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Small and medium-sized enterprises (SMEs)

Taxation and SMEs

Study: ‘SME taxation in Europe - an empirical study of applied corporate income taxation for SMEs compared to large enterprises’

Background

Among the disadvantages for small and medium-sized enterprises (SMEs) are their scarce financial and human resources. While large-sized enterprises (LSEs) can usually draw on the extensive expertise and have at their disposal specialists who can advise them in economic matters regarding e.g. financing, taxation and business structures in order to optimize their net profits, SMEs are having three main difficulties in their businesses which are:

  • access to capital,
  • tax compliance costs,
  • the administrative burden.

This puts SMEs at a disadvantage and can hamper their growth. Another complex issue for SMEs to deal with is taxation. Therefore taxation matters are quite often outsourced to tax advisors, because SMEs do not generally have own taxation experts who could optimize the taxes for them. A general assumption is that SMEs are paying proportionally higher taxes than their larger competitors, but it can also be noted that SMEs in many countries benefit from lower taxation levels due to specific tax allowances, R&D incentives etc. However, these tax advantages could actually turn into impediments for SMEs to grow beyond the thresholds where tax reliefs are granted. It is important that SMEs are able to strengthen their equity base, because a weak financial position makes SMEs vulnerable during recessions, but also aggravates the problems of structural changes, re-orientations of the businesses and of obtaining financing. Essentially SMEs should not have a competitive disadvantage concerning taxation and financing etc. compared to LSEs.

Objectives

The objectives of the study are:

  • to identify key competitive advantages and disadvantages resulting from CIT of SMEs vs. LSEs,
  • to identify good SME CIT practices,
  • to suggest solutions to overcome possible distortions and disadvantages in CIT which are unfavourable for SMEs.

Description of tasks

The study consists of three modules

1. Desk and field research

  • Desk research: The task is to identify the mechanisms behind the CIT, analysing tax law i.e. the differences between CIT and the cash flow effects of CIT concerning SMEs vs. LSEs in the minimum 20 countries selected in the non-financial business economy. As a result, differences in the tax treatment of SMEs vs. LSEs, structural advantages and disadvantages for SMEs, as well as good CIT practices for SMEs will be identified and analysed.
  • Field research: In order to draw conclusions, a number of financial ratios will be established and presented over at least a minimum of the 5 most recent years. The data needs to be found at the level of country, size of enterprise, sector and CIT. The analysis will be based on field research and on data available in reliable databases. The calculations will be made using representative samples of enterprises to guarantee relevant conclusions at a European level. As a result of the field research, financial ratios applicable to SMEs will be established. On the basis of the established financial ratios, mechanisms leading to the effects/differences in the financial ratios will be analysed according to the countries, enterprise sizes and sectors.

2. Empirical research

  • Case studies: A few case studies will be presented as examples of real-life tax situations for enterprises. The case studies will be carried out among SMEs which are typical for the major part of SMEs in the non-financial business economy per country selected, and enterprise size. The case studies will be analysed by country selected, enterprise size and financial ratio in order to identify structural advantages and disadvantages of these tax systems regarding SMEs vs. LSEs in the non-financial business economy.
  • Tax advisors/consultants: Given that many business decisions with relevance to taxation of SMEs are often taken based on the advice of the tax advisors/consultants of their confidence, valuable information regarding the subject of the study can be obtained from representatives of this profession. A survey will be made amongst a number of tax advisors/consultants in some of the countries selected.

3. Findings and recommendations

  • All results of the study shall be presented at least per the minimum 20 countries selected, enterprise size, sector and financial ratio examined. The results will be analysed, presented and commented in a uniform manner following an agreed outline of structure of the final report.

Roadmap

Indicative
Timeline
MeetingsDeliverables
4th quarter 2012Kick-off meeting with the CommissionPresentation of a detailed time schedule and work programme of the study
4th quarter 2013First workshop with the Commission experts groupDiscussion of preliminary results of the study
4th quarter 2013First interim report
2nd quarter 2014Second workshop with the Commission experts groupDiscussion of the first draft results of the study
3rd quarter 2014Second interim report
4th quarter 2014Draft of the final report
1st quarter 2015Seminar with the Commission experts groupPresentation of the main results, policy recommendations and conclusions of the study

Study: ‘Effects of tax systems on the retention of earnings and the increase of own equity’

Background

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.

More information on the study

Find the Final Report and Summary report of the expert group

Consult the specific Country reports:

Austria pdf - 228 KB [228 KB]

Czech Rep. pdf - 255 KB [255 KB]

Denmark pdf - 234 KB [234 KB]

Estonia pdf - 235 KB [235 KB]

Finland pdf - 159 KB [159 KB]

France pdf - 232 KB [232 KB]

Ireland pdf - 191 KB [191 KB]

Italy pdf - 381 KB [381 KB]

Lithuania pdf - 173 KB [173 KB]

Luxembourg pdf - 233 KB [233 KB]

Netherlands pdf - 223 KB [223 KB]

Norway pdf - 269 KB [269 KB]

Poland pdf - 162 KB [162 KB]

Portugal pdf - 217 KB [217 KB]

Romania pdf - 310 KB [310 KB]

Slovakia pdf - 310 KB [310 KB]

Slovenia pdf - 329 KB [329 KB]

Spain pdf - 188 KB [188 KB]

Sweden pdf - 175 KB [175 KB]

Related project: ‘Simplified tax compliance procedures for SMEs’

Administrative and regulatory obligations for tax purposes are a time and cost consuming burden for SMEs. Cutting red tape and creating a better business environment is a policy priority for the European Commission. Some Member States have recently made progress in reducing red tape. But there are still ample possibilities to improve tax compliance procedures.

Tax compliance procedures vary in the participating countries. The exchange of good practices can encourage national authorities to identify suboptimal procedures and to improve their regulatory and administrative framework for SMEs.

More information

 

For further information, please contact:

European Commission

Enterprise and Industry Directorate-General

Unit D.3 'SME Access to Finance'

B - 1049 Brussels

Fax: +32 229-98025

E-mail: entr-sme-access-to-finance@ec.europa.eu

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