Methodology

The most important information in a nutshell

In the BAK Taxation Index for corporations, the actual tax burden incurred by a company is measured. The tariffs incurred from these taxes as well as the interaction of different tax types and the most important rules for regulating the tax measurement basis, such as the provisions for tax deductions for depreciation or inventory valuation, are entered into the calculation. This makes a meaningful international comparison of the tax burdens of individual locations possible. Basing the analysis on tariff tax rates alone would lead to a distorted stating of the tax burden.

The calculation assumes a corporation in the manufacturing industries, which makes an investment in a predefined combination of different types of commercial goods. In doing so, different financing methods are considered. The hypothetical investment consists of equal parts of intangible assets, industrial buildings, machines, financial investments and inventory assets. The sources of financing are, in the order of their weighting, retained earnings, borrowed capital and new equity capital. The weighting of the types of financing is oriented to empirical data. The EATR tax burden (i.e., effective average tax rate), which is the central dimension of the BAK Taxation Index for corporations, is calculated under the assumption of a real pre-tax return of 20.0 percent.

 

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  Methodology of the BAK Taxation Index (German only)