Measuring Attractiveness Across Countries Dinkel, A., Keller, S. and Schanz, D. Institute for Taxation and Accounting – Chair: Prof. Dr. Deborah Schanz Ludwig-Maximilians-University, Munich

1. Introduction 4. Country Ranking The objective of this study is to develop a comprehensive measure of Table 2: Country Ranking Based on TAI (Excerpt, avg. 2005-09) countries‘ attractiveness with regard to corporate taxation. Unlike Rank Country Index Rank Country Index most existing measures, the newly developed Tax Attractiveness Index (TAI) combines and quantifies a broad range of relevant 1 Bahamas .81 27 France .53 factors. It is currently available for 100 countries and the years 2005 1 Bermuda .81 30 Germany .53 to 2012. The resulting country ranking is compared to that of existing tax measures as well as to the OECD‘s assessment of countries 3 Cayman Is. .78 85 China .32 engaging in harmful tax competition. 10 Netherlands .71 88 Canada .32 2. Established Measures of Tax Attractiveness 19 Switzerland .60 92 Japan .28 . Statutory rate (see, e.g., Buettner and Ruf, 2007; Hebous et al., 2011; Overesch and Wamser, 2009, 2010) 21 Great Britain .59 94 USA .24 . Macroeconomic average tax rate: aggregate corp. tax revenues / pre-tax profits (see Hartmann, 1984) 5. Results . Effective marginal tax rate: proportionate difference between the . Carribean countries offer most attractive tax environment, pre-tax rate of return and a given post-tax required rate of return because many of them do not levy at all. (see King and Fullerton, 1984) . The average European country ranks in the first half of the . Effective average tax rate: the effect of taxation on the total table due to participation exemptions, a broad network rather than the marginal investment project (see Devereux and and group taxation regimes. Griffith, 1999, 2003) . South American and Asian countries offer below average tax . European Tax Analyzer: Simulation of total tax burden of model- conditions. Asian countries have the highest average tax rates. corporation (see, e.g., Oestreicher et al., 2009) South American countries offer unfavourable loss offset opportunities and a low number of tax treaties. 3. Construction of the Tax Attractiveness Index . The US tax conditions are assessed to be comparatively The Tax Attractiveness Index is a composite index weighting 16 unfavourable due to high tax rates. factors equally. The index, as well as each of ist components . Tax havens (OECD lists 2000 and 2009) are significantly more ranges between 0 and 1.Ahigher value indicates a higher tax attractive than non-havens. However, some countries (e.g. Malta) attractiveness. having been delisted as a in 2009 actually increased Table 1: Components of the Tax Attractiveness Index their tax attractiveness.

Tax Factor Measurement . Although there is a negative correlation, neither the statutory tax

. Statutory Tax Rate (Max. tax ratet-tax rateit)/max. tax ratet rate nor average and marginal effective tax rates are a . Taxation of Dividends Percentage of tax exemption suitable proxy for the Tax Attractiveness Index. There are . Taxation of Capital Gains Percentage of tax exemption numerous examples of countries with low (high) tax rates and low . Withholding Tax Dividends (Max. tax ratet-tax rateit)/max. tax ratet . Withholding Tax Interest (Max. tax ratet-tax rateit)/max. tax ratet (high) index values. . Withholding Tax Royalties (Max. tax ratet-tax rateit)/max. tax ratet 1 - Member of the European Union . Keller and Schanz (2013) show that the TAI explains the . European Union 0 - Not member of the European Union location of foreign subsidiaries owned by German 1 - Loss carry back possible . Loss Carry Back multinationals better than the statutory tax rate. 0 - Loss carry back not possible 1 - Unlimited loss carry forward References . Loss Carry Forward 0.5 - Loss carry forward > 5 y & ≤ 20 y Buettner, T., Ruf, M., 2007. Tax incentives and the location of FDI: evidence from a panel of German multinationals. 0 - Loss carry forward ≤ 5 years International Tax and Public Finance 14, 151-164. 1 - Cross border group relief possible Devereux, M.P., Griffith, R., 1999. The taxation of discrete investment choices, IFS Working Paper No. W98/16, London. Devereux, M.P., Griffith, R., 2003. Evaluating tax policy for location decisions. International Tax and Public Finance 10, 107- . Group Relief 0.5 - National group relief possible 126. 0 - No group relief possible Hartman, D.G., 1984. Tax policy and foreign direct investment in the United States. National Tax Journal 37, 475-487. Number double tax treaties / Hebous, S., Ruf, M., Weichenrieder, A.J., 2011. The effects of taxation on the location decision of multinational firms: M&A . Treaty Network it max. number double tax treaties versus greenfield investments. National Tax Journal 64, 817-838. t Keller, S., Schanz, D., 2013. Tax attractiveness and the location of German-controlled subsidiaries, arqus-Working Paper No. 1 - No thin capitalization rules apply 142. . Thin Capitalization Rules 0.5 - Thin cap rules not clearly defined King, M.A., Fullerton, D., 1984. The Taxation of Income from Capital. University of Chicago Press, Chicago. 0 - Thin capitalization rules apply Oestreicher, A., Reister, T., Spengel, C., 2009. Common Corporate Tax Base (CCTB) and effective tax burdens in the EU 1 - No CFC rules apply member states, ZEW Discussion Paper No. 09-026, Mannheim. . CFC Rules Overesch, M., Wamser, G., 2009. Who cares about corporate taxation? Asymmetric tax effects on outbound FDI. World 0 - CFC rules apply Economy 32, 1657-1684. 1 - No anti-avoidance legislation applies Overesch, M., Wamser, G., 2010. The effects of company taxation in EU accession countries on German FDI. Economics of . Anti-Avoidance Legislation 0.5 - General anti-avoidance rule applies Transition 18, 429-457. 0 - GAAR + special rules apply Get the working paper here: . Personal Rate (Max. tax ratet-tax rateit)/max. tax ratet 1 - Holding regime applies . Holding Regime www.arqus.info 0 - No holding regime applies

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