Part II

Developments in the Member States

capital/wealth amounted to 3.7 % of GDP. This level is relatively stable since the second half of the period
concerned and is the third highest value in the EU. After a gradual decrease during most of the period, the ITR on
corporations has significantly dropped since 2008 due to the lagged effect of the introduction of the ACE system
and the economic slowdown, which put the ITR on capital on a declining path.

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Revenues from environmental taxation have declined in percentage of GDP since 2005. In 2010 environmental tax
revenue amounted to 2.1 % of GDP, below the EU average (2.6 %). Revenues from energy taxation are the lowest
in the EU (1.3 % compared to an EU average of 2.0 %).
Current topics and prospects; policy orientation
Bringing the public debt on a declining path remains a priority for the government in order to prepare the public
finances for the budgetary impact of an ageing population. In spite of a steady decline between 1999 and 2007, the
debt to GDP ratio remains well above the EU average and has been rising again since 2008 due to the economic
slowdown and massive support to the financial sector. The initial 2012 budget, based on a growth forecast of
1.6 %, with a provision accounting for a drop of the growth rate to 0,8 %, was expected to bring the deficit just
below 3 % through a combined effort of the federal government (2.4 %) and the regions (0.4 %). The bulk of the
effort is generated by lowering public expenditure (42 %). Additional tax revenues account for 34 % of total effort,
the fight for fraud would account for 24 %. A revised budget will be passed to the Parliament in April. It includes
an additional consolidation package of 2 billions, with most of it on the spending sides. On the tax side, it
includes an increase in excise duties on tobacco.
The federal government agreed on raising new revenues mainly in the area of capital taxation. Since 1 January the
withholding tax on interest and dividends rose from 15 % to 21 %, and a solidarity charge of 4 % is introduced on
the share of financial income exceeding 20 020. The tax on financial transactions rose by 30 %. In addition, the
2012 budget introduces a tax on the conversion of bearer shares. In the field of company taxation, the budget
lowers the cap to 3 % for the notional interest deduction for 2012 to 2014, with a possibility for renegotiating as of
2015, and increases the base for taxation of company cars (catalogue value) both for the company and for the user
of the car. Company car taxation also takes into account car-specific CO2 emission levels.
The federal budget identifies specific activities and sectors for raising additional revenue. VAT on digital
television is raised from 12 % to 21 %. Mortgage interest deductions under the personal income tax scheme on the
federal level will disappear as of 2014 as competence will pass on to the regions. As of 2013, the tax-free share of
low and middle incomes will be raised by 200 and social contributions are lowered for the first three employees
hired by medium-sized enterprises. Tax expenditure cuts in the PIT include the abolishment of federal subsidies for
environmental cars and energy saving investments, which will only partly be replaced by regional subsidies.
Finally, the government expect to raise revenues by stepping up the fight against fiscal and social fraud and
focusing on risk sectors through a strengthening of fraud fighting authorities, increased cooperation between fiscal
and social control authorities and the introduction of an automatic procedure to check fiscal and social debts in the
field of inheritance taxation.

Main features of the tax system

Personal income tax
There are four categories of income: financial, real estate, professional (including labour income) and other various
income. In principle, the general rates are applied to global income, but there are exceptions, e.g. in relation to
financial income, income from private pension arrangements and other various income.
In practice, the basis for taxation at the marginal rate consists of (deemed) property and professional income.
Spouses are taxed separately, although a marital quotient exists: 30 % of the higher income is transferred to the
lower one, provided it does not exceed 9 470. A major reform was implemented in 20002006, introducing
changes in brackets, rates, deductions and exemptions as well as a tax credit for low income earners. For wage
earners, the income tax credit was changed into a reduction in employees SSC starting from 1st January 2005 and
a new tax credit for low income workers was introduced from income year 2011 onwards. There are currently 5

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Taxation trends in the European Union