Despite growing evidence on the ineffectiveness of profit based tax incentives, African nations on average offer three profit based tax incentives for every one cost based tax incentive whereas European nations on average offer a near one to one ratio of tax incentive types, the Tax Justice Network finds.
A new pilot study by the Tax Justice Network has produced the most comprehensive, fully public comparison yet of different countries’ tax incentive strategies. The study fills longstanding gaps in data and aims to help policymakers make better informed decisions on using tax policy to attract investments and boost local economic productivity.
The study covers five African states and ten European member states. The five African countries offered a total of 21 profit based tax incentives and 7 cost based tax incentives while the 10 European countries offered a total of 31 profit based tax incentives and 25 cost based tax incentives.
The profit based tax incentives offered by the five African countries consisted of tax holidays and special economic zones, while those offered by the EU countries consisted of broad or sectorial exemptions on corporate income tax and capital gains tax. The cost based incentives granted by the five African countries included accelerated depreciation and deductions from cost incurred on research and development activities, while those granted by the ten EU countries included tax credits, accelerated depreciation and cost deduction for investment in certain sectors.
The pilot study sets forth a new data tool for creating a global cross-country dataset of profit based tax incentives that can be used to compare and assess countries’ tax strategies at global level. The study serves as a proof of concept of the tool, which will be used in the Tax Justice Network’s upcoming Corporate Tax Haven Index. The new Index will rank jurisdictions that contribute most to the global race to the bottom in corporate taxation. Rankings will take into account problematic use of tax incentives.
Markus Meinzer, director at the Tax Justice Network, said:
Tax incentives on profits are often used by developing countries because conventional wisdom says incentives attract foreign direct investment that helps build the local economy. But data on how effectively these tax incentives deliver in practice is rarely collected by policymakers after handing out tax breaks to multinational corporations. Our research today confirms growing evidence that tax incentives on profits are not just largely ineffective, they can often be costly.”
Contact: Mark Bou Mansour, communications coordinator, Tax Justice Network, email: [email protected] mobile: +44 (0) 7562 403078
About the Tax Justice Network
The Tax Justice Network is an independent international network, launched in 2003. It is dedicated to high-level research, analysis and advocacy in the area of international tax and financial regulation, including the role of tax havens. The Tax Justice Network maps, analyses and explains the harmful impacts of tax evasion, tax avoidance and tax competition; and supports the engagement of citizens, civil society organisations and policymakers with the aim of a more just tax system.