2015 Mannheim Corporate Tax Day at ZEW

As part of the ninth Mannheim Corporate Tax Day, an annual event hosted by ZEW and the University of Mannheim, renowned experts from the fields of academia, business and administration shed light on current issues of national and international corporate taxation. Approximately 90 participants from science, practice and finan-cial administration attended the event, which took place on June 25, 2015. This year’s Corporate Tax Day focused on the tax opportunities and risks associated with taking strategic investment decisions.

The combination of scientific presentations and practical workshops once again proved successful and was greatly appreciated by the participants.  Next to the current unfavourable conditions for innovative business activities in Germany, the event gave an impressively clear picture of the deficits which arise where taxes are considered as part of making investment decisions. In his welcome address, the initiator of the event, Professor Christoph Spengel (University of Mannheim and Research Associate at ZEW) made reference to the conflict of interests resulting from increased corporate mobility and the current efforts made by the OECD and the European Commission to combat aggressive tax planning. Under the current conditions, Spengel, explained, instigating tax policy which is both innovation-friendly and sustainable, is very challenging.

Tax policy is also innovation policy

In his lecture, Professor Dietmar Harhoff (Max Planck Institute for Innovation and Competition, Munich, head of the EFI Commission of Experts, and ZEW Research Associate) stressed that the creation of attractive fiscal conditions must be an integral part of innovation policy.This, he believes, is particularly true for Germany; a country that has no large raw material deposits and whose prosperity is therefore largely based on knowledge. Yet Germany’s current tax system rather stifles innovation, he argued. Harhoff spoke clearly against the introduction of IP boxes, which can be found in many EU countries; instead of promoting innovation activity, such IP box regimes favour only the exploitation of patents. According to Harhoff, IP boxes merely fuel tax competition; in terms of innovation policy, they are useless. 

Fiscal investment climate in Germany can be improved

Professor Spengel also opened his presentation by addressing the fiscal investment climate in Germany. He alluded to regulations such as the interest barrier and limitations on offsetting losses, which have led to conditions in Germany that, by European standards, are rather unfavourable. In this context, he went on to discuss possible forms of preferential tax treatment for investments and innovation, such as special incentives for SMEs as well as for research and development activities, concluding that it would, indeed, make sense to promote R&D activities by means of tax credits. He also clearly advised against using IP boxes. Rather than leading to further innovation, Spengel argued, they merely increase tax planning activities.

Strategic investment and financing decisions in practice

Dr. Andreas Roth (head of the taxes and customs department at John Deere GmbH & Co. KG) spoke from the point of view of a corporate tax department, adding further aspects of strategic investment and financing decisions. He pointed out that closely linking tax planning and investment/operational planning can create significant value for the company as a whole. In reality, however, such dovetailing is often not achieved, he said, as key figures for the assessment of individual investment projects do not usually take the impact of taxes into account. In general, Roth argued in favour of carefully weighing the possible tax advantages of a complex structure against the corresponding risks, and recommended giving preference to simpler, established structures instead. When it comes to fiscal risk management, he noted, one should always adhere to the basic principle, "tax follows business".

Practical workshops: Taxation issues of cross-border investment plans

Three specialist workshops that addressed individual aspects of investment decisions in greater detail were offered during the event.

• Axel Eigelshoven (PwC) and Günther Morlock (Zentrales Konzernprüfungsamt Stuttgart) held a workshop on the influence of transfer prices on investment decisions and BEPS tax planning. The workshop focused on the potential impact of the new OECD Transfer Pricing Guidelines on intra-corporate profit distribution with regard to intangible assets.
• Dr. Florian Schultz (PwC) opened the workshop on the opportunities and risks involved in taking cross-border investment decisions by presenting several examples illustrating how withholding taxes may be reduced in international investment activities. He made explicit reference to capital requirements and the short lifespan of individual structures resulting from the countermeasures introduced by several countries. Thomas Schrotz (head of the tax department at Heidelberger Druckmaschinen) used an in-depth case study to show the fiscal implications of investment in China.
• At the workshop on issues of cross-border financing, Thomas Rupp (Baden-Württemberg Ministry of Finance and Economics) and Franz Prinz zu Hohenlohe (KPMG) discussed focal aspects of corporate financing.