Income tax grouping as tax management tool: lessons from EU with focus on Poland
Abstract
The paper discusses the availability tax grouping among EU countries as well as benefits and costs of this tax incentive. Article focuses on Poland, where real usage of this tax management tool is analysed. Grounds for its (low) popularity are investigated. Analysis was made primarily based on observation of values and time trends build on data published by Polish Ministry of Finance, Statistical Yearbooks, PwC reports and Eurostat. Although tax grouping for corporate income tax purposes is offered by half of EU Member States, Poland is the only CEE country that offers this tax allowance. However, Polish corporations rarely use it in practice. Reasons include elevated entry requirements, lack of VAT grouping, low corporate income tax rate, lack of additional withholding tax benefits, no possibility of tax losses utilization, profitability requirements or retroactive duties in case of losing a status of a tax group. Those obstacles seem to outweigh the benefits of higher net return on capital, decreased transfer pricing requirements, higher liquidity and limited tax compliance burden. Those limited gains are prized primarily by biggest Polish entities, which indeed use tax grouping. The novelty and value of this paper lies in analysis of important topic from practical perspective, which was not thoroughly verified before both in Poland but also in other jurisdictions. It may also serve as a hint for managers considering entrance in a tax group and policymakers, while amending tax law regulations.
Keyword : income tax, tax management, taxation, return on equity, tax grouping, business tax
How to Cite
Karpowicz, A. (2020). Income tax grouping as tax management tool: lessons from EU with focus on Poland. Business: Theory and Practice, 21(2), 675-685. https://doi.org/10.3846/btp.2020.11909
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Klassen, K., Lang, M., & Wolfson, M. (1993). Geographic income shifting by multinational corporations in response to tax rate changes. Studies on International Accounting, 131, 141–173. https://doi.org/10.2307/2491168
Kondrashova, N. (2016). Consolidated group of taxpayers: infusion into the Russian economic practice. International Journal of Economics and Financial Issues, 6(4), 1677–1683.
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Mintz, J., & Weichenrieder, A. J. (2005). Taxation and the financial structure of German Outbound FDI. CESifo Working Paper, 1612.
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Newberry, K., & Dhaliwal, D. (2001). Cross-jurisdictional income shifting by U.S. multinationals: evidence from international bond offerings. Journal of Accounting Research, 39(3), 643–662. https://doi.org/10.1111/1475-679X.00032
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Oestreicher, A., & Koch, R. (2008). Corporate average tax rates under the CCCTB and possible methods for international loss-offset. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1456373
Oestreicher, A., & Koch, R. (2010). The determinants of opting for the German group taxation regime with regard to taxes on corporate profits. Review of Managerial Science, 4, 119–147. https://doi.org/10.1007/s11846-009-0036-3
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Schreiber, U., & Führich, G. (2009). European group taxation-the role of exit taxes. European Journal of Law and Economics, 27(3), 257–274. https://doi.org/10.1007/s10657-008-9090-6
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Ting, A. (2010). Australia’s consolidation regime: a road of no return? British Tax Review, (2).
Weichenrieder, A., & Mintz, J. (2008). What determines the use of holding companies and ownership chains? Oxford University Centre for Business Taxation Working Paper.
Basinger, S. J., & Hallerberg, M. (2004). Remodelling the competition for capital. How domestic politics erases the race to the bottom. American Political Science Review, 98(2), 261–276. https://doi.org/10.1017/S0003055404001133
Bettendorf, L., de Mooij, R., van der Horst, A., & Vrijburg, H. (2010). Corporate tax consolidation and enhanced cooperation in the European Union. Fiscal Studies, 31(4), 453–479. https://doi.org/10.1111/j.1475-5890.2010.00121.x
Beuselinck, C., & Deloof, M. (2014). Earnings management in business groups: tax incentives or expropriation concealment? The International Journal of Accounting, 49(1), 24–52. https://doi.org/10.1016/j.intacc.2014.01.008
Büttner, T., Riedel, N., & Runkel, M. (2008). Strategic consolidation under formula apportionment. CESifo Working Paper 2484.
Büttner, T., & Ruf, M. (2007). Tax incentives and the location of FDI: Evidence from a panel of German multinationals. International Tax and Public Finance, 14(2), 151–164. https://doi.org/10.1007/s10797-006-8721-5
Büttner, T., Overesch, M., Schreiber, U., & Wamser, G. (2006). Taxation and capital structure choice – evidence from a panel of German multinationals. CESifo Working Paper, 1841. https://doi.org/10.2139/ssrn.935219
Cachia, F. (2017). Aggressive tax planning: an analysis from an EU perspective. EC Tax Review, Working Paper No 71 – 2017.
Clausing, K. A. (2003). Tax-motivated transfer pricing and US intrafirm trade prices. Journal of Public Economics, 87(9–10), 2207–2223. https://doi.org/10.1016/S0047-2727(02)00015-4
Dahle, C., & Bäumer, M. (2009). Cross-border group-taxation and loss-offset in the EU: An analysis for CCCTB (Common Consolidated Corporate Tax Base) and ETAS (European Tax Allocation System). Arqus Quantitative Tax Research Discussion Paper. https://doi.org/10.2139/ssrn.2128991
Desai, M. A., Foley, F. C., & Hines, J. R. (2004). A multinational perspective on capital structure choice and internal capital markets. The Journal of Finance, 59(6), 2451–2487. https://doi.org/10.1111/j.1540-6261.2004.00706.x
Desai, M. M., & Hines, J. R. (2001). Foreign direct investment in a world of multiple taxes. NBER Working Paper, 8440. https://doi.org/10.3386/w8440
Devereux, M. P., & Griffith, R. (1998). Taxes and the location of production: evidence from a panel of US multinationals. Journal of Public Economics, 68(3), 335–367. https://doi.org/10.1016/S0047-2727(98)00014-0
Devereux, M., & Loretz, S. (2007). The effects of EU formula apportionment on corporate tax revenues. Oxford University, Centre for Business Taxation.
European Comission. (2018). Taxation trends in the European Union.
Feldstein, M. (1999). Tax avoidance and the deadweight loss of the income tax. Review of Economics and Statistics, 81(4), 674–680. https://doi.org/10.1162/003465399558391
Fuest, C., Hemmelgarn, T., & Ramb, F. (2006). How would formula apportionment in the EU affect the distribution and the size of the corporate tax base? An analysis based on German multinationals. Deutsche Bank, Discussion Paper No. 1: Economic Studies. https://doi.org/10.2139/ssrn.854909
Gorter, J., & de Mooij, R. A. (2001). Capital income taxation in the European Union: trends and trade-offs. CPB Special Publication. CPB Netherlands Bureau for Economic Policy Analysis.
Gramlich, J., Limpaphayom, P., & Rhee, G. (2004). Taxes, keiretsu affiliation, and income shifting. Journal of Accounting and Economics, 37(2), 203–228. https://doi.org/10.1016/j.jacceco.2003.10.001
Hamada, K. (1966). Strategic aspects of taxation of foreign investment income. The Quarterly Journal of Economics, 80(3), 361–375. https://doi.org/10.2307/1880725
Harris, D. (1993). The impact of US tax law revision on multinational corporations. Journal of Accounting Research, 31, 111–140. https://doi.org/10.2307/2491167
Hays, J. C. (2003). Globalization and capital taxation in consensus and majoritarian democracies. World Politics, 56(1), 79–113. https://doi.org/10.1353/wp.2004.0004
Hidayat, A. (2018). A comparative analysis of corporate tax group regime in Australia, Germany, and Indonesia. Simposium Nasional Keuangan Negara. Jakarta, Indonesia.
Hybka, M. M. (2019). German tax consolidation regimes in an international comparison. Journal of Management and Financial Sciences, 38 (September), 85–97.
Jung, K., Kim, B., & Kim, B. (2009). Tax motivated income shifting and Korean business groups (Chaebol). Journal of Business Finance & Accounting, 36(5–6), 552–586. https://doi.org/10.1111/j.1468-5957.2009.02141.x
Karpowicz, A. (2018). Why revenues from payroll taxes do not follow trends in taxation of income of corporations? 36th International Scientific Conference on Economic and Social Development – “Building Resilient Society”. Zagreb, Croatia.
Klassen, K., Lang, M., & Wolfson, M. (1993). Geographic income shifting by multinational corporations in response to tax rate changes. Studies on International Accounting, 131, 141–173. https://doi.org/10.2307/2491168
Kondrashova, N. (2016). Consolidated group of taxpayers: infusion into the Russian economic practice. International Journal of Economics and Financial Issues, 6(4), 1677–1683.
Koutsias, M., & Dine, J. (2019). The three shades of tax avoidance of corporate groups: company law, ethics and the multiplicity of jurisdictions involved. European Business Law Review, 30(1), 149–181.
Mintz, J., & Weichenrieder, A. J. (2005). Taxation and the financial structure of German Outbound FDI. CESifo Working Paper, 1612.
Mintz, J., & Weiner, J. M. (2003). Exploring formula allocation for the European Union. International Tax and Public Finance, 10, 695–711. https://doi.org/10.1023/A:1026334005833
Musgrave, P. B. (1969). United States taxation of foreign investment income: issues and arguments. Law School of Harvard University.
Musgrave, R. A. (1992). Social contract, taxation and the standing of deadweight loss. Journal of Public Economics, 49(3), 369–381. https://doi.org/10.1016/0047-2727(92)90074-P
Nerudová, D., & Solilová, V. (2015). The Impact of the CCCTB introduction on the distribution of the group tax bases across the EU: the study for the Czech Republic. Prague Economic Papers, 2015(6), 621–637. https://doi.org/10.18267/j.pep.514
Newberry, K., & Dhaliwal, D. (2001). Cross-jurisdictional income shifting by U.S. multinationals: evidence from international bond offerings. Journal of Accounting Research, 39(3), 643–662. https://doi.org/10.1111/1475-679X.00032
Nicodeme, G. (2006). Corporate tax competition and coordination in the European Union: What do we know? Where do we stand? Munich Personal RePEc Archive.
Oestreicher, A., & Koch, R. (2008). Corporate average tax rates under the CCCTB and possible methods for international loss-offset. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1456373
Oestreicher, A., & Koch, R. (2010). The determinants of opting for the German group taxation regime with regard to taxes on corporate profits. Review of Managerial Science, 4, 119–147. https://doi.org/10.1007/s11846-009-0036-3
Ortmann, R., & Sureth-Sloane, C. (2016). Can the CCCTB alleviate tax discrimination against loss-making European multinational groups? Journal of Business Economics, 86, 441–475. https://doi.org/10.1007/s11573-015-0780-6
Overesch, M., & Wamser, G. (2010). The effects of company taxation in EU accession countries on German multinationals. Economics of Transition, 18(3), 429–457. https://doi.org/10.1111/j.1468-0351.2009.00385.x
Prinz, U. (2003). Wirtschaftliche Konsequenzen der Organschaft. Herzig N (Hrsg) Organschaft.
PwC. (2018). Woldwide Tax Summaries Corporate Taxes 2018/19.
Quinn, D. (1997). The correlates of change in international financial regulation. American Political Science Review, 91(3), 531–551. https://doi.org/10.2307/2952073
Scholes, M., Wolfson, M., Erickson, M., Hanlon, M., Maydew, E., & Shevlin, T. (2014). Taxes and business strategy: A planning approach. Pearson.
Schreiber, U., & Führich, G. (2009). European group taxation-the role of exit taxes. European Journal of Law and Economics, 27(3), 257–274. https://doi.org/10.1007/s10657-008-9090-6
Schwarz, P. (2009). Tax-avoidance strategies of American Multinationals: an empirical analysis. Managerial and Decision Economics, 30(8), 539–549. https://doi.org/10.1002/mde.1471
Statistics Poland. (2013). Statistical Yearbook of the Republic of Poland. Warsaw.
Statistics Poland. (2015). Statistical Yearbook of the Republic of Poland. Warsaw.
Statistics Poland. (2018). Statistical Yearbook of the Republic of Poland. Warsaw.
Szlęzak-Matusewicz, J. (2017). Podatkowa grupa kapitałowa na gruncie podatku od towarów i usług – ryzyko szacowania podstawy opodatkowania. Finanse, Rynki Finansowe, Ubez-pieczenia. https://doi.org/10.18276/frfu.2017.3.87.2-05
Ting, A. (2010). Australia’s consolidation regime: a road of no return? British Tax Review, (2).
Weichenrieder, A., & Mintz, J. (2008). What determines the use of holding companies and ownership chains? Oxford University Centre for Business Taxation Working Paper.