Davide M. Parrilli ICRI – K.U. Leuven – IBBT davide.parrilli@law.kuleuven.be

1. Governance, Policies and Legal Conditions for Access to Market through Extended and Dynamic Clustering of SMEs Taxation Issues and SME Clustering, Lessons for Policymakers The Substantial and Procedural Aspects of SME Clustering and Taxation Davide M. Parrilli ICRI – K.U. Leuven – IBBT davide.parrilli@law.kuleuven.be (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

2. Agenda • Starting points and overall considerations; • Substantial aspects of taxation; • Procedural aspects of taxation; • Conclusions. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

3. Starting points (I) • Taxation is perceived to be one of the main barriers to business. Alternatives: • No taxation at all: not feasible from the social and political point of view; • Taxation as an enabler: competitive advantages for a country in terms of tax rates and fiscal administration. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

4. Starting points (II) It is time that policymakers focus their attention to SMEs and clusters and not only to MNEs. Provided that SME clusters must be flexible and international as MNEs, many considerations applicable to MNEs are valid also for clusters. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

5. Substantial aspects (I) Corporate tax At company level there is surely a strong interaction between the performance of the business and the applicable corporate tax rate. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

6. Substantial aspects (II) Contradictions (empirical experience vs. theory) • Countries with a high corporate tax rate often have more companies and they perform better than others with a much lower rate: taxation does not explain all but it has been proved that rates of business investment are inversely related to effective tax rates. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

7. Substantial aspects (III) 2. It is very difficult to assess whether or not a low tax rate is an enabler to clustering and available data show controversial findings: Ireland (low taxation, low clustering) vs. Denmark, the Netherlands, Italy (higher taxation, high clustering). (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

8. Substantial aspects (IV) Conclusions: 1. A moderate tax rate and the implementation of corporate-oriented policies are potential enablers to clustering: e.g. the Netherlands, Iceland, Luxembourg. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

9. Substantial aspects (V) 2. The effect of lower tax rate on clustering is only indirect: it has the primary and direct effect to let firms and companies grow up and as a result, when they have reached a certain level of maturity, they tend to cooperate more or less formally. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

10. Substantialaspects (VI) 3. Thecreation of tax enablers for companies is a good policy and it can stimulate SME clustering: i.e. reduction of corporate tax rate, application of group taxation to clusters, combination of taxes. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

11. Substantialaspects (VII) Reduction of corporate tax rate: the Netherlands. From 1/1/2007 maximum corporate tax rate from 29,6 % to 25,5 % for profits exceeding € 60.000 + Changes in the participation exemption regime, patent and group interest boxes, etc. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

12. Substantialaspects (VIII) • Application of group taxation to clusters: Italy • SME clusters (distretti produttivi) can be a single taxpayer: application of the rules for groups:compensation of profits and losses; the cluster as a single entity from the income taxation point of view. • Problems and criticism: • It does not help to select the best firms and exclude the others; • It is an indirect state aid prohibited under EC law; • It is only an experiment, lack of political willingness to implement the reform; • Constitutional issues: balance between powers of the central government and of the regions. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

13. Substantial aspects (IX) Combining taxes: effect of reducing the administrative costs related to paying taxes, but it does not necessarily mean decreasing the overall burden of taxation for firms and companies. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

14. Procedural aspects (I) Proceedings for paying taxes: what the policymaker should do: • On-line filing mechanism: better service, less corruption; • Simplification of the proceedings: less costs, less litigation. (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

15. Procedural aspects (II) On-line filing mechanisms: paying taxes and contributions through a web portal + possibility to send documents on electronic format (e.g. HM Revenue & Customs Services in the UK). (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop

16. THANK YOU! (Name of Presenter/Organisation) Leuven, 4/7/2008 Davide M. Parrilli - ICRI Effort workshop