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Literature Review on Taxation, Entrepreneurship and Collaborative Economy

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Literature Review on Taxation, Entrepreneurship and Collaborative Economy ISSN 1725-7565 (PDF) ISSN 1725-7557 (Printed) TAXATION PAPERS Literature review WORKING PAPER No 70 – 2017 on taxation, Dondena (project leader) entrepreneurship CASE - Center for Social and Economic Research, Warsaw and collaborative IEB PwC economy Taxation and Customs Union Taxation Papers are written by the staff of the European Commission’s Directorate-General for Taxation and Customs Union, or by experts working in association with them. Taxation Papers are intended to increase awareness of the work being done by the staff and to seek comments and suggestions for further analyses. These papers often represent preliminary work, circulated to encourage discussion and comment. Citation and use of such a paper should take into account of its provisional character. The views expressed in the Taxation Papers are solely those of the authors and do not necessarily reflect the views of the European Commission. Comments and inquiries should be addressed to: TAXUD [email protected] Cover photo made by Milan Pein Despite all our efforts, we have not yet succeeded in identifying the authors and rights holders for some of the images. If you believe that you may be a rights holder, we invite you to contact the Central Audiovisual Library of the European Commission. This paper is available in English only. Europe Direct is a service to help you find answers to your questions about the European Union Freephone number: 00 800 6 7 8 9 10 11 A great deal of additional information on the European Union is available on the Internet. It can be accessed through EUROPA at: http://europa.eu. For information on EU tax policy visit the European Commission’s website at: http://ec.europa.eu/taxation_customs/taxation/index_en.htm Do you want to remain informed of EU tax and customs initiatives? Subscribe now to the Commission’s e-mail newsflash at: http://ec.europa.eu/taxation_customs/common/newsflash/index_en.htm Cataloguing data can be found at the end of this publication. Luxembourg: Publications Office of the European Union, 2017 doi:10.2778/924259 (printed) doi:10.2778/101308 (PDF) ISBN 978-92-79-74017-6 (printed) ISBN 978-92-79-74016-9 (PDF) © European Union, 2017 Reproduction is authorised provided the source is acknowledged. PRINTED ON WHITE CHLORINE-FREE PAPER Literature review on taxation, entrepreneurship and collaborative economy Final Report TAXUD/2016/DE/315 FWC No. TAXUD/2015/CC/131 Dondena (Project leader) Institute for Advanced Studies (Consortium leader) In consortium with CASE IEB CPB IFS DIW IPP DONDENA PWC ETLA ISER European Commission Literature review on taxation, entrepreneurship and collaborative economy Preface This report has been prepared for the project “Taxation, entrepreneurship and collaborative economy”, Specific Contract No.4 TAXUD/2016/DE/315 implementing the Framework Service Contract No. TAXUD/2015/CC/131 for the provision of economic analysis in the area of taxation. The following institutions and persons contributed to this project Dondena (project leader) Alessandra Casarico Giampaolo Arachi Massimo D’Antoni Luca Salvadori CASE - Center for Social and Economic Research, Warsaw Izabela Styczyńska Grzegorz Poniatowski Krzysztof Głowacki Iakov Frizis Karolina Beaumont IEB Alejandro Esteller-Moré Javier Vázquez-Grenno Jordi Jofre-Monseny PwC John Steveni Jonathan Gillham Robert Vaughan Charlotte Hacker Eleanor Keeble The information and views set out in this report are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. October 2017 | 2 European Commission Literature review on taxation, entrepreneurship and collaborative economy Table of contents Preface ............................................................................................................. 2 Table of contents ............................................................................................... 3 Executive Summary ........................................................................................... 5 Résumé ...........................................................................................................13 Introduction ..................................................................................................23 Chapter 1 The definition of entrepreneurship in the traditional and the collaborative economy ...................................................................................27 1 Introduction ...............................................................................................27 2 What is entrepreneurship? What are its determinants? ....................................27 3 What is the collaborative economy? What are its determinants? ........................29 3.1 The economic potential of the collaborative economy ................................31 3.2 What are the features of the collaborative economy business models? ........34 4 What are the differences between entrepreneurship in the traditional and collaborative economy? .....................................................................................35 Chapter 2 The impact of taxation on entrepreneurship in the traditional and the collaborative economy .............................................................................39 1 Introduction ...............................................................................................39 2 The rationales for reforming the tax system and providing specific incentives to foster entrepreneurship .....................................................................................40 2.1 Market failures justifying special tax treatment of entrepreneurship in the traditional economy .......................................................................................40 2.2 The rationale for differential tax treatment of entrepreneurship in the collaborative economy ....................................................................................42 3 Interaction of taxation and entrepreneurship ..................................................49 3.1 Impact of taxation on the decision to become an entrepreneur ..................49 3.2 Impact of taxation on the legal form of conducting a business (i.e. incorporation) ...............................................................................................57 3.3 Impact of taxation on investment ...........................................................59 3.4 Impact of taxation on access to financing resources and on capital structure .. ..........................................................................................................65 3.5 Impact of taxation on business location ...................................................74 3.6 The impact of taxes on employment in entrepreneurial firms .....................80 3.7 Tax compliance, tax evasion and the informal economy ............................83 4 Additional issues on the interaction between taxation and entrepreneurship in the collaborative economy .......................................................................................87 4.1 The principle of fiscal neutrality ..............................................................88 4.2 Design of tax policy ..............................................................................89 4.3 Design of tax administration ..................................................................98 4.4 The impact on government revenue – an illustrative simulation ............... 106 5 Effectiveness of tax incentives .................................................................... 112 Appendix 1 .................................................................................................... 114 Chapter 3 Tax Policy experiences ................................................................ 125 1 Rationale for selection of case studies and their relevance .............................. 125 2 Policy experiences and case studies on taxation and entrepreneurship ............. 128 2.1 The European Commission’s Agenda for entrepreneurship ....................... 128 2.2 Summary of Member States’ engagement with taxation and entrepreneurship ........................................................................................................ 128 2.3 Entrepreneurship and taxation case studies ........................................... 130 October 2017 | 3 European Commission Literature review on taxation, entrepreneurship and collaborative economy 3 Policy experiences and case studies in the area of taxation of the collaborative economy ....................................................................................................... 149 3.1 The European Commission’s Agenda for the Collaborative economy .......... 149 3.2 Summary of Member States’ engagement with taxation and the collaborative economy ..................................................................................................... 150 3.3 Collaborative economy and taxation case studies ................................... 152 Annex 1 – Additional detail on case studies ........................................................ 168 Chapter 4 Framework of Analysis ................................................................ 189 1 Introduction ............................................................................................
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