The Tax Attractiveness Index (T.A.X.) shows the attractiveness of a country's tax environment and possible tax planning for the company. Tax. built for 100 countries worldwide starting from 2005. This index covers the same 20 components of the real-world tax system relevant to corporate location decisions. The index ranges between zero and one. The more the index value approaches one, the more interesting is the tax environment of a country from a firm perspective. 100 countries including 41 European countries, 19 American countries, 6 Caribbean countries, 18 countries located in Africa & amp; The Middle East, and 16 countries that enter the Asia-Pacific region.
Video Tax Attractiveness Index
Histori
Tax. developed by two German economists, Dr. Sara Keller and Prof. Dr. Deborah Schanz. Initially T.A.X. covering 16 different components of the real-world tax system and the 2005-2009 period. This index was further developed by Dr. Andreas Dinkel by adding four more components. The index is constantly updated for years to come. Previous research has shown that T.A.X. has explanatory power for location decisions eg. subsidiaries and patents.
Maps Tax Attractiveness Index
Measurement
The Tax Attractiveness Index represents a new approach to measuring the attractiveness of a country's tax environment. To establish the Tax Concern Index, values ​​are added for all 20 tax factors per country, which have been identified as determining the tax environment of a country, and dividing the amount by 20. Therefore, the index represents an equal-weighted amount of 20 tax factors. The index has a goal to show the attractiveness of a country's tax environment and tax planning opportunities. As a component of T.A.X. measured every year, as well as index. To calculate the index, variables should be limited to values ​​that range between zero and one. In the case of quantification schemes to be developed, the measurement of each tax factor has been adjusted to this scale. The tax environment of a country is considered more attractive, the more the index value approaches one. Tax. is an alternative measure of tax rates by law, and may be considered a more accurate proxy for a country's tax environment. Many high tax countries, especially in Europe, offer very favorable tax conditions. Thus T.A.X. reflects the tax appeal of a country better as a single determinant.
Variables
Anti-spacing rule
Tax laws in many countries include provisions aimed at preventing abuse. Tax authorities try to challenge fictitious or artificial transactions and try to combat tax evasion. Transactions that are only made to receive tax benefits should be prevented. Furthermore, transactions whose primary purpose is tax allowances should be prohibited. If a transaction is considered a dangerous tax evasion under anti-avoidance laws, the tax burden is calculated as if the abuse did not occur. Since the tax planning scheme may not work under certain anti-evasion rules, it is profitable for the company if the law does not exist.
CFC Rule
Generally, the country of residence of a subsidiary is allowed to impose a tax on the profits of a subsidiary. Parental countries only collect distributed profits in the form of dividends. This system leaves room for violations by multinational corporations as it may be considered an incentive to transfer income to countries with low taxes. Therefore, high-tax countries apply the rules of controlled foreign companies (CFCs) to prevent erosion of their tax base. If a country has a CFC rule, companies have less scope in their tax planning activities.
Corporate income tax rate
With regard to the tax base, the corporate income tax rate is a major component of the corporate tax burden. As a result, countries that offer lower tax rates are more popular among firms as countries with high tax rates.
Depreciation
An important element of the tax base is the tax depreciation rule. The sooner a company can depreciate the asset, the higher the present value of the tax savings as the tax base is lowered earlier.
EU member states
In the European Union (EU) tax withholding is reduced by the Subsidiary Rules and the Interest and Royalty Directive for transactions within the EU. As a consequence, royalties, interest, and dividends may be transferred between two EU Member States without the withholding tax imposed at the source country level.
Group tax regime
Countries that offer group taxation, allow that group member losses are offset against the profits of other group members. In this way, the tax burden of a group of companies can be reduced. As a result, the group tax regime is an advantage for the company.
Holding tax climate
The parent company is the primary tool in many corporate tax planning strategies. Location decisions for ownership depend on several common tax factors (such as exclusion of participation for dividends and capital gains, extensive agreement networks, low tax deductions, group taxation regimes) as well as on special holding regimes. Certain countries are thus trying to increase their tax appeal by offering a special regime to the parent company. Specific rules for ownership include exemptions from local corporate income taxes (eg Switzerland), exemptions from current taxes (eg Luxembourg until 2010), tax exemptions on all sales of shares in subsidiaries (eg Singapore) or tax returns paid to non- -populate if profit-sharing (eg Malta).
Loss return
Loss Restback lowers the company's tax burden. Current losses can be offset by last period's earnings. The possibility of losing capital again is an attractive factor for multinational companies.
Losing carryforward
Carryforward Loss lowers the company's tax burden in the future. Current losses can be compensated against future period earnings. The loss of carryforward possibility is an attractive factor for multinational companies.
Patent box regime
Companies with substantial intellectual property (eg patents or trademarks) often grant licenses to third parties and receive royalty payments in return. In some countries ordinary business income is taxed higher than royalty income. Therefore, countries that royalty tax on low effective tax rate (ie, patent box regime applies) appeal to the company.
Personal income tax rate
The employee tax expense is represented by the personal income tax rate. This increases the labor cost for the company. The lower the income tax rate, the more attractive the country is for a company.
Incentives R & amp; D
R & D investments represent substantial expenditures and affect future product offerings. So, R & D incentives are very important for many companies. Some countries offer tax incentives, for resident companies that conduct R & D, which supports companies to reduce their after-tax R & D costs.
Tax on capital gains
Double taxation is caused by the imposition of a tax on capital gains, because the capital gains contain the firm's earnings in the past and the expected future profits after taxes. It is therefore advantageous for the company if a country gives (in part) a tax break on capital gains.
Tax on dividends received
In a multinational group, it is possible to transfer the profits generated in one subsidiary to another subsidiary or parent company through dividends. For multinational companies, it is very interesting if profits can be transferred easily without causing further taxation. Tax exemption ensures the highest level of flexibility. The de facto profit distributed has been taxed at the level of the subsidiary it distributes. Many countries consider this when dividend tax is received: in many jurisdictions, dividends received from domestic and/or foreign subsidiaries are ignored for taxable income from the recipient company.
The thin capitalization rule
Multinational companies have the opportunity to spread their debts in various countries in the most efficient way through internal financing strategies. In high-tax countries, the reduction of interest costs is considered the most valuable. Containing the use of cruel debt financing, especially governments in countries with high taxes have implemented thin capitalization rules. These rules are detrimental to the company as they aim to limit the reduction of interest costs from taxable income.
Transfer pricing rules
When a company implements a transaction with a related company, they can set a price to transfer profits to the entity in the country with the lowest tax burden. To ensure that these transactions are priced according to the long arm principle, many state tax authorities have implemented transfer pricing rules. Countries with specific rules on transfer pricing are less attractive from a corporate perspective because they provide less scope for earnings change.
Network agreement
In order to avoid double taxation, the profit from the dual income tax treaty originating from abroad is exercised. Furthermore, multiple tax treaties serve to lower or even avoid royalty and interest payments and to withholding taxes imposed on distributed profits. This is the reason why companies are located in countries that have signed multiple tax treaties with many countries around the world.
Maintain dividend tax rate
Tax deductions on dividends provide a source country for tax revenues. From a corporate perspective, tax cuts are not profitable. Profits are taxed again when distributed (in contrast to dividends that are not distributed across borders) even if they are taxed companies. Companies in countries with no/low withholding tax are more attractive because they can distribute dividends with lower tax burden.
Interest rate tax cut
The withholding tax on interest gives the country a source for its tax revenues. Since the interest payments on taxes to lenders are lowered on a tax-deductible basis, tax cuts are not attractive from a company perspective. Therefore, in countries with higher tax withholding rates, demand for lenders is higher before the tax rate of the borrower. Firms in countries with low cuts taxes can increase foreign debt at a lower cost.
Withholding tax royalty
Tax deductions on royalties provide a source country for tax revenues. Since the tax royalty payments to the licensors are lowered based on tax after tax, the withholding tax is not attractive from a company perspective. Therefore, in countries with higher tax withholding rates, the licensor's request is higher before the tax royalty rate of the licensee. Companies in countries with low deductible taxes may license intellectual property at a lower cost.
ranking
(Data 2014)
Ratings indicate that offshore tax-free countries, such as Bermuda, Bahamas and Cayman Islands provide very favorable tax conditions as reflected by high index values. However, some European countries, such as Luxembourg, Cyprus, the Netherlands, Ireland, and Malta also achieved high index values. Surprisingly large industrialized nations like the United States and China are in the bottom quartile.
References
External links
- Official website
Source of the article : Wikipedia
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