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In 2022, the Institut Montaigne unveiled the first edition of the European Production Tax Barometer, with the aim of comparing the production tax burden for companies, and doing so for the first time at the European level. Indeed, the amount of production taxes paid is a real issue for competitiveness and economic dynamism, both at national and European levels. In light of the results of this first edition, France was one of the worst performers among our European neighbors in 2020. French production taxes reached 4.4% of GDP, just behind Sweden (10.3%).

While the issue of production taxes had become a significant topic during the French presidential campaign for 2022 — as evidenced by the campaign proposal and the subsequent announcement of the end of the corporate value-added tax (CVAE) over the next two years — it is currently more important than ever to have a clear and objective tool for assessing the competitiveness of the various European countries.

This second edition is a part of this new approach and offers a comparative analysis of the different trends observed among the main European countries between 2020 and 2021. Is France still a poor performer in our ranking? Is the European trend heading towards lower or higher production taxes?
 

Defining precise specifications

The experts relied on the European Regulation No 549/2013 of May 21, 2013, which defines production taxes, as well as on French legal standards, in particular from case law determined by the French High Courts. Once the scope of the legal definition of production taxes were formalized, Mazars' teams in France drew up a set of specifications listing the information required to identify and analyze production taxes for each of the eleven countries studied.

The specifications thus include a list of all existing taxes with an indication of the taxes, duties and contributions that meet the definition of taxes on production (e.g., property taxes or taxes on use of land, buildings and constructions for production purposes — CFE, property tax...), taxes on movable assets used for production purposes (corporate vehicle tax...), taxes on labor (payroll tax...), based on 4 main criteria. These taxes must be:

  • mandatory
  • payable by companies
  • levied by public administrations or European Union institutions
  • due for production capacities

These specifications also include the sticking points and offer a substantiated justification for the classification of certain taxes, for example, the exclusion of the tax on commercial wasteland (payable on account of possessing an vacant building and therefore does not constitute a means of exploitation) or the inclusion of the Contribution Sociale de Solidarité des Sociétés or C3S (mainly based on turnover, though its specificities nevertheless allow it to be considered a tax on production).

Click here to access the detailed specifications.

A comparison of the specifications and of “Eurostat" data by Mazars teams in France and Europe

Mazars experts based in the ten other countries involved in the study received the terms of reference as well as the "Eurostat" data on production taxes from Mazars in France — which is the coordinating country for the project. While the Eurostat data is an interesting starting point, it takes into account contributions and taxes that are based on an interpretation of production taxation that is different from the one used by Mazars in certain respects, because it is less precise.

Thus, on the basis of these specifications, Mazars experts were asked to classify the Eurostat information, to analyze and, if necessary, to revise the pre-existing classification with regard to the established criteria.

For example, Eurostat data for France classifies all property tax as a production tax, without distinguishing the share paid by companies from that paid by households. The unprecedented analysis provided by this new barometer, based on pre-existing legal sources, required a particularly meticulous analysis by Mazars' tax specialists. The degree of precision achieved is unprecedented. However, it should be noted that there is a possible margin of error in isolating the share of these taxes paid by households versus those paid by companies. Indeed, for some countries, such as Spain and Sweden, some data is missing and does not allow us to conclude that households do not contribute to production taxes, which must be borne by companies according to the established legal definition.

The teams then drew up an exhaustive list of all the taxes by country and determined, line by line, whether or not they were taxes on production, justifying their decisions and taking into account the complexity of the tax rules specific to each country.

Finally, while the specifications have not changed between the two editions of the barometer, it should be noted that certain methodological improvements have been made (as described below), updating certain figures from the previous edition. This is notably the case for three countries: Italy, the Netherlands and Poland, whose 2020 data has been updated in light of these new analyses.

Developing the indicator

Mazars then sent the data, with comments and classifications, to the Institut Montaigne. The Institut Montaigne, with the help of HEC Junior Conseil, then used this data to construct the indicator necessary to compare the overall annual amount of taxes on production between France and the ten other European countries. For 2021, this shared indicator is presented as a percentage of GDP.

Specificities of the Second Edition of the Barometer

This second edition of the Production Tax Barometer follows up on the work started the previous year. In light of past, current and future tax reforms — particularly in France with the CVAE phase out — the Institut Montaigne, in collaboration with Mazars, has decided to give it another go in order to provide a critical and relevant perspective on these issues.

This year, the United Kingdom has been removed from the list of countries studied, mainly because of its withdrawal from the European single market. As the United Kingdom is no longer subject to the same legislative constraints and no longer part of the same economic environment, comparing the UK with the other countries in this study is no longer relevant. Moreover, Eurostat no longer studies the United Kingdom since its exit from the European Union, depriving our barometer of reliable data useful for our analysis.

Denmark is now part of this new edition of our barometer. As the 11th European economic power, it is indeed quite present on the single market, notably thanks to a very competitive export industry. Its trade balance has been positive for nearly 35 years: the study of Danish production taxes is an excellent case study to illustrate the challenge of competitiveness for European companies.
 

A downward trend in European production taxes

European Production Tax Barometer 2023

Of the 11 countries studied, 9 have seen a decrease in the share of their production taxes, which demonstrates a shared desire to bolster the competitiveness of European companies.

France in particular is experiencing a remarkable drop: the share of its production taxes will have fallen by nearly 0.6 GDP points between 2020 and 2021, notably due to the decrease in CVAE revenues over this same period.

For other countries, where production taxes were already low — such as Germany, Portugal and Switzerland — the barometer notes a fiscal stabilization, with no obvious differences.

Finally, only Italy and Poland are experiencing an increase in the proportion of their production taxes — Italy due to the Covid-19 related health crisis and Poland because of taxes on activities with a negative impact on the environment.
 

A ranking that is being confirmed

European Production Tax Barometer 2023

The country benchmarking by relative share of production taxes remains unchanged for this 2023 edition. Sweden remains the country with the highest share of production taxes (as a percentage of GDP), but this is due to its role in financing the Swedish social system.
 

 

European Production Tax Barometer 2023

The European Production Tax Barometer 2023 arrives at the same conclusions as the previous edition: France is still among the “poor performers" of the European Union, since its production taxes represent 3.8% of its GDP — well above the average for the countries studied, estimated at 2.5% of GDP. Moreover, the total amount of its production taxes was €95 billion, nearly four times higher than Germany (€25 billion) despite German GDP being nearly 40% higher.

 

Lisa Darbois
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European Production Tax Barometer 2023
(17 pages)
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