While disputes about the tax on withdrawn capital have become less active in Ukraine, there is a new round of heated discussions about the need for an overhaul of international corporate taxation in the EU and the USA.
The European Parliament (TAX3 Committee) in January held a hearing on the “Evaluation of the tax gap” in the EU, during which the study “Effective tax rates for transnational companies in the EU” conducted by Petr Janský (COFFERS) based on 63 countries was published.
In short, the conformity assessment of nominal and effective tax rates (ESN) on profits was conducted. The findings are more than useful:
- a huge number of loopholes and exceptions led to the fact that a number of jurisdictions, having formally high nominal tax rates, actually managed to achieve a significant reduction - the lowest effective tax rates are in Luxembourg (2.2%!), Hungary (7.5% ), Cyprus (9.6%), the Netherlands (10.4%) and Latvia (10.6%);
- there is no need to talk about any tax justice, most European countries impose “almost regressive” taxes on multinational corporations (the more corporations, the less its tax burden), in some cases reaching values of no more than 2%;
- Ukraine is mentioned as an exception (together with Bulgaria and Slovakia), which has a coincidence of nominal and effective tax rates. Our income tax does not imply profits for multinational corporations. While in the EU the average effective tax is 15%, we have 20.2%.
As a result, we have the proposal to equalize the effective tax rates in all countries - EU members, which, in fact, returns Europe to the model of a single corporate tax and calls on to take efforts to further limit the fiscal sovereignty of states.
America also does not stand aside. A recent attempt to reanimate the so-called “Ryan’s plan,” which was part of the Trump administration’s tax reform in 2016 and which imposes an direction-based cash flow tax (DBCFT), caused a harsh assessment of the expert and scientific community (open letter of 10 experts "Reform would be little more than additional VAT").
Attempting to tax profits exclusively at the point of consumption of a product is the substitution of corporate tax reform. I mean, introducing a new subtype of consumption tax (VAT) with a place of collection in the world's largest consumer markets will have a global effect in the form of an increasing movement of taxable income from the world's poorest regions to the richest (primarily the United States) and the global growth of social inequality.
What can I say? The Ukrainian model of taxation of distributed profits looks like an increasingly reasonable alternative.