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on Public Finance |
| By: | Thomadakis, Apostolos |
| Abstract: | The current international system that coordinates corporate income tax is increasingly unable to deal with a highly integrated and digitalised economy. To avoid taxes, multinational enterprises (MNEs) exploit the system’s inadequacies by shifting profits to low or non-tax jurisdictions – about 40 % of EU MNEs’ profits have been shifted to low-tax jurisdictions. In July 2021, to ensure that profits are taxed where economic activities take place, the Organisation for Economic Co-operation and Development (OECD)/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) agreed on an historic two-pillar solution. Following this, in December 2021 the European Commission proposed a directive to implement Pillar Two in the EU. In December 2022, after several attempts to harmonise taxes, Member States finally and unanimously agreed to adopt the Directive, ensuring a global minimum level of taxation of 15 % for MNEs. A new study ‘EU corporate taxation in the digital era’, highlights the main developments in corporate taxation over the last few decades in both the EU and the US. It analyses MNEs’ activity and profit shifting, and the impact of a 15 % minimum corporate tax. It also discusses the critical points in Pillar Two’s design that have raised concerns and require careful calibration. Finally, it proposes recommendations on how to improve Pillar Two’s functioning and how to implement the Business in Europe: Framework for Income Taxation BEFIT, stressing the importance of simplicity and uniformity. Launched in February 2022, a CEPS-ECMI Task Force brought together a working group of industry experts, corporates, academia and EU/international institutions for research and discussion over a period of 18 months. To improve the functioning of Pillar Two, the study specifically proposes that: There should be consistency between the sequencing of the Global Anti-Base Erosion (GloBE) rules in the EU Directive and the OECD’s Administrative Guidance. The principles of the single market must be adhered to, while the constant streamlining of national rules should be promoted. Cleary defining safe harbours should stabilise and substantially simplify the GloBE rules, and if this takes longer than anticipated to finalise, extending the transitory country-by-country safe harbour rules should be considered. The rules for settling litigation should be a high priority within the Inclusive Framework, while special rules at EU level should also be considered. To ensure the coordination of Pillar Two with the BEFIT, the study recommends that: BEFIT should aim for simplification, a reduction in compliance costs and uniformity within the EU to increase the EU’s competitiveness. In short, it should build on Pillar Two rules as much as possible. The optionality of rules could be considered, at least on a temporary basis. BEFIT should be based on strict derivation from financial reporting, with very few corrections. For the sake of simplification and uniform application within the EU, International Accounting Standards and International Financial Reporting Standards should apply and, contrary to the GloBE rules, the use of national accounting rules should not be allowed. As for when to implement BEFIT, an adequate timespan relating to the implementation of the GloBE rules would be best, to avoid overburdening tax administrations and taxpayers. |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:eps:cepswp:40760 |
| By: | Alice Pizzo (Copenhagen Business School); Christina Gravert (Department of Economics, University of Copenhagen); Jan M. Bauer (Copenhagen Business School); Lucia Reisch (University of Cambridge, Judge Business School) |
| Abstract: | We examine the impact of a carbon tax on consumer choices via a large-scale online randomized controlled trial. Higher taxes generally reduce the demand for high-carbon goods. Compared to an import tax, a carbon tax reduces demand when the tax is zero (i.e., announced but not levied) but shows relatively higher demand for high-carbon goods when a positive tax is introduced. This contradiction of basic price theory is entirely driven by climate-concerned consumers. Our findings suggest that carbon taxes can crowd out climate concerns, leading to important implications for policy. |
| Keywords: | Behavioral response; Carbon pricing; Climate change; Experiment; Moral licensing. |
| JEL: | Q58 C90 D03 D90 Q50 Q51 |
| Date: | 2024–11–13 |
| URL: | https://d.repec.org/n?u=RePEc:kud:kucebi:2416 |
| By: | Ricardo Guerrero Fernandez |
| Abstract: | Recent evidence from developing countries shows that the bottom of the income distribution pays more taxes relative to their income than the top 1%, highlighting a lack of tax progressivity in these societies. Current measures of tax progressivity fail to indicate which part of the income distribution explains this. Following the Palma Ratio intuition, this paper introduces the concept of vertical progressivity and a new index, the Progressive Vertical Index (PVI), which assesses the relationship between the tax burdens of the top 1% and the bottom 50% of the population. |
| Keywords: | Income distribution, Tax progressivity, Effective tax rate, Income inequality, Latin America |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-65 |
| By: | Telma Yamou; Mr. Alun H. Thomas; Kaihao Cai |
| Abstract: | This paper examines the relationship between citizens’ perceptions of tax authorities and the governments’ efficiency in collecting VAT and CIT revenues in Africa. Drawing on data from 32 countries over 2014-2019, we find a negative and significant association between negative perceptions of trust in authorities (the tax department) from the Afrobarometer survey and tax efficiency for these revenue categories. A 1 percent increase in the share of citizens’ perception of little or no trust in the tax department leads to a 0.22 percent decrease in VAT tax efficiency, controlling for macroeconomic indicators. The magnitude of the effect is significantly greater in fragile compared to non-fragile states. For corporate income tax productivity focusing on tax payments of corporates we find a significant effect only in fragile states. Perceptions about corruption in tax authorities have a similar effect on VAT and CIT tax efficiency since perceptions about trust and corruption capture the tendency to misappropriate revenues but we are unable to distinguish the two effects except for fragile states. Our findings suggest that in the face of fragility, policies aimed at improving fiscal capacity should place a high importance on ensuring that citizens believe resources will be used properly, an aspect of tax policy not typically prioritized. |
| Keywords: | Trust in authorities; fragility; tax efficiency; Africa |
| Date: | 2024–11–08 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/234 |
| By: | Selin, Håkan (IFAU - Institute for Evaluation of Labour Market and Education Policy) |
| Abstract: | In a dual income tax (DIT) system, labor income is taxed progressively, while capital income is subject to a lower proportional tax. DIT systems were introduced in Sweden, Norway, and Finland in the early 1990s. In the absence of rules restricting capital income distributions, owners of closelyheld corporations would easily be able to circumvent the progressive tax on earned income by withdrawing an appropriate amount of dividends instead of wages. The Nordic countries adopted very different income splitting models, with immediate implications for the tax treatment of dividends. In this article I first review the principles of the income splitting rules of Sweden, Norway, and Finland. I then discuss some of the tradeoffs involved in the design of such rules. |
| Keywords: | Income taxation; Nordic comparison; dividend taxation |
| JEL: | G35 H32 |
| Date: | 2024–11–18 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:ifauwp:2024_020 |