European Commission - Enterprise and Industry

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Effects of tax systems on the retention of earnings and the increase of own equity Publicado el: 15/02/2008, Última actualización: 27/07/2009

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Autor:
DEMOLIN, BRULARD, BARTHELEMY - HOCHE.

The own equity base of many companies, especially of smaller companies, is rather weak. This makes companies vulnerable during recessions and also aggravates the problems of structural changes and re-orientations of the businesses and of obtaining credit. Current tax rules can have an important impact on business owners' decisions whether or not to retain earnings.

The study describes the situation regarding own equity of smaller companies in Europe, analyses current tax provisions of those countries that participated in the project, and identifies how these systems tend to influence company owners' decisions to retain earnings. The study describes and analyses business owners' situation on the basis of in-depth interviews with taxation experts and business owners. The study finally provides factual information on incentives and disincentives for the re-investment of retained earnings, identification of major tax obstacles for the re-investment of earnings, and proposals for solutions.

On the basis of the results of the study, a group of national experts nominated by participating countries have analysed the effects of tax systems with regard to increasing own equity and identified good practices and draw some conclusions in a summary report.

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