Estimation of international tax planning impact on corporate tax gap in the Czech Republic

Abstract

There are many studies focusing on VAT (value added tax) tax gap but very few relevant studies that deal with the corporate income tax loss. The studies vary particularly in their methodology, databases and interpretation. In the case of the Czech Republic the studies resulted in a range between CZK 57 billion tax gap and CZK 12.5 billion corporate tax revenue gain caused by the tax planning. The main aim of the paper is to calculate the corporate income tax effi ciency rate for the Czech Republic and compare it with other member states. The indicator of corporate income tax effi ciency is important for the calculation of the tax revenue without profi t shifting (RWS) indicator and then the subsequent corporate income tax gap estimation for 2013-2015, which is the second goal of the paper. The RWS indicator gives an overview of the Czech Republic´s amount of loses/ gains relating to the corporate tax base erosion and corporate profi t shifting. In the case when the actual corporate income tax revenue takes a higher value than the revenue without profi t shifting indicator the jurisdiction benefi ts from the profi t shifting operations. The opposite situation results in tax revenue losses caused by profi t shifting to other “more attractive” tax jurisdictions. Authors’ study re-estimation results in approximately CZK 9.404 billion tax gap caused by base erosion and profi t shifting instead of 12.5 billion CZK that shows EPRS’s study for period 2013. The third aim of the paper is to deal with the difference between input data from Eurostat database and offi cial data from General Financial Directorate.