Developmenting a system for calculating corporation Taxes at the example of Germany, Austria and Switzerland

Directory

Table Directory

Table of Abbreviations

Table of Presentations

Table of Formulas

Table of Acronyms

Bibliography

Abbendum of Spreadsheets

1. Introducing
1.1 Denotation of the Topic
1.2 Objective target of the thesis
1.3 Strategy
1.4 Basic structure of the thesis

2. Theoretic Part
2.1 Comparing the burdens of taxation
2.2 Corporate Taxation - GmbH for example

3. Main Part
3.1 Statement of the current situation
3.2. Realisation of an quantitative Tax comparison with the own concept
3.3 Descriptions of the results
3.4 Alternatives

4. Conclusion
4.1 Conclusion of the Results
4.2 Critical statement
4.3 Discussion of latent problems
4.4 Outlook

Table index

1 Included Taxes

2 Use of the Indicators according to Spengel

3 Example ZGS

4 ZGS effective burdens of taxation and effective profit

5 Corporate Taxation in Switzerland

6 Calculating EATR

7 Scenario summary with ratios

8 Calculating the Cash - Flow

9 Components and the Tax Systems

10 Taxes and their Taxbase

11 Calculating the German Business Tax (Gewerbesteuer)

12 Calculating the total tax burdens

13 Real estate Tax in Switzerland

14 Real estate Tax in Austria

15 Calculating of the EATR

16 Calculating the profit costs

17 Opening balance year 1

18 Used accounting ratios

19 Business transactions

20 Balance items

21 Balance sheet 31.12

22 Balance structure of each scenario

23 Overview of the results of Scenario

24 PATK © Scenario

25 EATR of the scenarios

26 PATK © of the scenarios

27 ETA of the scenarios

28 Balance ratios Scenario

29 Overview of the scenarios

30 Results of Scenario

31 Balance ratios Scenario

32 Profit and Balance ratios

33 Results of Scenario

34 Balance ratios Scenario

35 Ratios Scenario

36 Balance ratios of the different scenarios

37 Results Scenario

38 Results Scenario

39 Interest free Profit in Germany

40 Interest free Profit in Austria

Acronyms

illustration not visible in this excerpt

Presentations

1 Yield free Taxation

2 Analyse of the strong and weak points

3 Asset ratio and ratios

4 Relative changes of the Key figures

5 Equity ratio to ratios

6 Relative changing of Scenario

7 End profit after 10 years

Formulary

illustration not visible in this excerpt

1. Introducing

1.1 Denotation of the Topic

International company Tax Comparisons are in spite of the harmonization of the international tax

rates, also with inclusion of the calculation regulations to the determination of the calculation bases, suitable instruments to support the evaluation of enterprise action alternatives. To quantify the burdens of taxation of an company different methods can be applied, in what way the different methods indicates relevant results for the companies, is not examined in the literature enough. The system and the approach of the tax comparisons can lead to different results by a company in different industries and with different balance structures. The Choice of the countries was made by territorial aspects. The actuality of the company taxation, can be shown on the changes and the changes opportunities which depends on tax system. Thus in Austria was the biggest tax reform in 2005 since the existing of the republic passed. In Germany Tax systems will be developed, which should lead to a release of the Company-Taxation e. g. „the simply tax“¹ ) developed by Prof. Em. Dr. Manfred Rose and the university of Heidelberg or the development of the " interest-adjusted profits tax “ of the RWI and the Heidelberg tax circle.² )

The competition of the countries about company settlements or location advantages can be led with quantitative arguments like tax breaks or tax lowerings.

Qualitative competitive advantages like the infrastructure, the nearness to the outlet markets or to the raw material resources are likewise taken into consideration by the companies in the decision- making. The competition around location advantages under neighborly countries like Germany, Austria and Switzerland has stepped into a new phase by the EU-east extension. The cutting of the corporation tax on 25% and the installation of the team taxation (Gruppenbesteuerung) in Austria can be seen as an impulse to win the competition about locational advantages for Austria.

1.2 Objective target of the thesis

Objective target of this thesis is the development of an own system to measure the international burdens of company taxation with liquidity-oriented approach in comparison to the well known tax measuring models. The developed system analyzes the minimum taxation which would arise without application of detailed national accounting regulations. Any tax privileged by accounting regulations, investment free allowances or other country typical subsidy are not included in this model.

1.3 Strategy

At the beginning of the investigation the different models are briefly displayed to the measurement of the international company taxation descriptively. After the comparison of the single systems follows the representation of a model company and his legal form, this model company will transmit into the control system of the different lands. As a source currency of the investigation serves the Euro, the exchange rate to the Swiss franc (SFR) is 1.5 €. As a basis of the country - specific company taxation serves the beginning balance of the model company. The taxes of the different lands are divided into income tax and substance taxes. The measurement of the tax charge follows after yield, substance and whole tax charge. The activities of the model company during one financial year are displayed in the form of business incidents. From these business transaction the final balance is derived. The determination of the tax charge of the model company follows in the single lands according to the country-specific tax laws. The results of the measurement of the tax charge are displayed in a land comparison. The period of the consideration amounts in the scenarios a financial year. The business transaction remain unchanged in the scenarios. The other attributes of the scenarios, are described in the scenario overview. The period of the investigation should have by corresponding the consideration of the depreciation, the amortization period. The capital market interest amounts estimated 5 % by alternative investments. After evaluation of the single scenarios, these are compared with each other. As a reference model serves an entire company simulation of the single scenarios, with an quantitatively tax charge. This comparison uncovers the weak spots of the single methods with changeable starting bases.

1.4 Basic structure of the thesis

The work describes international tax comparisons what requires an explanation of the conception Tax charge comparison. Also the content of a tax charge comparison is described. The different attempts for the realization of a tax charge comparison are explained at first. In the beginning of the main part the model company is displayed. To carry out a scientific investigation, a definition of object which will be examined is necessary, in this study the fictional company. The legal form of the model company is explained and the used methods are defined. After the diversion of the problems the model is introduced. The comparison of own system with the already existing methods is the end of the main part.

2. Theoretic part

2.1 Comparing the burdens of taxation

2.1.1 Definition: Counting the burdens of Taxation

This investigation refers to the future business activity of an company situated in the inland, without export and foreign company activities. The sales tax problems are not included in this investigation, because is gone out from an entire charging with the pretax. Because companies, which are listed at the stock exchange, must do her annual account to IAS/IFRS (Internationally Accounting Standard / Internationally Financial Reporting Standard), the question positions itself with the measurement of the tax charge which system of the accounting is to be applied to calculate the measurement of the tax charge. The system of the accounting IAS/IFRS is directed after the principle of "Fair Value accounting". However this principle of accounting is not congruent which the system, that is responsible for the burdens of taxation a na]tionwide active company has really to pay to the lovely tax authorities. Nevertheless, at this work the accounting regulations of the single states are subordinated as a legal basis. The kinds of taxes which are used in this work, are listed in following table.

illustration not visible in this excerpt

Table 1: Included Taxes

2.1.2 Content of Counting the burdens of Taxation

Tax charge comparisons can be made from national economical view within the scope of the national accounting. By these comparisons, the figures will mostly been taken from statistic data. A business management tax charge comparison is founded on the basis of the company figures or takes a concrete example company to the property of his investigation. The investigation of a certain company type or company is called “Sollmethode”. The Calculating of the Taxcharge of single products or industries is called “Istmethode”.³ )

2.1.3 Different Methods of Counting the burdens of Taxation

2.1.3.1 Comparing the tax rates

The statutory tax rate can be examined about their form and about his percentage Value in relation to the tax base.³ ) The comparison of the legal tax rates brings out no meaningful results, because of the Europe wide assimilation of the tax rates. The assessment of the tax rate of the taxation of the profits of an corporation can be a comparison with the corporate tax rates. Kinds of taxes which will be depend on the corporate tax, like the so called Solidaritätszuschlag, can be integrated in the Comparison, depending on the definition of comparison.

The purpose of this thesis is to develop a system with which you can count the burdens of taxation. At Business tax comparisons the object of the study is primarily to define, which shows the way of the whole study.

The effect of all taxes on the taxation subject and their implementation in the exploration can been seen as second step. Tax comparisons can be only descriptive, or can be based on a quantitative measurement of the burdens of taxation. Another opportunity of comparing the burdens of taxation is to compare only the Tax rates. The quantitative measurement of the tax load can be carried out only on the basis of premises.

The circumference and the comprehensiveness of this form of the tax charge comparison can be very detailed. Tax charge comparisons can be past oriented („looking back“) or future-oriented ("looking forward"), past-related tax charge comparisons serve controlling purposes, while looking forward measurements refer to future investments.⁴ ) Starting point for the international comparison is the same quantitative calculation basis in the different lands. The rate comparison of legal tax rates creates an overview about the taxation situation in the international comparison.

2.1.3.2 National Comparing the tax rates

Tax charge comparisons on the basis of the national accounting can illustrate an average company and with it the medium charge of the company taxation. The business or office routines and the individual company data are more relevant for the business Tax comparison.

2.1.3.3 Effective marginal - and effective average Taxrates

The measurement of the tax charge by actual border rates of taxation and average rates of taxation, is based on the attempts of King and Fullerton (1984) which was developed in the course of the time by numerous scientists as for example Devereux and Griffith. King and Fullerton went on with the developing of the EATR from an investment which just the reached the Break Even Point. The investment was combined by different financing forms. 5) The border rates of taxation (EMTR) determine the charge of a marginal investment. If the border rate of taxation lies under the legal rate of taxation so the investment is worthwhile. 6) The profitability of a future investment is determined therefore. The basis formulas for the theories of King and Fullerton is illustrated in following formulas.

illustration not visible in this excerpt

Formula 2: EATR

When you calculate the effective marginal Tax Rate (EMTR), you relate the difference the capital costs (p) and the after tax yield (r) to the capital costs (p).⁷ )

The second very important figure of calculating the burdens of taxation is the EATR (effective average Tax Rate) which was developed by Devereux and Griffith in1998. This effective average Tax rate (EATR)determines the amount of an inframarginal investment. In the scientific literature several different definitions were used. Prof. Dr. Spengel defines the capital costs as before tax yield.⁸ )

The burdens of taxation can been as capital costs. Furthermore, the opportunity cost, less taxing approach in the market. The project is financed with debt, the cost of borrowing in the capital are included. The after-tax returns can be defined as after-tax yield, relative to the capital stock of the company or the use of capital investment. It can yield of each year compared, or an average over the period are formed. The average tax rate (EATR) is a financial target before taxes (Z), minus the financial target after tax (Zs) in relation to the financial target set before taxes. The financial target size, has an individual character, it is the individual claims of interested customizable. This could take the profit or return in the year or the average of recent years. The problem of implementation of existing losses in the model of King and Fullerton, is used by Scholes and Wolfson raised. Is a loss carry forward existent, which is tax deductible, an additional unit of gain can lead to a temporary tax shift, which comes to an change in the burdens of taxation and an change in the tax rates in a given time.

But even without tax changes, there can be disadvantages in taxation Aspects based on the „yield effect“ and the interest rates on the capital market. The kind how this investment is financed will be ignored in this thesis, although in practice the credit and borrowing costs can reach a high proportion of an investment. The iteration of the borrowing and loan costs could lead to an increase of the capital costs. The strength of Intention of the EATR and the EMTR, defined by Prof. Dr. Spengel in the following overview.⁹ )

illustration not visible in this excerpt

Table 2: Use of the Indicators to Spengel9 )

2.1.3.4 ETA (European Tax Analyzer)

ETA (European Tax Analyzer) is a computer model to simulate and measure the tax burden in different countries, using business simulations to develop the taxbase and to derive the tax. This computer based Tax Comparison was developed at a project of the University of Mannheim in cooperation with the Center for European Economic Research (ZEW) .¹⁰ ) These simulations can be specifically tailored to a company, as many parameters and tools can be specified. The period of simulating companies is 10 years.

2.1.3.5 Interest-free Profit tax

The yield free gains tax is based on the idea that the profits were multiple taxed within a period. The temporary approach assumes, that the taxation of a profit is not only to count in one period, but over a certain period, what figures out the tax burden of profits over a certain period of time. If a profit is earned in the year 01, it will repeatedly taxed due the next fiscal periods, if the capital market yield is positive. The following example illustrates the approach of the ZGS( zinsbereinigte Gewinn- steuer).

illustration not visible in this excerpt¹¹

Table 4: ZGS effective burdens of taxation and effective profit

The Period for this Calculation can extended and explains the burdens of taxation of corporations over a few years. The following Table shows the evolution of a company over a few years. The Profit is amount 10.000,- € each year, the taxation rate 40 %, the yield each year 5 %. Without Taxation the capital of the Company reaches out 70.000,- €, with Taxation 19.000,- €.

Presentation 1: Yield free Taxation¹² )

2.2 Corporate Taxation - GmbH for example

The Taxation of an limited liability company (GmbH)will be divided into the substance and profit taxation. The taxable profit is the base for calculating the burdens of taxation in the substance taxation. The Taxation of the substance will be seen in the taxation business management as a tax in dependence on the numbers of stocks, which will be declared as real estate tax, inheritance tax or gift tax.¹³ )

In the financial science the substance taxation will be called as debit or debit profit tax, which will proceed the erosion of capital and assets of the company in absence of profits.¹⁴ ) The taxation of an limited liability corporation (GmbH) in national function is part of this investigation.

2.2.1 Taxation in Germany

Income taxes or profit taxes are the corporate income tax (Körperschaftsteuer) and the business tax (Gewerbesteuer), depending on the corporation income tax is the solidarity surcharge (Solidaritätszuschlag), a 5 % surcharge on the corporate income tax. The corporate income tax rate is 25 %. The business tax is an local tax, according to corporate trade profit (Gewerbeertrag), which will be calculated on the rules of the corporation income tax (Körperschaftsteuer), from this base the Tax counting number (Steuermessbetrag) of 5 % of the corporate trade profit (Gewerbeertrag). The Tax counting number (Steuermessbetrag) will be multiplied with the local factor, which is the burden of business Tax (Gewerbesteuer). The substance of the company will be taxed for example with the real estate tax, the balance sheet item Land and building will be calculated with the real estate tax counting sum (Grundsteuermessbetrag), which will then be multiplied with the real estate tax counting number (Grundsteuermesszahl).

2.2.2 Taxation in Austria

The taxable income of a GmbH in Austria is taxed with the corporate income tax (Körperschaftsteuer), the tax rate is according to Section 22 KStG 1988 (Austrian corporate tax law of 1988) 25 %. The substance taxes, advancing the real estate tax, is valued in general at 2 / 1000 of the value of the unit (Einheitswert) of the property. Local taxes, such as municipal tax is 3 % of payroll (Lohnsumme).The Ltd. (GmbH) is a member of group, the profit can be taxed at the group carrier, the profit of the Ltd (GmbH) goes into the profit calculation of the group carrier. The capital income tax (Kapitalertragsteuer) is not included in this thesis, because there are no earnings which can be taxed with the capital income tax (Kapitalertagssteuer).

2.2.3 Taxation in Switzerland

The taxation of a liability limited corporation (GmbH) in Switzerland happens at the federal and cantonal level. The income is taxed at the country level through the profits tax (Gewinnsteuer) at 8.5 %. At the cantonal level the rate of taxation is progressive, the rate is derived from the yield intensity, the ratio of tax net profits to capital (equity) and reserves, in this example, the cantonal tax earnings are 24.5%. The taxation of capital is provided by the cantons, the rate is proportional and the bandwidth of the tax is between 0003 and 0009 of the equity. The base for this Tax calculations the equity (Grund- oder Stammkapital) plus the silent reserves (stille Reserven). The land tax or property tax (Grund- oder Liegenschaftssteuer) is proportional and amounts to 0.3 to 3 per 100.000 of the market value and will be collected by the municipalities. Taxes are in Switzerland, as deductible from income.

[...]

---

[...]

---

¹ Prof. Dr. Manfred Rose, „Die einfach Steuer“, 2005, n. p..

² Heidelberger Steuerkreis/ Alfred Weber Gesellschaft, „Zinsbereinigte Einkommensteuer“, Februar 2006, n.

³ Gabler (1997), Wirtschaftslexikon in 10 Bänden, 14. Edition, Wiesbaden, Band 8, p. 3608.

⁴ Spengel, Christoph, „Internationale Unternehmensbesteuerung in der europäischen Union“, 2. Edition, 2003,

⁵ Gordon,Kalambokidis, Slemrod, „Do we now collect any revenue from taxing Capital income ?“, 2002, p. 4..

⁶ Spengel, Christoph, „Internationale Unternehmensbesteuerung in der europäischen Union“, 2. Auflage, 2003, p. 64.

⁷ Spengel, Christoph, „Internationale Unternehmensbesteuerung in der europäischen Union“, 2. Edition, 2003, p. 63.

⁸ Spengel, Christoph, „Internationale Unernehmensbesteuerung in der europäischen Union“, 2. Auflage, 2003, p.. 63.

⁹ Spengel, Christoph „Internationale Unternehmensbesteuerung in der Europäischen Union“, 2. Edition, 2003, p. 67

¹⁰ Spengel, Jacobs, Wendt, „EU company Taxation in case of a common Tax Base“, Discussion Paper No.05-37, p. 4.

¹¹ Heidelberger Steuerkreis und RWI Essen, „Ein Vorschlag zur Reform der Unternehmensbesteuerung in Deutschland“. Heidelberg, Essen, 2006, p. 6.

¹² Heidelberger Steuerkreis und RWI Essen, „Ein Vorschlag zur Reform der Unternehmensbesteuerung in Deutschland“, Heidelberg, Essen 2006, p. 8.

¹³ Gabler (1997), Wirtschaftslexikon in 10 Bänden, 14. Edition, Wiesbaden, Band 9, p. 3679.

¹⁴ Gabler (1997), Wirtschaftslexikon in 10 Bänden, 14. Edition, Wiesbaden, Band 9, p. 3429.