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Open access

Ruud De Mooij, Shafik Hebous and Milena Hrdinkova

Abstract

Until 2018, Belgium had a unique corporate income tax system due to its notional interest deduction, also known in public finance literature as the allowance for corporate equity. At the same time, it had one of the highest corporate tax rates in Europe at 34 percent. The latter came under severe pressure to reform and, as of 2018, the government has started to reduce the rate, gradually to reach 25 percent in 2020. The reduction is accompanied by other measures, including a limitation of the notional interest deduction. This paper argues that the lower CIT rate is likely to be conducive to economic growth. Yet, the effects on growth would have been more favorable if the notional interest deduction would have been strengthened, rather than diminished.

Open access

Reijo Knuutinen

Abstract

In personal income taxation, Finland had used the dualistic income tax model, known as the Nordic model, since 1993. The basic idea is that taxation of earned income is progressive, whereas taxation of capital income is proportional. Here, the model is reviewed from different perspectives: What kind of tax policy background does it have and how is the distinction between types of income argued for on theoretical grounds? How has the borderline of earned and capital income been drawn in tax legislation, and how is it drawn in the court cases, in particular in those related to tax avoidance? The dualistic model has often been criticized using equity arguments, but there are still strong arguments for the model. In any case, the model has not always worked too well in practice. The distinction has required special tax legislation as well as given rise to many court cases.

Open access

Marjon Weerepas

Abstract

Cross-border employees and self-employed workers are confronted with the regulations of at least two states when it comes to taxation and social security. Without delving into the specifics of national regulations, this article examines the applicable rules concerning the levy of taxes and social security contributions in the context of cross-border employment. Regulations aimed at avoiding double taxation are different from those aimed at avoiding the double payment of social security contributions. Because social security in the Member States can be financed in different ways, the levying of so-called economic double taxation is possible. This is true in particular where states use a large part of the tax revenues to finance their social security system. Cross-border workers that are required to pay taxes in these states and also pay social security contributions in another state can feel that they are paying double social security contributions. This contributes to a sense of injustice and is undesirable. The conclusion is that possible double economic contributions must be studied in a broader European context. First, the problem must be identified and then solutions formulated in order to prevent double levying.

Open access

Peter Koerver Schmidt

Abstract

This contribution analyzes the origin and creation of Denmark’s tax treaty network in a historical perspective. The development of the Danish treaty network is studied through an international perspective and by discussing a number of milestone events. It is concluded that the general tendency has pointed toward a continuously growing Danish treaty network and also that the question on abuse of the treaties has become of greater concern during the past decades. Moreover, it is argued that the growing number and importance of Denmark’s tax treaties over time created a need for the Danish parliament to be more directly involved in the conclusion of new tax treaties.

Open access

David Kleist

Abstract

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), which was signed in June 2017, raises a multitude of questions relating not only to the text of the treaty provisions but also to the way the MLI will interact with tax treaties, for instance, and what it will mean for the future development of tax treaty law and international cooperation in tax matters. This article focuses on two aspects of the MLI. First, it deals with the substance of the MLI by providing an overview of its background and content, including the many options available to the contracting states under the MLI. Second, some thoughts are presented on the effects of the MLI in terms of complexity and uncertainty.

Open access

Dennis Sundvik

Abstract

In this paper, I present a review of tax accounting research with a specific focus on earnings management in response to changes in the corporate tax rate. While prior surveys of the tax accounting literature have a broad scope and focus primarily on publicly listed firms, I concentrate on studies examining private firms. These firms have stronger incentives to engage in tax-induced earnings management and recent evidence shows that firms in general defer earnings from high to low tax periods around tax reforms. I summarize contemporary studies, questions examined, and learnings. In addition, I discuss practical implications and outline future research possibilities.

Open access

Reijo Knuutinen and Matleena Pietiläinen

Abstract

Taxes have become an issue of corporate social responsibility (CSR), but the role of taxation is to some extent an ambiguous and controversial issue in the CSR framework. Similarly, another unclear question is what role investors who are committed to sustainable and responsible investment (SRI) see taxes as having on their environmental, social, and governance (ESG) agenda. Corporate taxes have an inverse relationship with the return of the investors: taxes paid directly affect what is left on the bottom line, reducing the return of investors. However, investors are now more aware of tax-related risks, which can include different forms of reputation risk. Corporate tax planning may increase the returns, but those increased returns are riskier. This study focuses particularly on the relationship between SRI and taxation. We find that tax matters are considered to be on the ESG agenda, but their role and significance in the ESG analysis is unclear.

Open access

Robert Påhlsson

Abstract

Tax legislation contains references to taxpayer’s intentions with their transactions. The acquisition or sale of an asset may be treated differently, for example, depending on the purpose of the person holding it. This article contains a discussion of the concept of subjective prerequisites, with particular emphasis on the role they can play in tax law. How the terms intention and purpose are actually used in the Swedish Income Tax Act (ITA) is also explored.

Open access

Axel Hilling, Niklas Sandell and Anders Vilhelmsson

Open access

Kaisa Kotakorpi and Tuomas Matikka

Abstract

We provide an analysis of the revenue-maximizing top earned income tax rate for a country with one of the highest levels of earnings taxation in the world, Finland, and compare it to the current level of taxation. We account for the effect of income-shifting possibilities in the calculations and find that the current top tax rate on earnings in Finland is likely to be below the revenue-maximizing rate. We provide an explicit account of assumptions behind the Laffer curve calculations and demonstrate that policy conclusions depend critically on non-trivial choices regarding, for example, how the current top tax rate is calculated. The assumptions in the Laffer curve calculations need to be made explicit if the calculations are to provide guidance for policy.