„We need a new tax mix“
Professor Spengel, neither the USA nor China or India are participating in the global minimum tax. Why should the EU remain in the club, even though it puts European companies at a massive disadvantage?
It doesn't really make sense, and is in fact very disadvantageous for domestic companies. The hopes placed in the global minimum tax were exaggerated anyway. And its application has not changed much for the better in terms of fairness and justice – in some cases, it has even done the opposite.
Can you give some examples?
The standardised taxation of companies has already been undermined for some time by governments handing out cash to companies that are willing to relocate in order to finance new production. Intel, for example, receives 4 billion euros for a chip factory in Germany. In Switzerland, it tends to be land that is made available free of charge. And there are still preferential regimes such as patent boxes, which should be abolished. Not to mention the income tax reliefs for highly qualified people. Fairness can only be achieved by eliminating exemptions.
The disadvantages of the minimum tax far outweigh the low tax revenues.
So has the minimum tax failed to achieve its actual goal of creating a level playing field for international companies?
Absolutely. Just look at the tax revenue. In Germany, it is estimated that only 20 million euros in net additional revenue has been generated, not even taking into account the high bureaucratic costs. And the disadvantages of the minimum tax are certainly much greater, because Asia and the USA are not participating.
If the minimum tax is already such a disaster, why do governments stick with it?
Quite simply because the minimum tax suggests a certain degree of tax fairness and appears to simplify the complexity of globalisation. It is also a catchy name.
Germany will never become a low-tax country.
The debate about tax cuts is starting again because Germany is a very unattractive location in this respect.
But we must realise that Germany will never become a low-tax country. This is not even necessary because the location has other advantages that justify higher taxes, such as our large market, legal certainty, quality of skilled labour, and so on. Moreover, when comparing locations, we must not focus too much on corporate taxation, but must also look at labour costs, which are largely determined by the employer's contribution to social security. This makes many entrepreneurs look abroad for new location investments rather than simply comparing corporate taxes.
According to you, the minimum tax is so appealing and has a high public profile because of its ability to fulfil society's desire for fair taxation. How can this desire be satisfied without a minimum tax?
We need a new tax regime, a new tax mix. Technological change, including digitalisation, is allowing the value chain to become increasingly fragmented. Development within companies no longer takes place in one place, let alone in one country, and production is also being equalised and distributed – only the market has remained the same.
The value added tax must be given greater importance in the future.
What are the consequences of this?
The value added tax must be given greater importance in the future. Above all, it must be implemented more consistently with regard to digital business models. The tax authorities are still largely at the beginning here – too many taxpayers are still getting away tax-free. More consumption-based taxation would be more in line with the importance and size of our market, as well as global tax justice. This is because even more services in the digital sector are provided in low-tax countries and under questionable labour law conditions than in the physical sector.
But how could taxation be implemented in an area that moves fluidly across national borders and to which often no physical place of production can be attributed?
The services are not usually paid for in cash. Transaction data is available. And if you want to enforce the tax claim, you can make third parties liable to collect the tax. In the case of wage tax, this would be the companies, in the case of capital gains tax, the banks and in the case of digital transactions, the payment service providers.
With the digitalisation of business models, the tax authorities are faced with phenomena to which there is not yet an all-encompassing answer.
Isn't that already happening?
Only to a certain extent. With the digitalisation of business models, the tax authorities are faced with phenomena to which tax law and tax collection do not yet have an all-encompassing answer. What's more, the structures are not in place to meet the challenges posed by the digitalisation of business and sales processes.
Where exactly is the problem?
Only since last year, for example, the accommodation provider AirBnB has had to report all transaction data to the tax authorities, who then pass this on to other European tax authorities in order to deduct tax from the income of domestic accommodation providers abroad. This also applies to eBay and should, in my opinion, be extended to all providers of digital services and networks. This would only be fair to brick-and-mortar retailers, who can hardly escape their tax liability.
But would this additional revenue be enough to finance a reduction in corporate tax rates? Hardly!
Don't underestimate the volume of VAT revenue! It adds up to quite a lot. If taxes were also consistently levied on digital goods, which should be possible in modern societies, it would amount to many billions. Just think of the small business rule in Europe, where there is no VAT liability up to 25,000 euros per year. On top of that, this is a blatant distortion of competition compared to brick-and-mortar retail.
We should therefore talk about inheritance tax.
However, taxing digital services more heavily would only serve one aspect of justice. German citizens are even more upset about wealth inequality. But every tax proposal here is rejected with the threat that this would jeopardise jobs and harm the location.
We should therefore talk about inheritance tax. Over two thirds of German wealth is attributable to inheritances. And despite being worth billions, the vast majority of German companies are passed on to the next generation tax-free. That is unfair.
And why is it so difficult to tackle this injustice?
Because the relevant organisations immediately complain that it costs jobs. But no one can convince me of that, because not a single company has applied for a deferral under the current scheme. So all of them were able to pay the taxes, if they had to pay any at all due to various favours.
But this is only an indirect indication.
The Federal Constitutional Court recently made clear that it has no reason to believe that inheritance tax would jeopardise businesses – precisely because the tax can be deferred. It therefore seems to be politically and socially desirable to favour company inheritances. But in my view, there is actually no reason to protect assets worth billions. Already now there are preferential treatment options that I cannot comprehend.
You can hand over a billion-euro company tax-free even if there are 500 million euros in liquid assets in the custody account.
What would that be?
Assets of up to 26 million euros can be transferred tax-free. If it is higher, there is a tax exemption needs test. And there is an additional benefit: if half of the non-business assets are not sufficient to pay the tax, it is waived completely. And in purely mathematical terms, the procedures used then make it possible to transfer a billion-euro company tax-free even if there are 500 million euros of liquid assets available in the custody account. That is unfair. Why not take at least half? Or have the tax paid off?
What would be fair from your point of view?
A flat tax for inheritances. To make it revenue-neutral, 9% would be enough, without any preferential treatment or allowances. But this is likely to remain a pious wish because there would probably be great resistance.
Only the left-wing party could push through such a plan (flat tax on inheritances).
Why? It sounds good - low taxation, equal revenue and, above all, more on the shoulders of large fortunes.
Well, that's true, but in public, unaware of the actual burden, there would probably be fierce criticism that a tax burden of 9% is probably too low for billionaires. In fact, they are better off in the established system. However, many people are not interested in this because they tend to argue ideologically, which catches on with the German public. The business community is also likely to be against it because it fears that it will be all the easier to turn the tax screw in future once all the favours have been removed.
So a flat tax is rather unlikely?
Yes, unfortunately. Also because public reporting and perception of tax policy is appallingly bad and ideologically overloaded. Only the left-wing party could actually push through such a plan, because people would believe that they certainly don't want to favour billionaires.
The interview was conducted by Stephan Lorz.
