Taxation of SMEs in OECD and G20 countries.

154 Pages·2015·2.121 MB·English

by  OECD

OECD Tax Policy Studies O
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Taxation of SMEs in OECD and G20 Countries D
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This report is part of the OECD Tax Policy Studies series which helps policy makers to design tax policies o OECD Tax Policy Studies
suited to their countries’ objectives. Small and medium-sized enterprises (SMEs) are important for their lic
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contribution to employment, innovation, economic growth and diversity. This report examines the tax treatment S
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of SMEs, the case for SME preferences, and the use of tax preferences and simplification measures for SMEs u Taxation of SMEs in OECD
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in thirty-nine OECD and G20 countries. Ideally, taxes should be neutral with regard to the business decisions ie
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of SMEs, including decisions related to their creation, form and growth. However, certain features of the tax
system may disproportionately affect SMEs, for example, the asymmetric treatment of profits and losses, a and G20 Countries
bias toward debt over corporate equity, and the higher fixed costs of tax and regulatory compliance for small
businesses. This report recommends that measures designed to address these concerns, as well as any tax
preferences for SMEs, be carefully targeted and seek to avoid introducing further distortions and complexity.
Contents
Chapter 1. The role of SMEs in domestic economies
Chapter 2. Income taxation of SMEs
Chapter 3. Tax preferences for SMEs
Chapter 4. Tax compliance and SMEs
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OECDTax Policy Studies
Taxation of SMEs in OECD
and G20 Countries
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FOREwORD – 3
Foreword
Fostering the development of small and medium-sized enterprises (SMEs) is rightly a
cross-cutting priority of the Turkish G20 Presidency. SMEs are the economic backbone of
many of our economies and they serve as key engines for job creation. This study, Taxation
of SMEs in OECD and G20 Countries, examines the influence of tax systems on a range of
challenges faced by SMEs, including decisions relating to their creation, form and growth.
SMEs make up the vast majority of business entities and contribute strongly to employment
and economic growth, spanning the full breadth of industries and sectors, and differing in
their propensity to innovate and grow. At the same time, SMEs face particular challenges
in relation to their access to finance. The tax system plays a dual role: at times, as a tool to
assist in overcoming these challenges, and at others, as an obstacle.
Understanding the role of the tax system in the decisions of SME owners and managers
is therefore critical in providing policy solutions to support their success. This study
provides insights into the influence of tax systems on SMEs in 39 OECD and G20 countries,
including Argentina, Australia, Austria, Brazil, Belgium, Canada, Chile, China (People’s
Republic of), the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece,
Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the
Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, South
Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.
Taxation of SMEs in OECD and G20 Countries finds that rather than being neutral
in their impact on SMEs and their decisions, tax systems often provide incentives for
SMEs to incorporate, and to distribute income in the form of capital, particularly in
the form of capital gains, which is often lower-taxed. In addition, some tax systems can
disproportionately affect SMEs relative to large enterprises, to the extent that they treat
profits and losses asymmetrically, have a bias towards debt over corporate equity, and
impose relatively higher compliance costs.
Governments take many measures to reduce these impacts, providing tax preferences and
simplification measures targeted at SMEs. Tax preferences are also intended to assist with other
challenges faced by SMEs, and to support their creation and growth. This study discusses these
measures and encourages careful targeting of any special tax rules for SMEs, to ensure they
meet their policy objectives in a cost-effective way. It cautions against introducing preferences
or simplification measures that create further distortions or complexities.
The taxation of SMEs, and the provision of SME-specific tax rules can, if carefully
designed, play a useful role in addressing the challenges and the disproportionately high tax
compliance burdens faced by SMEs. Taxation of SMEs in OECD and G20 Countries provides
cross-country comparison and analysis that can assist policymakers in designing tax policy to
support the creation, innovation and growth of SMEs in G20 countries and beyond!
Angel Gurría
TAXATION OF SMES IN OECD AND G20 COUNTRIES – © OECD 2015

ACKNOwLEDGEMENTS – 5
Acknowledgements
This study was prepared under the guidance of working Party No. 2 of the OECD
Committee on Fiscal Affairs and the working Party on SMEs and Entrepreneurship, and
was approved for publication by the OECD Committee on Fiscal Affairs and the OECD
Committee on Industry, Innovation and Entrepreneurship. Comments and information
provided by Delegates from these committees and by other national officials are gratefully
acknowledged. Input provided by the Delegates to working Party No 2. of the Committee
on Fiscal Affairs in response to the questionnaire is particularly appreciated.
The study was prepared and co-ordinated by Michelle Harding of the OECD’s Centre
for Tax Policy and Administration (CTPA), under the guidance of Thomas Neubig and
David Bradbury. Richard Clarke, Korstiaan Kool, Dimitra Koulouri and Anna Milanez,
all from CTPA, also made significant authoring contributions. The study was developed in
consultation with Kris Boschmans, Lucia Cusmano and Miriam Koreen from the OECD’s
Centre for Entrepreneurship, SMEs and Local Development, who also contributed to the
drafting of the study.
Contributions and assistance from other OECD officials to the development of
the study are also gratefully acknowledged: Piet Battiau, Bert Brys, Tibor Hanappi,
Martin Jares, Marta Jimenez-Blanco, Elena Miola, Maurice Nettley, Dominique Paturot
and Kurt Van Dender from CTPA, and Mariarosa Lunati and Gueram Sargsyan, from
the OECD’s Statistics Directorate. Martine Monza, Michael Sharratt and Violet Sochay
provided invaluable administrative assistance.
TAXATION OF SMES IN OECD AND G20 COUNTRIES – © OECD 2015

TABLE OF CONTENTS – 7
Table of contents
Abbreviations and acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Chapter 1. The role of SMEs in domestic economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
1.2. SMEs’ contribution to domestic economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.3. Taxable income and tax status of SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
1.4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Chapter 2. I ncome taxation of SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
2.2. Framework and assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
2.3. Single-level taxation of SME income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
2.4. Double-level taxation of SME income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
2.5. Comparisons and conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Chapter 3. Tax preferences for SMEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
3.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
3.2. Assessing the case for tax preferences for SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
3.3. Business-level preferences for SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
3.4. Investor level preferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
3.5. Conclusions and recommendations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
Chapter 4. Tax compliance and SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
4.1. Introduction and framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90
4.2. Simplification measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
4.3. Facilitating tax compliance for SMEs: where policy meets administration. . . . . . . . . . . . . . . . . 116
4.4. Policy conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128
Annex A. Exchange rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Annex B. Detailed SME characteristics from questionnaire responses. . . . . . . . . . . . . . . . . . . . . . 133
B1. General caveats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
B2. Detailed SME characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134
Annex C. Employer, employee and self-employed social security contributions. . . . . . . . . . . . . . . 143
TAXATION OF SMES IN OECD AND G20 COUNTRIES – © OECD 2015
8 – TABLE OF CONTENTS
Figures
Figure 1.1 Composition of SMEs in the service sector, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Figure 1.2 Relative contribution of SMEs to total number of persons employed, 2014. . . . . . . . . . . . .20
Figure 1.3 Employment, SME share, manufacturing and services
(2012 or latest available year) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Figure 1.4 Value added, by enterprise size (2012 or latest available year). . . . . . . . . . . . . . . . . . . . . . .22
Figure 1.5 Export by enterprise size class (2012 or latest available year) . . . . . . . . . . . . . . . . . . . . . . .22
Figure 1.6 SMEs relative contribution to total taxable business profits at entity level, 2014 . . . . . . . .24
Figure 1.7 Unweighted country averages of total taxable business profits at entity level for single-
taxed and double-taxed firms, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Figure 1.8 Proportion of double-taxed entities by firm size, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Figure 1.9 Contribution to total taxable business profits at entity level by firm structure, 2014 . . . . .27
Figure 2.1 Influence of taxation on SME economic margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Figure 2.2 Average statutory CIT rates at different levels of business income
(measured by multiples of the average wage), 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Figure 2.3 Average statutory CIT rates under small-business rates at different levels of business
income, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
Figure 2.4 Influence of taxation on SME economic margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Figure 3.1 Influence of tax preferences on economic margins of SME owners and investors . . . . . . .83
Figure 4.1 Summary of impact of simplification measures on economic margins of SME owners. .123
Figure B1 Relative number of firms at different entity sizes (by level of turnover) in each country 134
Figure B2 Employment at different entity sizes (by number of employees) in each country . . . . . . . 137
Tables
Table 1.1 Survival rates of new businesses in first five years of operation, 2012 . . . . . . . . . . . . . . . .23
Table 2.1 Single and double level taxation and relationship with incorporation . . . . . . . . . . . . . . . . .34
Table 2.2 Top marginal personal income tax rates, thresholds and social security contributions, 2014. .38
Table 2.3 Marginal personal income tax rates less cash contributions and social security
contributions at 100% Aw, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
Table 2.4 Average personal tax rates (excl. SSCs) at different levels of average wage income, 2014. . .42
Table 2.5 Basic and small business corporate tax rates, thresholds and eligibility criteria, 2014 . . . .44
Table 2.6 Labour tax rate, employee SSCs and combined statutory rates on dividends under basic
and small business taxation, 2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
Table 2.7 Marginal tax rates on different forms of business income, 2014 . . . . . . . . . . . . . . . . . . . . .53
Table 3.1 Summary of depreciation preferences for SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Table 3.2 Summary of investment allowance preferences for SMEs. . . . . . . . . . . . . . . . . . . . . . . . . .68
Table 3.3 Capital gains tax preferences for SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81
Table 3.4 Summary of tax preferences for SMEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Table 4.1 Thresholds and profitability ratio for simplified taxes in Italy. . . . . . . . . . . . . . . . . . . . . . .92
Table 4.2 Presumptive income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Table 4.3 Cash accounting for SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100
Table 4.4 Simplified filing requirements for SMEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
Table 4.5 Annual turnover concessions for VAT or GST registration and collection, 2015
(domestic businesses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105
Table 4.6 Optional cash accounting schemes in OECD and non-OECD G20 countries . . . . . . . . . . 111
Table 4.7 Return filing simplification provisions for SMEs in OECD and other non OECD G20
countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Table 4.8 Summary of simplification measures for SMEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126
Table A1 Exchange rates used in relation to the country responses to the SME tax questionnaire . 131
Table B1 Country-specific notes to the figures and tables based on questionnaire responses . . . . . 133
Table B2 Average taxable income by firm size (by level of turnover, EUR thousands) in each
country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Table B3 Average taxable income by firm size (by number of employees) in each country. . . . . . . 141
TAXATION OF SMES IN OECD AND G20 COUNTRIES – © OECD 2015