The corporate income tax rate in Austria has remained unchanged at 34 per cent since 1999, but they have recently announced that it will be reduced to 25 per cent from 2005. However, there have been certain adjustments to the tax base.
In 1999 the R&D allowance was increased to 25 per cent of current expenditures plus 10 per cent for the increment in expenditures compared to the average over the prior three year period. A general, wider R&D allowance of 10 per cent for expenditure according to the Frascati Manual was introduced in 2002 with an option to apply for a tax credit of 3 per cent instead. These rates were increased to 15 per cent and 5 per cent respectively in 2003.
A reduction of certain taxes and contributions for newly founded enterprises was introduced in 1999 and those measured were prolonged in 2002.
In 2000 a “capital market package” was introduced, which combined new rules for stock options (reduced income tax for yields), abolition of the stock exchange turnover tax and revenue compensating measures, mainly in the taxation of the return from investment funds yields.
As part of the consolidation package in 2000, the investment allowance was abolished in addition to increased taxation of foundations and restrictions on accounting reserves.
In order to promote economic growth, the government introduced accelerated depreciation of 7 per cent for buildings constructed in 2002 and a tax subsidy of 10 per cent for increments of investments in machinery and equipment in 2002 and 2003 compared to the average over the prior three year period.
In Finland the corporate and capital income tax rate was increased from 28 per cent to 29 per cent in 2000, while the maximum depreciation rate for machinery and equipment was reduced to 25 per cent in 1999. In 2002, a tonnage tax based system for shipping companies was introduced. In September 2003 the government in Finland agreed upon a corporate tax reform, which will be introduced in 2005. The most important measures in the reform are the lowering of the corporate tax rate from 29 to 26 per cent and replacing the dividend imputation system by a system where a certain percentage of dividends will be taxed at the personal level. The personal capital income tax rate will be reduced from 29 to 28 per cent.
The statutory corporate income tax rate in Iceland was lowered from 30 per cent to 18 per cent from 2002 and from 38 per cent to 26 per cent for partnerships with unlimited liability (both rates were 50 per cent in 1989). Furthermore, the corporate net wealth tax was reduced from 1.2 per cent to 0.6 per cent from 2003 and the corporate net wealth surtax was abolished.
In recent years, the parliament has passed a number of changes in the corporate income tax system in order to make it more flexible and in line with that of other European countries, e.g. to replace the previous inflation accounting system with accounting based on historic costs and to extend the carry-forward provision for net losses from five to eight years. In addition, depreciation rates on machinery, equipment, vehicles, ships, aircraft and other non-fixed assets were increased and the straight-line depreciation schedule for such assets was replaced by a remaining-balance depreciation schedule.
The rate of corporation tax in Ireland is 12.5 per cent since 1 January 2003. This follows the conclusion of detailed negotiations with the EU Commission, which led to the introduction of a single general tax rate. This was phased in as follows:
From 1 January 1998 32 per cent.
From 1 January 1999 28 per cent.
From 1 January 2000 24 per cent.
From 1 January 2001 20 per cent.
From 1 January 2002 16 per cent.
From 1 January 2003 12.5 per cent.
From 1 January 2000, a 25 per cent tax rate applies in the case of non-trading income and to certain land dealing profits other than construction companies, working minerals and petroleum activities.
The 10 per cent rate for manufacturing and the IFSC/Shannon zone ceased to apply at the end of the year 2002 except for existing operations which have acquired rights to the 10 per cent rate until end-2005 (for the IFSC/Shannon zone) or end-2010 (for manufacturing). This is in accordance with the agreement with the EU Commission.
The phasing in of the standard 12.5 per cent rate of corporation tax and the move to a classical system with no dividend tax credits was facilitated by the introduction of a dividend withholding tax (DWT). Under the DWT, withholding tax is applied at the standard rate of income tax, currently 20 per cent, on dividend payments to Irish resident individuals and certain non-residents.
Finance Act 2001 introduced legislation to allow transfers of assets involving Irish branches of EU resident companies to be treated on a tax neutral basis. It also provides that an Irish branch of an EU company trading in Ireland gets the same credit for foreign tax on dividends from overseas subsidiaries as would be available if the branch was an Irish resident subsidiary. The provision amends the mechanics for calculating relief for foreign tax against Irish corporation where such tax is to be allowed against Irish tax either as the result of a double tax treaty with another country or, alternatively, by way of unilateral relief.
In the Slovak Republic, the statutory corporate income tax rate was reduced from 40 per cent in 1999 to 29 per cent in 2000 and further to 25 per cent in 2002. From 2004 it was reduced to 19 per cent, as part of a fundamental tax reform which also involved extensive base broadening.
The limit for immediate write-off was increased from SKK 10 000 to SKK 20 000 for tangible assets and from SKK 20 000 to SKK 40 000 for intangible assets in 2000.
The last major reform of the corporate income tax system in Spain dates from 1995.
The reform aimed at increasing tax neutrality between different sources of income and reducing compliance costs, and the present statutory tax rate has remained stable at 35 per cent since 1995.
However, there was a growing concern that the corporate tax system did not provide a clear framework favouring the creation and development of small businesses. In addition, the tax system needed to adopt to the fact that Spain, which used to be a recipient of foreign investment, has become an important capital exporter in particular to Latin-American countries. This internationalisation of Spanish companies has been accompanied by the emergence of multinational enterprises in sectors such as telecommunications, financial services and utilities.
The main changes in order to strengthen the international competitiveness of Spanish companies have been to avoid international double taxation of dividends and capital gains for corporations owning more than 5 per cent of the capital of foreign subsidiaries (previously 25 per cent) and to increase the period for carrying forward losses to 15 years.
In order to provide permanent incentives for carrying on certain activities, the number of tax credits has been substantially raised, in particular in order to stimulate R&D activities and foster technological innovation in Spanish companies. Since 2002, as a general rule, companies may deduct 17 per cent of capital gains included in their taxable income.
From 2003 onwards, this percentage has been increased to 20 per cent, implying an 80 per cent inclusion rate for capital gains.
In 1997 a reduced statutory tax rate was introduced for SMEs (30 per cent for profits up to € 90 152). The net turnover amount to be considered as an SME has increased over time, from € 1.5 million in 1997 to € 5 million in 2002. Recently, special tax credits have been introduced for SMEs, e.g. tax credits tailored to foster the use of information and communication technologies, the improvement of their internet presence, the development of e-commerce and to favour the use of renewable energy sources. There is also a special tax treatment of family-owned companies.
As from 2003, all incorporated businesses may deduct expenses or payments (up to a certain amount) to day care centres (for small children) for their employees. These fringe benefits are exempt for taxpayers subject to the personal income tax.
To maintain a low rate, broad base system, the main rate of corporation tax in the United Kingdom was cut from 33 per cent to 31 per cent from 1 April 1997. The statutory rate was cut further to 30 per cent from 1 April 1999.
Rate cutting has been accompanied by base broadening measures including the abolition of payable imputation tax credits, a series of anti-avoidance measures and modernising the taxation of foreign companies’ branches in the UK. Better alignment of taxable and commercial profits has also led to reduced opportunities for avoidance and less complexity.
To reduce tax distortions and remove outdated restrictions, the following reforms have been introduced for large businesses since 1999:
● Advance Corporation Tax (ACT) was abolished in April 1999 and replaced with a system of quarterly instalment payments for corporation tax.
● Payable tax credits on dividends were abolished.
● The double tax relief rules were changed to allow onshore pooling of dividends.
● An exemption for gains and losses on the sale of substantial shareholdings was introduced from 1 April 2002.
● A new regime for providing tax relief to companies for the costs of intellectual property, goodwill and other intangible assets was introduced from 1 April 2002.
● A new regime for loan relationships, derivative contracts and foreign exchange gains and losses was introduced for accounting periods starting on or after 1 October 2002 to create a coherent regime governing the taxation of debt and derivative contracts.
A tax credit for large companies was introduced from 1 April 2002, giving tax relief on R&D expenditure at a rate of 125 per cent.
With effect from 17 April 2002 a 10 per cent supplementary charge on North Sea profits and 100 per cent first year allowances for capital expenditure in the North Sea were introduced. These changes will ensure that the North Sea tax regime raises a fair share of revenue and encourages long-term investment, establishing a more secure base on which companies can plan for the future. The Government has also abolished the North Sea Royalty.
Several changes have been tailored in order to reduce the tax burden of small businesses. The small companies’ rate was cut from 23 per cent to 21 per cent from 1 April 1997, then to 20 per cent from 1 April 1999 and a new 10 per cent starting rate was introduced from 1 April 2000. From 1 April 2002, to provide further support for small and growing companies, the small companies’ rate was reduced by a further 1 per cent to 19 per cent and the starting rate was cut to zero.
To increase capital investment by small and medium-sized businesses, the 40 per cent first year capital allowances for SMEs were made permanent in 2000. In addition, to encourage small businesses to invest in information and communication technology (ICT) equipment, 100 per cent first year ICT allowances were introduced for small business from April 2000 to April 2003.
To boost levels of research and development, an R&D tax credit giving relief for 150 per cent of R&D expenditure by small and medium-sized companies was introduced in April 2000.