INTERNATIONAL TAXATION
WELL WRITTEN NOTES
the 7 income types
profit income: income from
- agriculture & forestry
- business operations
- self-employed work
surplus income: income from
- non-self-employed work
- capital
- renting and leasing
- other activities
basic principles of taxation
1. ability-to-pay principle
2. efficient allocation of national wealth (while trying not to
distort behavior)
3. benefit principle (individual, group, general)
tax planning
making decisions that achieve highest surplus after tax:
acceptable tax avoidance
international tax planning
aims to exploit tax rate differentials and tax base
differentials between countries in order to maximize
surplus
solidarity surcharge
tax rate 5,5 % ; tax base income tax (not profit/surplus)
local business tax
, for sole proprietors & corporations: municipalities charge a
business tax, base rate 3,5 % + local multiplier
influence of taxes on NPV
1. cash flow effect
2. depreciation effect
3. interest effect
cash flow effect
taxes paid on profits decrease the investment's after-tax
cash flow >> profitability of real investment is reduced
(except for losses)
depreciation effect
depreciation reduces taxable income >> profitability of real
investment is increased
interest effect
taxes affect the yield of capital market investments >>
profitability of capital market investments is reduced
accelerated depreciation makes NPV of real
investments
increase
higher tax rate on capital market investments (= tax
rate on interest income) makes NPV of real
investments
increase (real investments are more profitable relative to
financial investments now)
corporate income tax
corporation is tax liable, flat rate of 15 %;
if corporations own shares, capital income >> corporate
income tax
+ local business tax
+ solidarity surcharge
taxable income, corporate income tax
WELL WRITTEN NOTES
the 7 income types
profit income: income from
- agriculture & forestry
- business operations
- self-employed work
surplus income: income from
- non-self-employed work
- capital
- renting and leasing
- other activities
basic principles of taxation
1. ability-to-pay principle
2. efficient allocation of national wealth (while trying not to
distort behavior)
3. benefit principle (individual, group, general)
tax planning
making decisions that achieve highest surplus after tax:
acceptable tax avoidance
international tax planning
aims to exploit tax rate differentials and tax base
differentials between countries in order to maximize
surplus
solidarity surcharge
tax rate 5,5 % ; tax base income tax (not profit/surplus)
local business tax
, for sole proprietors & corporations: municipalities charge a
business tax, base rate 3,5 % + local multiplier
influence of taxes on NPV
1. cash flow effect
2. depreciation effect
3. interest effect
cash flow effect
taxes paid on profits decrease the investment's after-tax
cash flow >> profitability of real investment is reduced
(except for losses)
depreciation effect
depreciation reduces taxable income >> profitability of real
investment is increased
interest effect
taxes affect the yield of capital market investments >>
profitability of capital market investments is reduced
accelerated depreciation makes NPV of real
investments
increase
higher tax rate on capital market investments (= tax
rate on interest income) makes NPV of real
investments
increase (real investments are more profitable relative to
financial investments now)
corporate income tax
corporation is tax liable, flat rate of 15 %;
if corporations own shares, capital income >> corporate
income tax
+ local business tax
+ solidarity surcharge
taxable income, corporate income tax
