Identification of causes of differences in statutory and effective rates of corporate taxes

Abstract

Although the existence of the corporate tax itself is a subject of controversy, it has been currently implemented in all EU countries except of Estonia where only distributed profits are taxed. The statutory (nominal) rate of the corporate tax itself does not say very much about the size of the corporate tax burden. This rate currently (on 31/10/2011) differs by 25% in the EU countries (10% in Bulgaria, Cyprus vs. 35% in Malta). For at least approximate determination of the effective (real) corporate tax burden, effective rates of corporate taxes are being used. The differences between the statutory and effective rates are affected by many factors. It can be assumed that a significant deviation of the nominal rate from the effective (real) one can be caused mainly by the existence of different methods and time of depreciation, possibility of group taxation, investment incentives or losses compensation, amount of property taxes and property transfer taxes, application of VAT on input, possibilities of costs deduction and other various tax exemptions and credits. The paper identifies and quantifies some of these influences by using analysis, synthesis, comparison and deduction.