economy. We hypothesize that usage of IFRS for tax purposes is "win-win-win" situation, as it may (1) significantly decrease the compliance tax costs of IFRS entities; (2) increase the capability of tax authorities to supervise the fulfilment of tax duties by IFRS entities; (3) create a favourable tax regime attracting foreign companies to tax their sources of income in the Czech Republic/mitigating the motives of Czech companies to transfer profits abroad. We support our findings by the analysis ofmicro- and esp. aggregate tax data showing that (a) taxation rules have a greater influence on tax base than accounting profits (b) changes in reported accounting profits are a function of business cycle rather than a function of changing tax rates and/or a function of accounting method choices.
... A number of macro-economic impact assessments have been conducted in order to quantify the effects of adopting the (C)CCTB. The essence of these studies can be summarized as follows; i) the effective tax burden for MNEs will (on average) remain rather limited; ii) the impact may vary considerably between Member States; iii) when consolidation and apportionment are considered the variation between Member States is significantly more pronounced; iv) there is no significant impact on aggregate welfare (in terms of GDP) 6 . The results should naturally be interpreted with caution, as the actual macro-economic effects will depend on the actual implementation. ...
The current debate on Base Erosion and Profit Shifting (BEPS) may well lead to a paradigm shift in international taxation. The respective reform agenda of the OECD addresses the challenges of valuating intangibles in the context of transfer pricing, aiming at ensuring that transfer pricing outcomes are in line with value creation.
Various political actors perceive the initiated reforms as being insufficient and advocate replacing the main paradigm of international transfer pricing, the so-called the arm’s length principle (ALP), with a system based on formulary apportionment (FA). The advocacy of FA has gained a position of considerable strength within EU legislation, being embedded in the Commission’s proposal for a common consolidated corporate tax base (CCCTB).
This paper will show that FA is ill-suited to account for the increasing impact of intangible assets on the value creation by multinational enterprises and thus does not constitute a panacea for BEPS.
... In the terms of the strategy Europe 2020 is the main objective of the CCCTB system to remove the needs for transfer pricing rules, to eliminate any possibilities for double taxation due to incurring of tax liabilities in the diff erent EU Member States and also the reduction of tax compliance costs (Spengel et al., 2012). ...
The mechanism for the distribution of the Common Consolidated Corporate Tax Base will be based on three macroeconomics factors which are considered to be the main indicators of generated profit/loss. The paper analyzes the explanatory power of proposed allocation formula for the distribution of the Common Consolidated Corporate Tax Base with respect to the sector of economic activity from the perspective of the Czech independent enterprises. The research is based on the comparison of the coefficients of determination indicating the proportion of explained variability of proposed multiple regression models. The paper concludes that the proportion of explained profitability by the allocation formula factors as are defined by the Common Consolidated Corporate Tax Base Dra Directive may diff er up to 34% with regard to the sector of economic activity classified by NACE classification.
... Kromě kvalitativní analýzy se vybrané příspěvky snaží kvantifi kovat důsledky na daňové náklady fi rem s využitím veřejně nedostupných dat z daňových přiznání (Eberhartinger a Klostermann 2007), modifikovaných dat z účetních závěrek za období předcházející první aplikaci IFRS nebo počítačové simulace životního cyklu podniku (Jacobs et al., 2005;Haverals, 2007;Oestreicher a Spengel, 2007). Spengel et al. (2012) potvrzují intuitivní závěr, že aplikace IFRS pro zdanění může signifi kantně změnit výši efektivní daňové sazby, neboť defi nice zdanitelného zisku a jeho vazba na účetní zisk je oslabena. Z českých autorů se tématu věnuje např. ...
The worldwide adoption of the International Financial Reporting Standards (IFRS) has not affected financial reporting only, but it has also impact on taxation systems. Countries with a high level of book-tax conformity (dependence) have to solve whether and at what extent to allow IFRS results for the corporate taxation. The paper deals with the specifics of Czech Republic, which is an example of open small economy with relatively high subordination of accounting to taxation purposes. To allow IFRS in tax fillings of those entities preparing statutory financial statements in compliance With IFRS may thus represent a comparative advantage for Czech economy: We hypothesize that usage of IFRS for tax purposes is "win-win-win" situation, as it may (1) significantly decrease the compliance tax costs of IFRS entities; (2) increase the capability of tax authorities to supervise the fulfilment of tax duties by IFRS entities; (3) create a favourable tax regime attracting foreign companies to tax their sources of income in the Czech Republic/mitigating the motives of Czech companies to transfer profits abroad. We support our findings by the analysis of micro- and esp. aggregate tax data showing that (a) taxation rules have a greater influence on tax base than accounting profits, (b) changes in reported accounting profits are a function of business cycle rather than a function of changing tax rates and/or a function of accounting method choices.
... This may bring some benefits for a small open economy. However, Spengel et al. (2012) investigated that introduction of IFRS as a tax basis could lead to the change in the effective tax rate, as the definition of taxable income and its conformity with accounting income is blurred. ...
... an empirical model of Spengel et al. (2012) in the individualised version of Roggeman et al. (2014); ...
The IFRS adoption has improved the quality of accounting information significantly. However, huge costs are incurred by all subjects involved. The process has considerable consequences for tax systems, too. State authorities are solving how to ensure the control over tax duty fulfilment under a new financial reporting system. As corporate income tax systems in code law countries are tightly bound up with accounting regulation, governments are forced to decide whether and in which way companies preparing financial statements under the IFRS shall reflect the IFRS based figures in their income tax returns. The paper focuses on specifics of a small open economy, such as the Czech Republic. Four cardinal research issues are identified, if the eligibility of the IFRS as a tax base is ruminated on. Three issues are already assessed with the reference to publicly available data; the last one needs further scrutiny, as non-public data from tax returns are needed for the analysis.
... Under this scheme, the taxable base would be calculated according to new uniform rules, allowing the cross-border offsetting between profits and losses, and would be shared as between Member States according to an apportionment formula. The application of national tax rate to its share of the tax base could be expected to determine, in a number of Member States, a lower effective tax burden on participating companies, 112 and thus to result in lower tax revenues than would have occurred had the multinational group chosen to remain subject to national rules instead of opting for the CCCTB. However, this option, which would be necessary to use the new regime, would certainly not be a socially irresponsible strategy toward the EU. ...
The paper analyses whether international tax planning strategies which are being carried out especially by multinational groups must always be regarded as incompatible with corporate social responsibility (CSR), described as requiring companies to take into consideration the interests of the stakeholders' community, on a voluntary bases, beyond the minimum legal requirements. It discusses whether a national or a universal benchmark can be used to assess their incompatibility with CSR and whether a specific assessment would be appropriate when these corporate tax strategies are implemented within the EU and involve the exercise of fundamental freedoms.
