A Computer-Based Model for the Computation and Analysis of National and International Company Tax Burdens
The core of the ZEW instruments for international tax burden comparisons is the EUROPEAN TAX ANALYZER. The European Tax Analyzer is a computer-based model for the computation and international comparison of the tax burdens of partnerships and corporations, including the shareholder level. The underlying idea of the model is to simulate the development of an enterprise over a ten-year period. The effective tax burden is expressed as the difference between the pre-tax value and the post-tax value of the enterprise at the end of the simulation period. All relevant tax provisions including tax bases, tax rates, and different kinds of taxes can be taken into account in great detail. Hence, complex tax provisions such as thin capitalization rules, R&D tax incentives or special provisions for small and medium-sized enterprises (SMEs) can be incorporated. Besides, the underlying model firm can be varied with respect to its financial parameters including profitability, the financing structure, the share of fixed assets, size (large, medium-sized, small, micro), and the industry sector. Currently, the European Tax Analyzer contains the tax systems of all 28 EU Member States as well as of five non-EU states (China, Japan, Canada, USA (California) and Switzerland (Zurich)).
Methodology and Model Assumptions
The effective average tax burden is derived by simulating the development of a corporation (or alternatively a partnership) over a period of ten years. It is expressed as the difference between the pretax and post-tax values of the company at the end of the simulation period and constitutes the central outcome variable of the model. The value of the company is represented by its equity including the capital stock and the cumulative net income generated in each of the ten simulation periods. In order to determine the post-tax value, the tax liabilities of each of the ten periods are derived, taking into account all taxes that may be influenced by investments and financing at the corporate level. The underlying model firm is based on empirical data mainly taken from the AMADEUS database to determine an EU-28 average company. The model corporation (large) is derived from financial and supplementary information for about 25,490 corporations in the EU (Update September 2013). According to this, the model company (large) is characterized by the following financial indicators which are met in period six of the ten-periods of the simulation: balance sheet total 171.9126 mio. Euro, equity ratio 42.57%, return on sales 4.95%, return on equity 16.53%, share of non-current assets 23.93%.
For further details on the methodology and the model assumptions please refer to
- Spengel, Christoph, Rainer Bräutigam and Maria-Theresia Evers (2014), Steuerbelastungen von Kapitalgesellschaften in der EU: Trends zum Jahreswechsel 2013/2014, Der Betrieb 2014, 1096-1101.
- Spengel, Christoph and Andreas Oestreicher (2011), Common Corporate Tax Base in the EU - Impact on the Size of Tax Bases and Effective Tax Burdens, ZEW Economic Studies, no. 43, Heidelberg.
- Spengel, Christoph and Benedikt Zinn (2011), Non-profit taxation on corporations in the EU: Lessons from corporate tax reforms in Germany and tax implications of the global economic crisis, INTERTAX 10/39, 494-520.
- Spengel, Christoph (1995), Europäische Steuerbelastungsvergleiche, Düsseldorf.
Fields of Application
Since the foundation of the ZEW in 1991, the European Tax Analyzer has been developed and expanded in joint research projects with the University of Mannheim. In addition to international comparisons regarding tax burden and tax structure, previous analyses comprise the evaluation of proposals for fiscal reforms in Germany. Amongst others, the effects of the introduction of a dual income tax in Germany on the effective company tax burden as well as the implications of reform proposals to receive the net wealth tax in Germany have been analyzed. Besides, the European Tax Analyzer has been used for the investigation of the combined effects of taxes and social security contributions on entrepreneurial investment behavior, the quantification of the impact of special tax incentives for SMEs on the effective tax burden, and the analysis of drafts to reform the company taxation in Europe, such as the introduction of a Common Corporate Tax Base (CCTB) in the EU.
The scientific value of our research is acknowledged inter alia by the Deutsche Forschungsgemeinschaft (DFG), which approved several projects. The practical relevance of the work is documented in numerous research reports for national and foreign ministries, as well as supranational institutions. Over the past years, research assignments regarding business and fiscal policy issues were carried out i.a. for the Federal Ministry of Finance, the Federal Ministry of Economics, the Federal Ministry of Research, the Dutch Ministry of Finance, as well as the European Commission.