Center for Taxation and Public Governance
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| Business Taxation Coordinator: Dr. Iur. Gyonyi Vegh 2008 - 2008: November 17, 2008 - December 19, 2008 |
Course content
Although in many developing countries and countries with economies in transition indirect taxation is
the main tax revenue source, taxation of business income cannot be ignored. This is the more relevant
as enterprises are increasingly active across the borders of their own country. A competitive system of
business taxation is important to attract foreign direct investment. This course focuses on business
taxation in general and on corporate income taxation in particular.
Most countries differ in their taxation of business profits between a personal business on the one hand
and legal entities (corporate bodies) on the other. Profits of small businesses are often taxed only at
the level of the entrepreneur, normally with a personal income tax at the regular, mostly progressive
tax rates. When the business grows, the entrepreneur will often change the legal form of the business
and transforms it into a corporation. This corporation is then subject to corporate income tax, often at
a proportionate tax rate. In addition to this corporate income tax profit contributions (dividends) are
taxed at the level of shareholder (the ex-entrepreneur).
Taxation of business profits of small enterprises is quite simple. The personal income tax is often the
only taxation that is levied. Important issues in this type of taxation are the determination of the
taxable profit and the distinction of business profits from the personal sphere of the entrepreneur.
Also an important issue in this field is the determination of the taxable base versus the profit from the
commercial financial statements.
Corporate income tax systems are more difficult, because they relate in some way to the personal
income taxation of the shareholder. A country has to choose in what way the corporate income tax will
integrate with the personal income tax. Different systems to do so are available. Also the treatment of
dividend distributions to company shareholders and private shareholders (individuals) and their
international implications is one of the main issues.
The course starts with an in-depth discussion on the definition of taxable profit, relevant for both
types of taxation. Another main issue in this area is the use of commercial financial statements and
how these statements relate to the taxable business profits and eventually the permanent and
temporary deviations for tax purposes in this process.
After this we will discuss corporate income taxation, levied from corporate bodies (legal entities or
other vehicles) on the basis of their realized or distributed profits. As mentioned above, a country may
choose to tax profit if it is realized, but can also choose to defer taxation until distribution or choose
for a more consumptive approach. Characteristics of and interaction between these alternatives is one
aspect that will be discussed. In the central part of the course emphasis is put on various tax issues
related to (large) groups of companies. An important issue relates to the tax aspects of inter-company
pricing. Business transactions between associated parties may give rise to artificial profit shifting
between countries. The theoretical aspects of this phenomenon as well as alternative systems (e.g.
formula apportionment) are subjects in this course. The different tax treatment of equity and debt
financing, the facilities for loss carry over, and tax consequences of mergers and split-ups of
companies will be the subject of our research.
Finally the course focuses on the international aspects: bilateral tax treaties which aim at avoiding
double taxation of business profits in cross-border situations. The conditions to determine the
existence of a permanent establishment of a foreign company and the profit allocation to it are of main
concern for the possibility to levy corporate income tax in participant’s country. In this part of the
course attention is also paid to the developments within the European Union to come to a harmonized
corporate income tax system through directives and case law.
Although in many developing countries and countries with economies in transition indirect taxation is
the main tax revenue source, taxation of business income cannot be ignored. This is the more relevant
as enterprises are increasingly active across the borders of their own country. A competitive system of
business taxation is important to attract foreign direct investment. This course focuses on business
taxation in general and on corporate income taxation in particular.
Most countries differ in their taxation of business profits between a personal business on the one hand
and legal entities (corporate bodies) on the other. Profits of small businesses are often taxed only at
the level of the entrepreneur, normally with a personal income tax at the regular, mostly progressive
tax rates. When the business grows, the entrepreneur will often change the legal form of the business
and transforms it into a corporation. This corporation is then subject to corporate income tax, often at
a proportionate tax rate. In addition to this corporate income tax profit contributions (dividends) are
taxed at the level of shareholder (the ex-entrepreneur).
Taxation of business profits of small enterprises is quite simple. The personal income tax is often the
only taxation that is levied. Important issues in this type of taxation are the determination of the
taxable profit and the distinction of business profits from the personal sphere of the entrepreneur.
Also an important issue in this field is the determination of the taxable base versus the profit from the
commercial financial statements.
Corporate income tax systems are more difficult, because they relate in some way to the personal
income taxation of the shareholder. A country has to choose in what way the corporate income tax will
integrate with the personal income tax. Different systems to do so are available. Also the treatment of
dividend distributions to company shareholders and private shareholders (individuals) and their
international implications is one of the main issues.
The course starts with an in-depth discussion on the definition of taxable profit, relevant for both
types of taxation. Another main issue in this area is the use of commercial financial statements and
how these statements relate to the taxable business profits and eventually the permanent and
temporary deviations for tax purposes in this process.
After this we will discuss corporate income taxation, levied from corporate bodies (legal entities or
other vehicles) on the basis of their realized or distributed profits. As mentioned above, a country may
choose to tax profit if it is realized, but can also choose to defer taxation until distribution or choose
for a more consumptive approach. Characteristics of and interaction between these alternatives is one
aspect that will be discussed. In the central part of the course emphasis is put on various tax issues
related to (large) groups of companies. An important issue relates to the tax aspects of inter-company
pricing. Business transactions between associated parties may give rise to artificial profit shifting
between countries. The theoretical aspects of this phenomenon as well as alternative systems (e.g.
formula apportionment) are subjects in this course. The different tax treatment of equity and debt
financing, the facilities for loss carry over, and tax consequences of mergers and split-ups of
companies will be the subject of our research.
Finally the course focuses on the international aspects: bilateral tax treaties which aim at avoiding
double taxation of business profits in cross-border situations. The conditions to determine the
existence of a permanent establishment of a foreign company and the profit allocation to it are of main
concern for the possibility to levy corporate income tax in participant’s country. In this part of the
course attention is also paid to the developments within the European Union to come to a harmonized
corporate income tax system through directives and case law.
