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COMMISSION OF THE  EUROPEAN  COMMUNITIES 
COM(83) 218 final 
Brussels,  28 april 1983 
TAX AND FINANCIAL  MEASURES 
IN FAVOUR  OF INVESTMENT 
(Communication  from the  Commission  to the Council) 
COM(83) 218 final 

1. Introduction 
2. The  case  for measures to help to increase the resources 
available  for investment 
3. The need to improve  both  self-financinq and external financinq 
thrni.'ah thp raisina nf  pnnitv  r.anital 
4. Increasing firms' self-financing margins 
4.1 Taxation and seIf-financinq 
4.2 Investment incentives 
4.3 Encouraging risk taking 
4.4 Readjustment of the tax burden on enterprises 
5. Channelling savings  into  the financing of investment 
5.1 Greater transparency of company accounts 
5.2 Improved conditions for risk capital investment 
6. Summary  and conclusions 

1. Introduction 
At its meeting on 15 November 1982, the  Council,  approved the procedures 
proposed  by the Commission in its Communication  C0MC82)  641; it agreed 
that  the Commission would continue to  assess  the tax and financial measures 
introduced to help investment in the Member States and would submit any 
conclusions  for consideration by the Council at one of its meetings in 
the first  half of 1983; the European Council of 3 and 4 December 1982 
confirmed the Council's conclusions. 
This  Communication sets out the results of an examination of existing 
measures  in the Member States designed to increase the resources of 
enterprises available for investment by: 
- increasing self-financing margins and 
channelling a larger proportion of savings  into  the financing of 
productive investment. 
2. The  case  for measures to help increase the resources available for investment . 
As a result of a prolonged period of high inflation and because of 
insufficient adjustment to structural changes, the productive system of the 
European  economies eventually deteriorated. This is reflected: 
(i) in losses of competitiveness for certain industries, branches andproducts; 
(ii) in inadequate market shares for new high-technology products; 
(iii) in an imbalance in the financial structures of enterprises; 
(iv) in a large number of business failures, some of them involving major 
compani  es. 
On several occasions, and in particular in its June Communication on the 
problem of investment (C0M(82) 365), the Commission has stated  that  the 
restoration of a climate more favourable to business investment depends on 
the existence of a number of macro-economic conditions which will: 
ensure  greater security of the international environment and 
increase  the stability of the economic framework  within  the Community. 
Any progress in these areas depends chiefly on national macro-economic 
policies,  on coordinating them  within  the Community and on closer 
international cooperation. 

- 2 -
Nevertheless,  in the opinion of the Commission , specific structuraL 
measures  to improve business taxation and financing may be a significant 
aspect  of the required overall strategy, the macro-economic components 
of which were defined in the Commission Communication to the European Council 
in March.  This is  because: 
- the macro-economic room for manoeuvre is still limited in certain 
Community countries; 
- there is an urgent need to eliminate as many obstacles as possible 
which may represent bottlenecks not only in conditions of slow growth, 
but also in the event of a significant improvement in macro-economic 
conditions; 
- the potential impact of such measures in terms of improving the general 
Investment climate and business confidence is substantial; 
- it is necessary to reduce certain burdens on productive activity, since 
the Level of most production costs  will  inevitably remain higher in the 
Community than in some of its trading partners. 
If any specific measure to stimulate investment is to be effective, its 
introduction must not cause a significant net deterioration in the general 
macro-economic  conditions which influence business behaviour; the repercussions 
on budget equilibria and interest rates are of particular importance here since 
they could easily wipe out the beneficial effects of specific stimulatory 
measures  through their effects on investor behaviour. 
Bearing  this in mind, the Commission considers  that  any improvement in tax 
arrangements for investment should avoid adding to budget deficits 
and should be financed by reducing certain subsidies notably those which, by 
helping ultimately uncompetitive business to survive, deflect resources  from 
profitable investment. 
Action  to modernize the financial markets.and break down barriers between them, 
which has made progress in recent years, must also be continued and stepped 
up; the relevant measures must be designed in a Community context promoting 
Integration  along the lines indicated by the Commission in its Communication 
1 
1 See C0M(83)207 final. on financial integration 

- 3 -
3. The need to improve  both  self-financing and external financing through the  
raising  of equity capital 
In the Community countries, the financing of business investment differs in 
the relative reliance on loan capital and shareholders' funds, whether internally 
generated  (self-financing) or raised externally (issue of shares). 
Although this situation may be due to some extent to the institutional features 
of financial markets, the following points are also  worth  considering: 
a structure of investment financing based primarily on self-fi nancing may 
mean  that  established enterprises escape market control as regards resource 
allocation  and management capabilities: however, the financial markets 
cannot  fulfil  this role unless they are sufficiently developed and operate 
in a satisfactorily efficient manner, which is not always the  case, 
particularly in certain Member States; 
access  to adequate external funds  is a prerequisite for innovation and 
expansion  in certain phases of the life-cycle of enterprises, particularly 
small  and medium-sized  businesses.  However,  access  to external finance in 
the form  of equity capital and loan capital normally depends on an adequate 
flow  of self-financing. Low self-financing ratios cannot be sustained 
indefinitely, because they undermine the possibility of remunerating equity 
capital  and because a high gearing  ratio  increases the risk for potential 
lenders; 
in view of the increased risk due to greater uncertainty, and the innovative 
effort  necessary to preserve competitiveness and employment, investment must 
be financed through an adequate  flow  of risk capital (self-financing and 
equity raised externally); 
the scope for financing  growth  and innovation by borrowing is limited by 
the present slow-growth situation, by the availability of credit and the level 
of interest rates, which depend partly on restrictive policies aimed at 
bringing down inflation, and by the imbalance in the financial structures 
of enterprises,  often  characterised by a high gearing ratio. 
To sum up, although the possibilities for improving the conditions for medium-
to long-term borrowing must not be disregarded, the main focus must be on 
action on two fronts,  seIf-fi  nanci ng and external financing through the raising 
of equity capital, so as to help restore sounder financial structures and to 
permit  a faster rate of adjustment to change. 

- 4 -
4. Increasing  firlffs-'  self-financing margins 
4.1 Taxation' and self—financing 
Self-financing  capacities depend primarily on  profitabi  lity,  i.e. on the 
relative* movements of prices and production costs, but also on the amount 
and structure of taxes (including social security contributions) borne 
by enterpr-ises. Therefore: 
- -to the extent  that  depreciation allowances must be based on historic cost i 
taxation does not allow for the effects of inflation and of the acceleration 
6-f. technical progress on the real value of productive capital,, and this 
gives  rise to the taxation of apparent profits. 
Although the scope for tax depreciation is not the only aspect of the 
interrelationship between taxation, inflation and profits, it is the 
most  important  from  the  point  of view of investment policy. According to 
some  estimations, in the Federal Republic of Germany, where inflation,has 
been  relatively modest in comparison  with  the Community average, taxes on 
the apparent  profits  resulting  from  the method of calculating depreciation 
for wear and tear probably represented over one  third  of the tax liability 
of enterprises subject to tax; in  Italy , historic-cost depreciation for a 
sample  of manufacturing firms in 1981 was probably under half the amount 
of replacement-cost depreciation. 
- taxation is insufficiently adapted to the requirements of new enterprises 
and of innovation, in particular high-risk and deferred-profitability 
innovation. This is a problem which, by definition, cannot be solved by 
taxing  profits  less  heavily, but other tax measures are possible; 
- the burden of taxes not linked to  profits  (e.g. the "taxe professionnelle" 
in France,  "Gewerbesteuer" in the Federal Republic of Germany; the net 
wealth tax in the Federal Republic of Germany, Luxembourg, Netherlands and 
Denmark)weighs more heavily in periods of slow  growth  and declining profits. 
1 The Fourth Directive on annual accounts does not advocate a uniform 
method as regards the relationship between taxation and accounting. 
Nevertheless,  the Directive  took  account of this problem in a number of 
respects.  First, besides normal value adjustments, exceptional value 
adjustments are permitted for taxation purposes alone (Article  35(1)(d), 
Article  39(1)(e)).  In addition, the notes on the annual accounts must show 
the extent to which the calculation of the  profit  or loss for the financial 
year  has been affected by a valuation of the items which by way of derogation 
from  the valuation principle was made  with  a view to obtaining tax relief 
(Article 43(1X10)). 

- 5 -
It is not possible in the context of this document, to present a more 
detailed analysis of the implications of the burden represented by employers' 
social  security contributions, which in some Member States make up a 
significant proportion of labour costs and tax revenue (see Table  1: some 
29% of total  taxes in  France,  Italy  and the Netherlands). Clearly, it is 
the total  cost of labour which influences enterprises' self-financing margins; 
but at least  part  of the social security contributions paid by enterprises 
is used to finance costs (health expenditure for example) which should not 
weigh mainly on one particular sector of the economy. Consequently, these 
charges  affect the self-financing capacity of enterprir.es  differently  in 
the Member States. As it stressed in its Communication to the Council 
"Social  Security Problems  - Points for Consideration" (C0M(82)  716  of 
17 November  1982),  the Commission considers  that  national measures in this 
area  must be taken in the economic context of the single market, and  that 
the Community as a whole should be able to benefit  from  the experience of 
the various Member States. 
4.2 I nvestment incentives 
All the Member States use general measures to give direct or indirect 
encouragement to enterprises to invest; on top of these there are more 
selective  measures (e.g. regional or industry measures). At this stage, we 
have confined our analysis to general tax incentives. 
Essentially,  these measures are the reduction of the rate of tax on  profit 
(often  they  will  favour certain categories of enterprises); the reduction 
of the tax base (in particular through the rules governing depreciation); 
the deductibility of a percentage of the investment  from  the taxable  profit 
(e.g.  in Belgium, Denmark and  Greece);  the formation of tax-free reserves 
(e.g.  in Denmark) or the reduction of tax liability in accordance  with  the 
investment (tax credit in Luxembourg and the Netherlands; investment payment 
in the Netherlands, where the portion in  excess  of the tax liability is paid 
out; "negative VAT" in  Italy). 
The following general comments may be made: 
reductions of the tax base are advantageous for profit-making enterprises 
and if  losses  can be carried back or forward; the same is  true  of 
deductions  from  taxable profits. Where enterprises are not profit-making, 
the reduction of charges which are not linked to profits, or tax subsidies, 
are clearly more attractive. 

- 6 -
This  raises the question whether investment should be facilitated 
irrespective of whether the enterprise is profitable.  Such  an approach 
might  be  justified  in the  case  of new enterprises and innovative enterprises 
engaged  in deferred-profitability activities or in order to get through a 
difficult  cyclical situation  without  needlessly undermining the productive 
potential of the economy: 
- temporary incentives may prove effective where the object is to accelerate 
investment spending; but the stability of an environment favourable to 
investment is essential in order to encourage businesses to invest and innovate; 
- the real efficacy of the various incentives depends on the extent to which 
they represent a definite advantage or merely compensate, to varying degrees, 
for the effects of inflation on the rebuilding of productive capital. 
The national tax laws provide for various forms of accelerated depreciation 
which,  although generally presented as an incentive mechanism, in fact also 
mitigate the effects of rising prices; in  France,  the Finance Act for 1983 
temporarily improved the possibilities of accelerated depreciation (in 
certain  cases,  first-year depreciation  will  go up to 70%); 
in Ireland and the United Kingdom, the possibility of 100% first-year 
depreciation enables the effects of inflation on the depreciation of 
productive capital to be almost  fully  offset. In order to reduce distortions 
between industries and enterprises, a 75%  initial  allowance has recently 
been  introduced for buildings alongside the 100% capital allowances for 
plant and machinery; 
other arrangements make it possible to allow for the effects of inflation, 
either systematically or occasionally: reserves for price increases; the 
indexation of depreciation allowances  (this  possibility was introduced in 
Denmark by the Law of September 1982 on tax depreciation); the revaluation 
of balance sheets (a law on this subject has  just  been approved in  Italy ). 
In this  area,  it is  important  for the arrangements introduced 
to be simple and transparent; 
not to be ad hoc remedies, introduced piecemeal, but structural elements 
of taxation. 
4.3 Encouraging risk-taking 
The analysis of other tax arrangements existing in the Member States which 
affect self-financing suggest  that  changes to the rules on the carry-back or 

- 7 -
carry-forward of  Losses  could have favourable effects on risk-taking. 
The improvement of these rules, which enable  losses  to be set against 
past or  future  profits, would encourage the establishment and expansion 
of enterprises and the introduction of new deferred-profitability 
products and production  processes. 
The carry-back of  losses  may also enable enterprises in 
temporary difficulties and making  losses  after a period of  profits  to 
finance investment in loss-making years, and may thus have some 
regulatory effect on the economic  cycle; 
another advantage of lengthening the carry-back or carry-forward period 
is that  it helps to lower the risk threshold for the enterprise  without 
necessarily  involving  losses  of tax revenue; 
introducing in all the Member States the possibility of carrying  losses 
back  over the two previous financial years and forward indefinitely would 
bring the relevant tax rules  into  line  with  the most favourable general system 
which exists in the Community (see Table 4); 
the carry-back of  losses  makes tax revenue more  difficult  to predict, 
but in a transitional phase the potential shortfalls caused by an 
improvement of existing systems  might  be restricted by initially setting 
a ceiling, expressed as an absolute amount, on this  form  of relief. 
4.4 Readjusting in the tax burden on enterprises 
Generally  speaking, and to allow for the slowdown in growth, the structural 
adjustment of the productive system could be helped by not increasing or even  
actually decreasing the tax burden on enterprises, in particular the charges ·, 
not linked to profits. 
In its Communication on Budget Discipline and Economic Convergence 
(C0M(82)  422) of 1 July 1982, the Commission stressed  that  efforts  to 
reduce  the deficits must be concentrated on the area of public expenditure, 
and that  increases in taxation were undesirable because of the high level 
already  reached by the rates of tax and social security contributions; 
more specifically and  without  prejudging the institutional problem of the 
financing of local  authority  expenditure, the local authorities' budget 
difficulties must not lead to increase the tax burden on the productive 
sector  and have the effect of reducing or wiping out any advantages 
introduced under general taxation, and of distorting competition between 
enterprises; 

- 8 -
certain exemptions from or changes to charges not Linked to profits have 
recently been introduced (e.g. for the business tax in France and the 
Federal  Republic of Germany);  further  progress in this area is desirable, 
as are direct or indirect reductions in the net wealth tax which exists 
in certain Member States; a study might also be made of ways of modifying 
the Community VAT system so as to reduce the  causes  of some residual tax 
having to be borne by enterprises. 
5. Channelling savings  into  the financing of investment 
In this  area,  the objective must be to improve the possible choices so  that: 
enterprises are in an optimum position to implement a financial strategy 
for growth and innovation, based on the guarantee of a stable flow of funds; 
savers  can have  access  to financial assets which, in terms of  return  and 
risk, match their investment preferences. 
This  would allow for a more effective, growth-oriented use of the available 
savings.-
In order to achieve these two objectives, the main focus must be on improving 
the operation of the capital markets, by eliminating distortions and adapting 
capital market regulation and taxation in such a way as to bring them  into  line 
with  the most effective systems inside or outside the Community. 
Because  of the complexity and variety of rules in the member 
countries for channelling savings  into  the financing of investment, this 
document confines itself to indicating a number of guidelines which, though 
not detailed in all their implications as regards laws and regulation, form a 
precise  frame of reference recommended by the Commission. This frame of 
reference is as follows. 

- 9 -
5.1 Greater transparency of company accounts 
This  is essential if the capital markets and the financial institutions are 
to be effective in performing their role of savings intermediaries. 
Without prejudice to the strengthening of national measures in this  area, 
the incorporation  into  national law of the Directives already approved by 
the Council,  and the rapid adoption of the Commission proposals concerning 
company accounts should improve the publicity and transparency of company 
activities  throughout  the Community. 
5.2 Conditions of  access  by firms to risk capital should be improved so  that 
the prime consideration for enterprises in devising their financial strategies 
will  be the assessment of risk and balance sheet equilibrium. 
Easing  the double taxation of dividends  by means of a tax credit, along the 
lines of the  1975  proposal for a Directive concerning the harmonization of 
systems  of company taxation, would help to reduce the bias in favour of debt 
finance which exists in certain Community countries. 
Temporary provisions in France and Belgium  allow firms under certain conditions 
partially to deduct dividends on new shares or units  from  taxable profits: 
in France,  this allowance is granted for ten accounting years  from  the 
establishment of the  firm  or the increase in capital; in Belgium, it is granted 
on condition  that  at least  60%  of the new capital is used for investment. 
The establishment of more favourable conditions for raising risk capital by 
enterpri ses must also be achieved by: 
- facilitating direct  access  to risk capital by: 
broadening the range and reducing the cost of services provided by 
financial and banking institutions when issuing and placing company 
shares; 
simplifying and making more transparent the technical and legal conditions 
and reducing the costs, particularly the tax costs, associated  with  the 
raising of equity capital by listed companies and companies coming to 
the stock market for the  first  time; 
in this connection the Commission proposes studying, together  with  the 
Member  States, the scope for amending the Community system of registration 
duty  by ending the  duty  or at least reducing it: when companies are 
formed or capital increased,  duty  is charged at the rate of  1%  on 
contributions to capital and is not deductible in Denmark,  Greece, 
Ireland and the United Kingdom; 

- 10 -
creating or modernizing markets in securities representing risk capital 
where unlisted companies can have  access  to risk capital on terms suited 
to their phase of development. The lack or inadequacy of such markets 
is a particular constraint on the  growth  of innovating small and 
medium-sized  companies, in  that  the difficulties of realizing the 
investment discourages the contribution of funds. 
In the United States, this role is filled by the "over-the-counter market", 
which in 1979 accounted for 26% of transaction and 13% of the capitalization 
of all United States stock exchanges. In the United Kingdom, the Unlisted 
Securities  Market, set up under the auspices of the London Stock Exchange 
but forming an entirely separate market, has been in existence since 
November  1980: on this market, only 10% of equity capital needs to be 
offered to the public and a number of tax and other concessions applicable 
to unnuoted securities remain available.  Special  markets have been set up in 
Denmark and the Netherlands; the second-tier market recently opened in France 
performs the same function. 
- developing schemes 'of collective investment 
Indirect  shareholdings must be developed by promoting collective 
investment undertakings. 
The advantages of a greater role for collective investment undertakings 
are:  the stabilizing effects which they can exercise on the share 
market, to the extent  that  their investment strategy is geared to 
long-term considerations, and their objective of ensuring asset  growth 
balances  that  of seeking immediate profits; the economies of  scale  and 
the risk-spreading achieved through the collective administration of 
savings;  the possibility they offer small investors of reaching the 
minimum investment threshold so  that  they .overcome one of the major 
obstacles  to a significant level of remuneration. 
Apart  from  the elimination of double taxation, these considerations  justify 
at least as favourable  treatment  for such undertakings as for individual  savers, 
together  with  all the tax advantages enjoyed by these. 
The Commission calls upon the Council to adopt, as quickly as possible, 
the proposal for a Directive for the coordination of laws, regulations 
and administrative provisions regarding collective investment 
undertakings for transferable securities (CIUTS) and the proposal for 
a Directive on the liberalization of transactions in units issued by 
CIUTS; 

- 11 -
a similar, more specialized function can be performed by investment 
companies  and in particular venture capital companies; the other 
institutions which collect savings such as insurance companies and 
pension  funds should play a more active role in channelling savings 
into  enterprises, if not directly then at least through specialist 
intermediaries, and this should be helped by relaxation of the rules 
which place constraints on such institutions to invest in shares. 
- the channelling of savings  into  equity capital, through tax rules 
which are stable and, on certain conditions, encourage the direct or 
indirect investment in shares: this would redress the balance compared 
with  the tax concessions generally granted for home-ownership saving. 
Tax concessions in the  form  of a reduction in income tax when shares are 
purchased,  are granted subject to certain conditions, in France and Be Lgi urn 
(in the Latter country, as a possible alternative to the exemption of 
natural persons' share income); in the United Kingdom, the Business 
Start-Up  Scheme introduced in 1981 permits an individual resident who invests 
an amount limited to £ 20 000 in 1982/83 and 1983/84 in the shares of 
certain small companies engaged in new forms of activity to set  that 
investment against his taxable income for the year, subject to certain 
conditions. Significant improvements to these measures have, moreover., been 
proposed.  Also in the United Kingdom, losses incurred by individuals or 
investment companies on the disposal of shares in certain unlisted companies 
may be set against income; this may have an incentive effect by reducing 
the risk threshold. 
In addition, a policy of employee wealth formation, in particular through 
share-buying  schemes, could help to improve savings diversification, and 
partially reduce the upward pressure on wage costs. There is a strong 
case  for improving existing schemes and improving the advantages they grant. 

- 12 -
6. Summary and conclusions 
6.1 This paper analyses the main general measures adopted in the Member States 
in favour of investment. 
6.2 The measures are  assessed  in terms of their contribution to increasing the 
resources"available  to firms for investment by improving self-financing 
margins and by channelling more savings  into  productive investment. 
6.3 In connection  with  self-financing, three main problems arise: 
A. The taxation of apparent  profits  resulting  from  the effects of inflation 
on the rebuilding of productive capital: it is unclear how far the 
various incentives provided represent a definite advantage, and how 
far they merely compensate, to varying degrees, for the effects of 
inflation. The Commission recommends the adoption by the Member States 
of arrangements to eliminate in a structural manner the adverse effects of 
inflation on resources intended for rebuilding productive capital. 
B. The limits imposed on  offsetting  losses  with  past or  future  profits: 
these  limits reduce firms' ability to deal  with  temporary difficulties 
and to face up to the requirements of expansion and innovation. The 
Commission  recommends  that  tax rules for carry-back or carry-forward of 
losses  should be brought  into  line  with  the most favourable system 
existing in the Member States. 
C. The burden of business taxes, particularly those  that  do not depend on 
profits, in a period of slow  growth  and high risk: the Commission thinks 
that  this burden should not be increased - and even  that  it ought to be 
reduced  - particularly for taxes not linked to profits. 
6.4 Among measures to improve external financing of undertakings, the Commission 
recommends: 
A. greater transparency of company accounts, which is essential to improve 
access  to equity capital and borrowed funds; 
B. the following measures, to improve the  flow  of risk capital: 

*r 13 -
(i) an attentuation  of  doubLe taxation  of dividends; 
(ii) an  improvement in the  conditions  of direct  access  by firms, 
especially  strongly innovative small and medium-sized firms, 
to risk capital; 
(iii) the channelling of savings  into  risk capital, in particular 
through the development of forms of collective investment; 
(iv) the encouragement of wealth formation among wage and salary earners. 
6.5 Some progress has been made on these fronts in the past few years in the 
Community. But a considerable  effort  is still required, particularly in 
some  Member States where the situation is far from satisfactory. 
In particular, for reasons of convergence, it is important.to encourage 
business  investment in the Member States  with  the most acute problems of 
inflation and balance of payments, so as to attenuate the adverse effects 
of economic readjustment on production potential. 
The Commission would request the Council to approve the guidelines sketched 
out in sections 4 and 5 of this communication for the adaptation of company 
taxation and the channelling of savings  into  productive investment, allowing 
for special situations. 
For its part, the Commission will bear these guidelines in mind during its 
work on harmonization in collaboration  with  the Member States. 

Table  1 
Taxation  of enterprises 
Taxes  on corporate income 1 Employers'  social security 
contributions 
as % of GNP at factor cost 
1970 1980 increase/decrease  in 
percentage points 1970 1980 increase/decrease 
in percentage points 
B 2.7 2.9 + 0.2 7.7 9.5 + 1.8 
DK --- - - -D 2.1 2.0 - 0.1 6.3 8.3 + 2.0 
GR 0.6 1 .3 + 0.7 - - -F 2.7 2.8 + 0.1 10.7 14.0 + 3.3 
IRL --- - - -I 1.4 1.9 + 0.5 9.5 10.2 + 0.7 
NL 2.8 3.4 + 0.6 8.2 10.4 + 2.2 
UK 3.9 3.5 - 0.4 3.1 4.3 + 1 .2 
USA 3.6 3.2 - 0.4 3.4 5.0 + 1.6 
JAP 4.5 5.0 + 0.5 3.4 4.8 + 1.4 
Taxes  on corporate income Employers'  social security 
contributions 
as % of total  taxes 
(including social security contributions) 
1970 1980 increase/decrease  in 
percentage points 1970 1980 increase/decrease 
in percentage points 
B 7.0 6.0 - 1.0 19.9 19.8 - 0.1 
DK - - - --
D 5.3 4.5 - 0.8 16.3 18.7 + 2.4 
GR 2.1 3.8 + 1.7 ---F 6.7 5.9 - 0.8 26.3 28.9 + 2.6 
IRL -
I 4.6 
• * 
5.4 + 0.8 30.9 29> - 1.2' 
L — 
NL 6.6 5.5 - 1.1 19.5 29.3 + 0.8 
UK 8.9 8.2 - 0.7 7.1 10.1 + 3.0 
USA 11.1 9.6 - 1.5 10.4 14.3 + 3.9 
JAP 21 .1 17.9 - 3.2 11.3 14.5 + 3.2 
*1979 
Source  : "International  comparison of taxes and social security contributions, 
1970-80",  in Economic Trends, December 1982 
Central  Statistical Office, London. 1 Unincorporated enterprises are included under households. Therefore, 
international comparisons should be  interpreted  carefully. 

Table  2 
Tax burden on enterprises 1 
Current and capital taxes 
as % of gross operating surplus 2 
F I NL FRG UK 
1970-1974 12.8 10.7 7.8 3.9 14.8 
1975-1980 13.8 14.9 8.1 4.2 12.6 
1975 12.3 14.3 10.3 3.1 13.0 
1976 14.9 14.1 8.5 3.8 8.3 
1977 14.9 15.1 7.9 4.7 10.1 
1978 12.3 16.6 7.4 4.5 11.3 
1979 12.9 15.5 6.7 4.9 14.0 
1980 15.5 14.0 7.9 18.7 
1 Sector  S(10), i.e. non-financial corporate and quasi-corporate enterprises. 
ESA definition: enterprises whose distributive and financial transactions 
are distinct  from  those of their owners - and which are principally engaged 
in the production of goods and non-financial market services. 
2. The gross operating surplus (ESA  definition)  corresponds to the Sector's 
gross  domestic product at market prices after deduction of taxes Linked to 
production and imports,  les c; subsidies and  Less  compensation of empLoyees. 
It includes all other income generated in the course of production, together 
with  consumption of fixed capital. 
•k 
For the FRG and NL, the sector S(10) includes all partnerships and non-financial 
sole  proprietorships. 

Table  3 
Corporation  Tax, Tax Credit and Witholdlng Tax 
(Situation at  31.12.1982) 
Member State Rate of corporation tax Rate of tax credit 
a) as  % of the gross 
dividend 
b) as  % of corporation 
tax Withholding tax on dividends 
(subject to the provisions 
of double taxation conventions) 
Belgium 
Denmark 
Germany 
France 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
United States 
Japan 45$ (profits Sn.excess of 
BFR 14 400 000) Q (special 
solidarity fund surcharge) 
4$ 
5$: undistributed profits 
36$: distributed profits 
5$ 
45j£:  corporation tax on 
undistributed profits 
~\%:  surcharge 2 
Actual  overall rate:  48.5$ 
50t (profits in excess of 
IRL 35 000) u 
30$: corporation tax 
16.2%:  I lor 2,3 
Actual  overall rate: 41.3$ 
40$ (profits in excess of 
LFR 1 312 000) 1 
(special  unemployment fund 
surcharge) 
48$ (profits In excess of 
HFL 40 000) 0 
52$ (profits in excess of 
UKL 225 000 1 
from 15$ a to 46$ 
40$ ^distributed profits 
30$: distributed profits a) 40.7$  of the dividend 
b) 49.8$  of the tax 
a) 25$ of the dividend 
b) 37.5$  of the tax 
a) 9/16 of the dividend 
b) 100$ of the tax on 
distributed profits 
a) 50$ of the dividend 
b) 50$ of the tax 
No tax credit but 
dividends  are deductable 
frora profits 
a) 30/70  of the dividend 
b) 42.9$  of the tax 
a) 33 1 1% of the dividend 
b) 77.72  of corporation 
tax UlJZ  of the  total 
of the two taxes) 
No tax credit 
No tax credit 
a) 3/7 of the dividend 
b) 39.6$  of the tax 
10$ 20$ 
30$ 
0$ (residents) 
25$ (non-residents) 
42$ and 47$ for registered 
shares;  45$ and 53$ for bearer shares 
No withholding tax 
10$ (residents) 
30$ (non-residents) 
15$ (no withholding tax on dividends 
distributed by Luxembourg 
holding  companies) 
25$ 
No withholding tax 
20$ 
1 Lower  rates apply to profits below this level. Ireland, manufacturing industry: 1(#  (temporary) E 25$ 
Deductible against income chargeable to corporation tax 
Impost  a locale sul redditi (local income tax) 4 For the first $ 25 000 slice  (froa  1983) EJ 

Table  4 
Carry-forward and carry-back of losses 
Carry-forward 1 Carry-back 2 
B 
DK 
F 
FRG 
G 
IRL 
I 
L 
NL 
UK 
USA 
JAP 5 1 , 2 
5 
5 1 
5 
3 
oo 
5 
5 
8' 2 
oo 
15 
5 0 
0 
0 
2 3 
0 
1 
0 
0 
2 
1 4 
3 
1 
1 The portion of the tax  Loss  corresponding to depreciation can be 
carried forward indefinitely. 
2 For initial losses no  limit. 
3 Up to DM 5 million. 
4 Three  years for losses deriving from 100% depreciation (can be set 
against income and capital gains); three years for the  first  four 
years'  trading losses (can be set aginst income; for individual 
enterprises only).