OECD Tax Policy Studies

1990-0538 (online)
1990-0546 (print)
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This series consists of studies analysing the effects of tax policies that have occurred in the past or might be considered for the future. Its primary purpose is to assist policy makers in designing tax policies that are suited to their objectives.

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Taxation of SMEs in OECD and G20 Countries

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05 Sep 2015
9789264243507 (PDF) ;9789264243460(print)

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Small and medium sized enterprises (SMEs) are important for their contribution to employment, innovation, economic growth and diversity. This report examines the tax treatment of SMEs, the case for SME preferences, and the use of tax preferences and simplification measures for SMEs in thirty-nine OECD and G20 countries. It finds that many of the tax systems examined provide incentives to incorporate and to distribute income in certain types of capital form. Ideally, taxes should be neutral with regard to the business decisions of SMEs, including decisions related to their creation, form and growth. However, certain features of the tax system may disproportionately affect SMEs, for example, the asymmetric treatment of profits and losses, a bias toward debt over corporate equity, and the higher fixed costs of tax and regulatory compliance for small businesses. This report recommends that measures designed to address these concerns be carefully targeted to affected firms and seek to avoid introducing further distortions and complexity.

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  • Foreword and Acknowledgements

    Fostering the development of small and medium-sized enterprises (SMEs) is rightly a cross-cutting priority of the Turkish G20 Presidency. SMEs are the economic backbone of many of our economies and they serve as key engines for job creation. This study, Taxation of SMEs in OECD and G20 Countries, examines the influence of tax systems on a range of challenges faced by SMEs, including decisions relating to their creation, form and growth. SMEs make up the vast majority of business entities and contribute strongly to employment and economic growth, spanning the full breadth of industries and sectors, and differing in their propensity to innovate and grow. At the same time, SMEs face particular challenges in relation to their access to finance. The tax system plays a dual role: at times, as a tool to assist in overcoming these challenges, and at others, as an obstacle.

  • Abbreviations and acronyms
  • Executive summary

    In most countries, small and medium-sized enterprises (SMEs) represent more than 95% of all firms. SMEs account for a large proportion of total employment and contribute significantly to national and global economic growth. They are also strongly heterogeneous: across and within industries and sectors; in their innovation behaviours; and in their profitability and growth potential. Importantly, SMEs also generate a significant share of all taxable business income in most economies.

  • The role of SMEs in domestic economies

    This chapter provides an overview of SME characteristics in OECD and G20 countries. It firstly considers their role in domestic economies, examining their contribution to employment, value-added and exports. It then considers characteristics of SMEs for tax purposes, considering their share of total taxable business income, their average taxable income at the entity level, and whether their income is subject to single or double-level taxation.

  • Income taxation of SMEs

    This chapter describes the different tax regimes that apply to SME income under both corporate and personal tax regimes. Firstly, the chapter provides a framework for considering the influence of tax policy issues on the decisions of SME owners, before considering the link between legal and tax status. Secondly, the chapter considers the taxation of SMEs taxed only at the personal level, estimating the marginal tax rates at different levels of SME income. Thirdly, the chapter discusses the taxation of SMEs which are double-taxed, considering taxation at the corporate level and subsequent taxation at the personal level when the income is distributed to the owner. Finally, the chapter concludes by discussing the impact of income taxation on the decisions of SME owners.

  • Tax preferences for SMEs

    This chapter discusses tax preferences that are available to SMEs. It begins with an assessment of the case for the provision of tax preferences for SMEs, before discussing tax preferences provided to SMEs in 38 OECD and G20 countries. Tax preferences are divided into preferences provided at the entity level (e.g. enhanced deductions, tax credits and exemptions targeted at SMEs) and those provided to owners (e.g. incentives for investment, preferential treatment of income or losses from SMEs, and preferences on disposal of SME assets). The chapter concludes by discussing the impact of tax preferences on the decisions of SMEs, outlining principles to guide the implementation of these measures. Finally, it provides a summary table of preferences reported by the 38 countries.

  • Tax compliance and SMEs

    This chapter considers SMEs and tax compliance. It first considers tax simplification measures reported by OECD and G20 countries in relation to income, value-added, and other taxes. It includes a description of replacement taxes implemented in these countries and a summary of presumptive taxes that apply. It then considers process simplifications which can reduce the compliance burden for SME taxpayers and enhance compliance. The chapter concludes by summarising the impact of simplification measures on the decisions of SME owners, outlining principles to guide the implementation of these measures. Finally, it provides a summary table of simplification measures reported by the 38 countries.

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