The study consists apart from the introduction of five main chapters. In the following Chapter Two of the study, references are outlined for conducting international tax burden comparisons. In the process, not just relevant requirements but also the benefits and drawbacks of each method are described. Subsequently, selection follows of the analysis method to apply herein. This is complemented by an outline of the UK and German tax systems and of key determinants that shape the tax law in each case. Finally valid corporation tax regulations are characterised for the United Kingdom and Germany respectively. This mainly entails a description of individual tax liability and a breakdown of the broad structure of the tax assessment bases.
In Chapter Three, comparative examination is conducted of tax assessment bases for selected balance sheet items in the United Kingdom and in Germany respectively. In the first part of the chapter in reference to the authoritative principle under which tax regulations refer to commercial accounting regulations, initially the commercial accounting framework concepts are analysed applicable in the countries. In order to avoid differentiation uncertainties in the second part of the chapter, the general recognition criteria and value measures are discussed for balance sheet items. In the last and most extended section, finally a qualitative
examination is conducted of balance sheet items from tax point of view. The balance sheet items concerned
have been split for examination purposes generally according to the country between the United Kingdom
and Germany as well according to respective item classes of definition, recognition, measurement and
disposal. In conclusion to each partial examination, key similarities and differences are summarised and
assessed applying qualitative perspective.
In Chapter Four, the comparative assessment is extended to also comprise profit and loss items. The
approach applied refers to the cost method structure, comprising apart from qualitative examination of tax
treatment of selected profit and loss items also an analysis of general treatment of revenues and deductions respectively. Further the treatment of tax losses is discussed in the United Kingdom and in Germany respectively.
Applicable corporation tax rates in the United Kingdom and in Germany are examined from both the
qualitative and quantitative perspectives in Chapter Five. [...]
Table of Contents
1. INTRODUCTION
1.1. PURPOSE OF STUDY
1.2. SCOPE OF THE OBJECT OF INVESTIGATION
1.3. OUTLINE OF THE STUDY
2. FUNDAMENTALS
2.1. INSTRUMENTS FOR THE EXECUTION OF INTERNATIONAL TAX COMPARISON
2.1.1. PREFACE
2.1.2. QUALITATIVE METHODS OF INVESTIGATION
2.1.2.1. COMPARISON OF LEGAL RULES
2.1.3. QUANTITATIVE METHODS OF INVESTIGATION
2.1.3.1. CASUISTIC SIMULATION OF ASSESSMENT
2.1.3.2. COMPARISON OF TAX RATES
2.1.3.3. ANALYSIS OF EMPIRICAL DATA
2.1.3.4. EFFECTIVE TAX RATES
2.1.4. CHOICE OF A PARTICULAR INVESTIGATION METHOD
2.2. THE TAX SYSTEM AND INFLUENCES OF TAXATION
2.2.1. PRINCIPLES OF TAXATION
2.2.2. SOURCES OF THE TAX LAW
2.2.3. GENERALLY ACCEPTED ACCOUNTING PRACTICES
2.2.4. OBJECTIVE AND PURPOSE OF THE COMMERCIAL AND THE TAX BALANCE SHEET
2.3. CHARACTERIZATION OF THE CORPORATION TAX
2.3.1. PERSONAL TAX LIABILITY
2.3.2. BASIS OF ASSESSMENT FOR THE CORPORATION TAX
2.3.2.1. ADJUSTING THE ACCOUNTING PROFIT AND VALIDITY OF THE AUTHORITATIVE PRINCIPLE
2.3.2.2. SCHEME FOR THE CORPORATION TAX COMPUTATION
2.3.3. PERIOD OF DETERMINING INCOME FROM TRADE
2.4. FURTHER PROCEEDING
3. COMPARISON OF CORPORATION TAX ASSESSMENT BASES I: BALANCE SHEET ITEMS
3.1. PREFACE
3.2. CONCEPTUAL FRAMEWORK AS CORE ELEMENT FOR THE DETERMINATION OF INCOME
3.2.1. BASIC ASSUMPTIONS
3.2.2. QUALITATIVE CHARACTERISTICS OF FINANCIAL STATEMENTS
3.3. GENERAL TREATMENT OF BALANCE SHEET ITEMS
3.3.1. RECOGNITION CRITERIA
3.3.2. VALUE MEASURES
3.4. ASSETS SIDE
3.4.1. INTANGIBLE ASSETS (NON-CURRENT)
3.4.1.1. DEFINITION
3.4.1.2. RECOGNITION
3.4.1.3. MEASUREMENT
3.4.1.4. EXCURSUS: DISPOSALS
3.4.1.5. MAJOR SIMILARITIES AND DIFFERENCES
3.4.2. TANGIBLE ASSETS
3.4.2.1. PREFACE
3.4.2.2. PROPERTY
3.4.2.2.1. DEFINITIONS
3.4.2.2.2. RECOGNITION
3.4.2.2.3. MEASUREMENT
3.4.2.2.4. EXCURSUS: DISPOSAL
3.4.2.2.5. MAJOR SIMILARITIES AND DIFFERENCES
3.4.2.3. MACHINERY, PLANT AND EQUIPMENT
3.4.2.3.1. DEFINITON
3.4.2.3.2. RECOGNITION
3.4.2.3.3. MEASUREMENT
3.4.2.3.4. EXCURSUS: DISPOSAL
3.4.2.3.5. MAJOR SIMILARITIES AND DIFFERENCES
3.4.3. INVESTMENTS IN SECURITIES
3.4.3.1. DEFINITION
3.4.3.2. RECOGNITION
3.4.3.3. MEASUREMENT
3.4.3.4. EXCURSUS: DISPOSAL
3.4.3.5. MAJOR SIMILARITIES AND DIFFERENCES
3.4.4. TRADING STOCK (INVENTORIES)
3.4.4.1. DEFINITION
3.4.4.2. RECOGNITION AND MEASUREMENT
3.4.4.3. SELLING AND PROCESSING
3.4.4.4. MAJOR SIMILARITIES AND DIFFERENCES
3.4.5. TRADE RECEIVABLES
3.4.5.1. DEFINITION
3.4.5.2. RECOGNITION
3.4.5.3. MEASUREMENT
3.4.5.4. MAJOR SIMILARITIES AND DIFFERENCES
3.5. LIABILITIES SIDE
3.5.1. PROVISIONS
3.5.1.1. DEFINITION
3.5.1.2. RECOGNITION AND MEASUREMENT
3.5.1.3. MAJOR SIMILARITIES AND DIFFERENCES
3.5.2. LIABILITIES
3.5.2.1. DEFINITION
3.5.2.2. RECOGNITION AND MEASUREMENT
3.5.2.3. MAJOR SIMILARITIES AND DIFFERENCES
4. COMPARISON OF CORPORATION TAX ASSESSMENT BASES II: ITEMS OF INCOME STATEMENT
4.1. PREFACE
4.2. REVENUES
4.2.1. GENERAL TREATMENT OF REVENUES
4.2.2. REVENUE INCOME
4.2.3. OTHER OPERATING INCOME
4.2.4. INCOME FROM FINANCIALS AND INVESTMENTS
4.2.5. CHANGE IN INVENTORY/ CAPITALISED SERVICES
4.2.6. EXCURSUS: CHARGEABLE GAINS
4.3. DEDUCTIONS
4.3.1. GENERAL TREATMENT OF DEDUCTIONS
4.3.2. EXPENDITURE OF PURCHASED GOODS, RAW MATERIALS AND SUPPLIES
4.3.3. PERSONNEL EXPENDITURES
4.3.4. DEPRECIATION/ CAPITAL ALLOWANCES
4.3.5. OTHER OPERATING EXPENDITURES
4.3.6. EXPENDITURE FROM FINANCIALS AND INVESTMENTS
4.3.7. DIRECT TAX
4.3.8. OTHERS: EXPLICIT NON-DEDUCTIBLE OR RESTRICTED EXPENDITURES
4.3.9. CHARGES ON INCOME (DONATIONS)
4.4. EXCURSUS: TREATMENT OF LOSSES
5. COMPUTATION OF TAX LIABILITIES
5.1. CORPORATION TAX
5.1.1. PREFACE
5.1.2. TAX RATES
5.1.3. SPECIAL TAX RELIEFS
5.2. TRADE TAX (ONLY IN GERMANY)
5.2.1. PERSONAL TAX LIABILITY
5.2.2. MODIFICATION OF TAX ASSESSMENT BASE
5.2.3. SPECIAL FEATURES OF DETERMININING TRADING PROFIT
5.2.3.1. ADDITIONS
5.2.3.2. REDUCTIONS TO TAXABLE BASIS
5.2.4. CALCULATION OF TRADE TAX
5.2.5. EXCURSUS: TREATMENT OF LOSSES
6. SUMMARY AND CONCLUSION IN TERMS OF THESES
6.1. PREFACE
6.2. BALANCE SHEET ITEMS
6.3. ITEMS OF THE INCOME STATEMENT
6.4. TAX RATES
6.5. FINAL WORD
Objectives and Topics
The primary objective of this study is to conduct a comparative analysis of the tax treatment of the Private Company Limited by Shares in the United Kingdom and Germany. The study aims to determine whether relocating the administrative seat of such a company from the UK to Germany is advantageous from a tax perspective by examining differences in tax liability, tax rates, and assessment bases, while formulating relevant theses on the preferability of either tax system.
- Comparative analysis of UK and German corporate tax laws.
- Examination of tax assessment bases for balance sheet items and income statement components.
- Assessment of tax rate structures and local business taxes (Trade Tax in Germany).
- Analysis of tax treatment for research and development expenditures.
- Development of decision-making references for business location selection based on tax optimization.
Excerpt from the Book
1.1. PURPOSE OF STUDY
In the discussion of topics relating to corporation law, already from a number of legal form alternatives within the European Union, the UK Private Company Limited by Shares (also referred to in the following as Limited or Ltd.) has been emerging as a preferred legal form with limited liability. The Limited may be presumed the most widespread legal form worldwide as facilitated mainly by the adoption of Anglo-Saxon law in countries of the former British Empire and the worldwide presence of English language.
The growing popularity of Limited in Europe is traceable first to Art. 43 and 48 TEC (freedom of establishment) while also to the breakthrough verdict of the European Court of Justice on "Inspire Art". This means that member states are now obliged to recognise the legal form and along with it limited liability of foreign firms with administrative seat (place of effective management) in their sovereign territory.
Irrelevant of whether the place of effective management is within or outside the United Kingdom of Great Britain and Northern Ireland (in the following as United Kingdom, or UK), establishment and management of Limiteds has to comply with valid corporation law of the home country. The approach also is referred to as the theory of establishment. Accordingly, the place of effective management of a Limited can be located in any European country while maintaining its legal personality.
The subject of present study is to examine whether relocating the place of effective management of a Limited from the United Kingdom to the Federal Republic of Germany (in the following as Germany) is preferable from tax point of view. In order to avoid double taxation of a company with registered seat in the United Kingdom while its place of effective management is in Germany, a double taxation treaty has been signed between the two countries. As far as a company is located in both the countries, as the place of its registered seat the country is considered in which its actual executive management is located (double taxation treaty between Germany and the United Kingdom, Art. 2.1) (sc. tie breaker rule).
Summary of Chapters
1. INTRODUCTION: Outlines the purpose, scope, and structure of the study regarding the tax treatment of Private Companies Limited by Shares in the UK and Germany.
2. FUNDAMENTALS: Discusses the instruments and methods used for international tax burden comparisons and provides an overview of the UK and German tax systems.
3. COMPARISON OF CORPORATION TAX ASSESSMENT BASES I: BALANCE SHEET ITEMS: Analyzes the recognition criteria, conceptual frameworks, and specific tax treatment for balance sheet items such as intangible and tangible assets, investments, trading stock, and receivables.
4. COMPARISON OF CORPORATION TAX ASSESSMENT BASES II: ITEMS OF INCOME STATEMENT: Examines the tax treatment of revenue and deduction items, including personnel expenses, depreciation, and tax losses, in the income statement.
5. COMPUTATION OF TAX LIABILITIES: Compares the effective tax rates and the computation of tax liabilities, including the role of German trade tax and specific tax reliefs.
6. SUMMARY AND CONCLUSION IN TERMS OF THESES: Synthesizes the findings of the study into thematic theses regarding the preferability of the respective tax systems based on the qualitative analysis conducted.
Keywords
Private Company Limited by Shares, UK Corporation Tax, German Corporation Tax, Tax Accounting, International Tax Comparison, Assessment Base, Tax Liability, Tax Rates, Balance Sheet Items, Income Statement, Trade Tax, Authoritative Principle, Depreciation, Qualifying Expenditure, Tax Optimization.
Frequently Asked Questions
What is the core focus of this study?
The study provides a comparative, scientific examination of UK and German tax law regulations specifically for Private Companies Limited by Shares, focusing on tax liability, tax rates, and assessment bases.
What are the primary thematic areas covered?
The work covers fundamental instruments for tax comparison, an analysis of balance sheet items, income statement components, computation of tax liabilities, and the specific impact of German trade tax.
What is the primary objective or research question?
The primary objective is to evaluate whether relocating the place of effective management of a UK Limited company to Germany is preferable from a tax perspective, and to formulate theses on the tax treatment advantages of either country.
Which scientific method is utilized?
The study employs a qualitative analysis of legal standards to compare tax regulations and assessment bases, supplemented by a critical examination of how these rules affect corporate tax positions.
What does the main body treat?
The main body systematically breaks down the tax treatment of assets, liabilities, revenues, and deductions, applying these to the unique regulatory frameworks of the United Kingdom and Germany.
Which keywords characterize the work?
Key terms include Private Company Limited by Shares, corporation tax, tax assessment base, international tax comparison, and tangible/intangible assets.
How is the "Authoritative Principle" applied in this context?
The study analyzes how tax regulations in both countries refer back to commercial accounting practices (the authoritative principle) and highlights where specific tax law overrides these principles.
How does the study address German Trade Tax?
German Trade Tax is treated as a specific feature of the German tax environment that must be added to corporation tax to determine the total corporate tax burden, with detailed explanations of its assessment base modifications.
What is the significance of the "tie breaker rule"?
The tie breaker rule in the double taxation treaty between Germany and the UK is central to determining the country of taxation for companies with registered seats in one country and effective management in the other.
- Quote paper
- Thilo Grabo (Author), 2008, Private Company Limited by Shares, Munich, GRIN Verlag, https://www.grin.com/document/117808
