ZEW-Study, foreign companies under double economic burden
Foreign companies are not only subjected to a high effective tax burden under international comparison, but also have competitive disadvantages for highly qualified workforces. In Germany an employer must spend almost 200'000 Euro per year to enable a highly qualified employee to earn 100'000 Euro per year after tax and deductions. In the U.S. the employer has to spend scarcely 153'000 Euro so that the employee has the same income after taxes and deductions. An employer in the Swiss Kantons Zug and Schwyz has expenses as low as 130'000 Euro. This is, in addition to the high corporate tax burden, an additional advantage of location for foreign companies in international competition for highly qualified employees. This result is obtained from a study being carried out by the Centre for European Economic Research (ZEW) in Mannheim by order of the IBC BAK International Benchmark Club of BAK Basel Economics.
The study considers besides the tax burden in Germany and eleven Swiss Kantons also the U.S.A. (location Massachusetts), Great Britain, Ireland, France, Italy, the Netherlands and Austria. The used tax burden indicators include all relevant tax types which are applicable to employees with their incomes as well as capital companies with their profits. Responsible for the effective burdens in case of highly qualified employees are basically the income tax rates and the statutory pension insurance. In case of the corporate tax burden the tariff rates of the profit tax as well as the tax on the substance of property in France have a decisive effect on the effective average tax burden.
It is evident from the international and interregional comparison that the effective tax burden of highly qualified persons is at the lowest level in Switzerland and the U.S.A., followed by Great Britain, Ireland, the Netherlands and Austria. Germany, Italy and France indicate comparatively the highest burden. The effective tax and taxable burdens measured very strongly if varying incomes are assumed. However, the priority of the locations analysed by the ZEW change scarcely. All highly qualified workforces are flexible at international level, companies worldwide compete for them. Therefore, it is assumed in the study that these workforces will demand higher gross salaries from their employers in c ountries having higher tax and taxable burdens in order to compensate for the high deductions. If they succeed in doing so, the workforces for these staff members goes up in price for the companies. As Germany belongs to the countries with the highest tax burden, it is an appreciable competitive disadvantage as companies in Great Britain the U.S.A. and Switzerland can pay a substantial higher net salary to highly qualified persons for the same gross salary as in Germany.
Im internationalen und interregionalen Vergleich zeigt sich, dass die effektive Steuerbelastung von Hochqualifizierten in der Schweiz und den USA am niedrigsten ist. Es folgen Großbritannien, Irland, die Niederlande und Österreich. Die vergleichsweise höchste Belastung weisen Deutschland, Italien und Frankreich auf. Die gemessenen effektiven Steuer- und Abgabenbelastungen variieren sehr stark, wenn man Einkommen unterschiedlicher Höhe unterstellt. Die Rangfolge der vom ZEW analysierten Standorte ändert sich allerdings kaum. Da die hoch qualifizierten Arbeitskräfte international mobil sind, konkurrieren Unternehmen weltweit um sie. Deshalb wird in der Studie unterstellt, dass diese Arbeitskräfte in Ländern mit einer höheren Steuer- und Abgabenbelastung von ihren Arbeitgebern höhere Bruttoentgelte fordern, um die hohen Abzüge zu kompensieren. Soweit ihnen das gelingt, verteuert dies die Arbeitskraft dieser Mitarbeiter für die Unternehmen. Da Deutschland zu den Ländern mit der höchsten Steuer- und Abgabenbelastung zählt, ist dies ein deutlicher Wettbewerbsnachteil, denn Unternehmen in Großbritannien, den USA oder der Schweiz können Hochqualifizierten bei gleichem Bruttogehalt wie in Deutschland ein wesentlich höheres Nettogehalt auszahlen.
Even a consideration of the corporate tax burden confirms this picture: Locations indicating a competitive fiscal advantage for corporate tax further improve their starting position in competition with company establishments in many cases if additionally taxes for highly qualified workforces can be considered. A remarkable exception is the U.S.A., where the companies are subjected to high taxation, but highly qualified employees moderately. The reverse picture is obtained for Ireland. The Irish attract corporations with a corporate tax rate of just 12.5 per cent. However, the fiscal charges for highly qualified workforces are located in the middle range of the locations investigated.
For the determination of the tax burdens of highly qualified workforces a new calculation model has been developed by the ZEW. The corporate tax burdens were determined by the international established method of Devereux und Griffith. The structure of the investigation does not permit a direct comparison whether the workforces deployed are subjected to a higher or lower fiscal burden than the capital invested. It is however possible to assess the attractiveness of the individual locations for companies. The IBC BAK International Benchmark Club of BAK Basel Economics aims at supporting decision makers in politics and economy with economical analyses concerning the strengths and weakness of the respective regions in the location competition with the present study contributing to this end.
The level and the structure of the incomes reflect the high productivity of Switzerland. Due to the relatively small additional income expenses, the high motivation degree of the persons employed and the general higher work time than in other countries, labour costs at the economic location Switzerland are further attractive.
The employees carry substantially the Swiss social security system with their own contributions. Therefore the social security costs of the employer remain moderate. The yearly working time in Switzerland is higher than in the other European countries and the loss of hours because of strikes and public holidays is comparatively low. The industrial law of Switzerland is liberal and contains few adjustments as well as no union monopoly.
Well trained workforces are a condition for each successful enterprise. The education system in Switzerland ranks among the best of the world. It brings out highly qualified workforces on all levels. Owing to the excellent education system and the multi-cultural society a substantial part of the population speaks several languages fluently.
The total productivity of the Swiss national economy is the fifth-highest world-wide. The workforces are motivated and strikes are practically unknown.
Although the income level seems to be high, the entire labour costs are clearly deeper than in competitive economic areas. Additional income expenses and social security costs are low.