Figures released by Ireland’s Department of Finance show that the country’s economy and tax revenues are still reeling from last year’s financial crisis, though the situation is experiencing marginal improvements. According to the Exchequer Statement released on January 5th, tax collections for the 12 month ending in December were 3.9 percent lower than the Department’s targets, and down by 19 percent compared to 2008. Although the Exchequer deficit for the year was lower than expected, at €24.6 billion.

In 2009 only Corporate Tax and Excise duty collections exceeded government projections, rising by 4.3 and 1.4 percent, respectively, though in comparison to 2008 the figures dropped by 23 and 13.6 percent. Net government expenditure reached €47 billion, 50 basis points below expectations.

Value Added Taxes (VAT) experienced the largest difference between projections and collections, with a €750 million disparity, and a €2,760 million fall compared to 2008. Income Taxes were €640 million below the Department of Finance’s targets and €1,342 million below 2008 collections

Brian Lenihan, Ireland’s Minister for Finance, interpreting the figures in a generally positive light, said “…given the small improvement in the actual deficit over that anticipated in the December Budget we face into this year’s task with a greater sense of confidence. The challenges we face are great but the Government is committed to the targets set out in the recent Budget”. He went onto claim that economic growth will return to Ireland in 2010 and that this will lead to improved tax collections.

Photo by Darragh Sherwin

Shareholders in offshore funds will be evaluated by whether they have holdings in equity based funds, or those heavily invested in interest bearing assets. Individuals with receiving distributions from equity based funds will now be entitled to dividend tax credits. Distributions from funds with over 60 percent of their assets being interest bearing, will be recognized as interest distributions and taxed accordingly.

The dividend tax credit has been extended to cover shareholders with 10 or more percent of the issued share capital in a foreign company. As long as the distributions are derived within a “qualifying territory”, are not from an “excluded” company and are not part of a tax avoidance scheme, the recipients will be entitled to dividend tax credits. Qualifying territories have been defined as a jurisdiction with which the UK holds a Double Taxation Agreement with a non-discrimination article.

The brief confirmed that there will be no changes to existing foreign tax credit relief in regards to foreign withholding tax, and that individuals can receive benefits of the existing scheme alongside the newly extended foreign dividend tax credit.

The changes detailed in the brief are scheduled to take effect retrospectively from April 22nd, 2009, but within the current fiscal end of year reporting.

Photo by AdamWilcox

Following a weekend of negotiations, statements were made on Monday the 19th of October, releasing some indications of Germany’s future tax direction. Much detail concerning the agreements reached and projections created during the negotiations has been kept secret, but clear indication has been made that all involved parties are dedicated to providing tax cuts and attempting to revive Germany’s struggling economy.

Horst Seehofer, Head of the CSU, in an October 19th press conference, said “We will certainly see tax relief in 2011,” without elaborating on the exact scope of the cuts, he simply stated “There will be a cut in income tax”. Comments to press made during the weekend-long negotiations indicated tax cuts will total approximately €20 billion, which is already €5 billion more than promised by the CDU throughout its election campaign, though €15 billion less than hoped for by the FDP. According to the CDU, tax cuts exceeding €20 billion would require corresponding reductions in government spending.

According to Georg Fahrenschon, negotiating member of the CSU, Germany will see corporate tax cuts and inheritance levy reductions totaling €14 billion by the end of 2010. He also indicated that tax relief scheduled for 2011 will be primarily focused at low and middle income earners.

The corporate taxpayers paid 56% less, while individual taxpayers payed 20% less. Taking in consideration such significant drops, the Congressional Budget Office estimates that only 14.3% of GDP this year will come from the tax collection. Historically, USA enjoys approximately 18% of GDP from tax revenue.

According to experts, the predominant cause behind the tax revenue downfall is the present economic climate, although the current taxation policy of the US Government is also putting pressure on tax collection in general. The most noticeable tax changes for the current financial year include tax benefits for a wider range of American taxpayers. Among the most important of these are: the federal income tax exemption for unemployment beneficiaries; first-time home buyer credit; research and development credit for businesses and tax credit for health insurance.

The federal government is not the only victim, several states have also been hit dramatically by a fall in tax revenue. For instance, Indiana lost US$166 million in just one month compared to last year’s economic predictions, Massachusetts has plans to drop its revenue estimates by at least US$600 million, and Pennsylvania has begun its fourth month without an approved budget.

According to a study published by the Washington D.C. based Tax Foundation, New York and New Jersey are the worst in the country for doing business, as ranked by the State Business Tax Climate Index. New Jersey was ranked last amongst the 50 states, with New York following at 49th. The study aims to create an index to compare state tax policy by analysis of a state’s corporate, personal, sales, property unemployment insurance tax burdens.

The fall in rankings for the two states came during the country’s financial downturn, when state tax deficits forced a rise in personal taxation levels. According to Kail Padgitt, lead economist on the study, the top personal tax rate of 8.97% in New York “is more than 30 percent higher than its previous top marginal tax rate,” he went on to say “The state-local combined rate is the highest in the nation, because New York City also raised personal income taxes.” New Jersey’s corporate tax policy was highlighted as a strong reason for its low rankings, specifically the policy of implementing a US$100,000 threshold for its top corporate tax rate.

South Dakota was ranked as the top state overall, and was judged as having the best personal and corporate tax burden. Utah was the top state to implement all five forms of taxation, and was judged to be the 10th best state in regards to its tax burden.