Appended Note 2-3 Tax Burden for Enterprises estimated
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- English version
Appended Note 2-3 Tax Burden for Enterprises estimated by Micro Data
In section 2 of Chapter 2, the concrete calculation method regarding international comparison of the tax burden for enterprises by micro data is as follows:
1. Estimation Method
On the basis of officially announced financial statements and etc, the financial statements for typical "model corporations" of a specific industry are made and the taxable income is estimated by forecasting the tax affairs adjustment item in a business year, and thereby the tax amount is calculated.
2. Data
(1) The financial data for a model corporation by industry is created by using the financial statements from the five biggest companies (See (2)) in sales for each of the five industries, which are electronics, automobile, steel, data processing service, and retail. Besides, in regard to creating financial data for a model corporation, we used the non-consolidated financial statements (in principle, statements of each month for March, 2000 and 2001) for companies, whose stock goes public in Japan.
3. Method for Creation of a Model Corporation
The balance sheet/the profit and loss statement for the five companies in total, which includes a model corporation for one company industry by industry are made by calculating the averages for two periods (each month of March 2000 and 2001) of the balance sheet/the profit and loss statement for five companies by industry. However, it excludes the accounting period, whose current net profit before taxes is a loss. Besides, the averages ((average of FY 1999 + average of FY 2000)/2) was calculated, because the average of each fiscal year is used for the financial statements. Moreover, in regard to the item regarding the difference between the legally effective tax rate and the burden rate for corporate taxes and etc after the tax return adoption, each average value is estimated from materials of tax return accounting in each company so that the tax affairs adjustment item can be reference materials for estimation. However, we collectively estimated the average for the tax affairs adjustment item because the value for each fiscal year is not used.
4. Countries subject to survey
On the basis of financial statements of the above model corporations and on the assumption that model corporations performed business activities in Japan, the U.S, UK, and France, the taxable income for model corporations is calculated and the tax rate is estimated under the tax system of each country.
Besides, the difference of local tax burden arises due to the places of domestic location and various tax systems of many countries. Therefore, with regard to the adoption of the tax system of each country, it is assumed that the model corporations are located in the following places.
USA:California and Tennessee
(Electronics/Automobile/Steel manufacturing industry)
California and New York
(Data processing service/retail non-manufacturing)
UK: London
France: Paris
In particular, we need to pay attention to the fact that the local tax (state tax) differs largely in each state of the U.S. Therefore, we assumed that business activities in manufacturing industries are performed in California, where it is often placed subject to comparison with others, and Tennessee, where the Japanese automobile companies can be active as a production base, and that in non-manufacturing industries, both states of California and New York are considered in the same respect. The reason why we assumed that Tennessee is a location for the manufacturing industry is due to the following fact: Japanese manufacturing companies actually carry on business and the tax rate in Tennessee is average among states of the U.S.
In order to estimate the value for model corporations, the calculation was performed on the assumption that business activities in two states of the U.S. are 50 % respectively.
5. Premise Condition
(1) The purpose of this estimation is to calculate the combined tax burden of national tax and local tax imposed on the corporate income, and at the same time to mainly compare the tax burden in the case that the corporation carried on the same business activities overseas as that of the former case. Therefore, other factors which do not meet the above purpose are excluded from the assumption.
(2) When the tax burden amount is calculated in each country, the tax burden, as of the April 1st 2002, is applied.
(3) Each model corporation makes its business operations independently. Consequently, the consolidated tax return in each country is not considered.
(4) The business range for model corporations is only within a home country. We assume the domestic corporation, which does not have a main office or a business place overseas through branches, etc. However, it is allowed to receive shares, etc from overseas affiliated companies, etc.
(5) It is assumed that all of the stockholders are domestic residents. Besides, any stock possession of the stockholders should be less than 5 % of the issued stocks. It is also assumed that taxation (Corporation Tax Law, Article 67) on retained earnings of family corporations in Japan is not applied. Then, the taxation on retained earnings is not applied.
(6) Only the corporate income tax, whose corporate income is a taxation standard, was subject to estimation. They include Corporation Tax, Corporation Inhabitants Tax based on Corporation Tax, and Corporation Enterprise Tax. Accordingly, the per capita tax of Corporation Inhabitants Tax in Japan and the professional tax (taxe professionnelle) in France, etc are not considered.
(7) As international comparison for corporation tax burden due to the difference of tax system in each country is intended, we assume that in the estimations the corporate accounting system is the same and that the current net profit before taxes, which is the basis for estimation, is equal in each country.
(8) Due to the fact that the capital amount for all companies subject to this survey this time exceeds 10 billion yen, we assumed that the capital amount for each model corporation exceeds 10 billion yen.
(9) We assumed the following foreign exchange rates so that model corporations can perform their activities in each country.
1 dollar = 130 Yen
1 pound = 200 Yen
1 euro = 120 Yen
6. Principal Financial Accounting Item
(1) Tax Credit for Experiment and Research Expenditures The average value for each accounting period of experiment and research expenditures, whose technical research expenditures (according to a corporation, this is a called research and development expenditures, etc) are related to the profit and loss statement in financial statements of each corporation, is dealt as the whole amount of qualified experiment, research and development expenditures were calculated. Besides, the figures for the accounting period including losses were calculated by estimating the rate of increase in other corporations. We assumed that in Japan the tax system of the special tax credit for Corporation Tax, when the amount of experiment and research expenses increased, etc (Special Taxation Measures Law, Article 42-4) is applied and the tax credit for experiment and research expenditures in each country is used for other countries subject to the survey. For example, in the U.S, the Alternative Incremental Research Credit (AIRC) was applied.
(2) Local Tax As for Corporation Inhabitants Tax based on Corporation Tax and Corporation Enterprise Tax, which are local taxes in Japan, after taking the place where a corporation model is located into account, the real maximum tax rate of excess tax was applied. In other countries subject to the survey, the local tax system in the place considered for location was applied. For example, the tax credit on research and development expenditures in California and the tax credit on the purchase for manufacturing machines and facilities in Tennessee were applied respectively. Besides, as for the acquisition cost for manufacturing machines and facilities, the average of the machines and equipment on the specifications for the tangible fixed assets, etc in financial statements was used.
(3) Estimation Method for Figures from tax return accounting. The figure shown by difference of the legally effective tax rate that is related to the tax return accounting in report on securities and the corporate taxes to the current net profit before taxes is used. The way to indicate the tax return for each corporation is different, but we assumed the following:
- The amount of profit not counted in:The amount of profit for receivable dividend not counted in
- The amount of damage not counted in:Donation / Entertainment Expenses
- Foreign tax credit:The amount of credit for foreign taxes
- Other:Incidental Tax, etc counted in the amount of damage
(4) Donation/Entertainment Expenses The total amount of donation/entertainment expenses calculated in (3) was proportionally divided on the basis of the total amount of capital funds for profit appropriation corporations (Corporate Situation by the Tax Affairs Statistics, National Tax Agency, November 1999) more than 10 billions yen.