Taxes for sustainability: How new strategies promote economy and common good
It is a fact that taxes and tax policy are seen as a topic for specialists, but they have an immediate impact on the economy and society as a whole – the field of sustainability not excepting. The link between economic, ecologic and social solutions is the focus of the new Bachelor’s degree program “Sustainability in Business and Economics” at the Catholic University of Eichstätt-Ingolstadt (KU).
It equips its graduates with expert knowledge on how to actively contribute to the shaping of future tax policies and on how to counsel businesses on everything they need to know about taxes. Among the team of lecturers is Prof. Dr. Reinald Koch, who holds the Chair of Business Taxation at Ingolstadt School of Management - the Business and Economics Faculty of the KU.
“When it comes to taxes, sustainability also means making a business crisis-proof,” says Koch. He has collaborated with his colleague, Prof. Dr. Dominika Langenmayr, to research what taxation measures can help businesses stay solvent during the protracted coronavirus crisis while still leaving them leeway for investments. One intrument they were able to identify is the so-called loss carryback. In general, companies have long been able to offset losses against profits from the previous year. Excess taxes paid on these profits were then refunded. However, this so-called loss carryback was capped at one million euros. The restriction to profits from the previous year, however, meant that an already ailing business could not claim losses if it continued to generate no profits during the crisis. Koch and Langenmayr simulated what the effect would be if businesses were also allowed to offset more distant profits against losses generated before the coronavirus pandemic, or if the amount of the possible loss carryback were increased. The German council of economic experts for the assessment of macroeconomic developments, the so-called Wirtschaftsweisen, have referred to this.
“Even beyond the crisis, loss carryback can be an instrument that provides incentives for innovation - in terms of products and services that contribute to greater sustainability. However, this is not the only tax instrument that has an effect: Suitable incentives have raised registration figures for company cars with hybrid drives or investments in climate-friendly infrastructure,” Professor Koch says. Generally, the economy and society have reached a point where there is a consensus that we have to fundamentally rethink sustainability.
This also involves issues of justice, fairness and transparency. The EU has recently publicized a proposal to make companies disclose their tax payments and economic activities country-by-country. “This proposal goes back to the idea that the public can sanction companies for aggressive tax evasion with consumer and investment decisions and a greater transparency can thus add to a more just distribution of corporate taxes,” says Koch.
Sustainability in taxation also entails constructing a legal framework for taxation - for the state and for businesses. Although some barriers to the single market have already been removed in other areas, companies operating in the EU are still grappling with the 27 individual tax systems of the individual member states. “This patchwork of national tax rules creates unnecessary costs for businesses and makes it difficult to invest across borders in the single market. This applies not only to larger companies, but also to small and medium-sized firms, start-ups and other businesses that want to grow, expand and trade internationally,” says Koch. At the same time, this can create loopholes as well as a complexity that in turn opens up possibilities for an aggressive corporate planning while hindering the establishment of a level playing field. “Political decisions on corporate taxation also affect how friendly a tax system is to investments.
In the long-term, the Commission wants to present a new framework for corporate taxation by 2023. This new framework will go by the name “Business in Europe: Framework for Income Taxation” (BEFIT). While groups currently calculate the profits of their individual subsidiaries and pay tax on them in their respective countries, BEFIT will determine the group’s profits as a whole and allocate them to the individual countries according to a formula. Thus, rather than dealing with 27 different tax systems in the EU, companies would only have to comply with one.
“It is our concern that in our degree program “Sustainability in Business and Economics”, students not only get equipped with the tools necessary for understanding tax rules, but get to the bottom of even the most complex connections. Only this enables them to then contribute to finding solutions for more sustainability,” says Koch.
Applications for the six-semester Bachelor’s program “Sustainability in Business and Economics” (with admission restriction) are open until July 15. For more information, please visit www.ku.de/en/study-offer/digital-and-data-driven-business-bsc.
Prof. Dr. Reinald Koch, Chair of of Business Administration and Business Taxation