Visegrad Group from the Perspective of Investment's Taxation and the Role of Depreciation Methods

Abstract

Taxation have significant impact on selection of investments' location. Visegrad Group countries are from the same region and they compete for similar segment of investors and this causes tax competition between them. The largest investors in this area are companies from the Netherlands, Luxembourg, Germany and Austria. Investors prefer lower tax burden therefore the position of these countries can differ based on the tax conditions. Tax burden within this study is measured by Devereux and Griffith's effective average tax rate (EATR) for cross-border investment. The EATRs in countries from Visegrad Group are generally relatively close expect the situation of the investment in Hungary, which provides the best conditions thanks to the lowest statutory corporate tax rate. Tax treaties and depreciation methods cause other differences between the tax burdens. Especially, the investors from Austria have disadvantage for cross-border payments from Visegrad countries, except payments from the Czech Republic. The situation of the Czech Republic demonstrates the importance of depreciation methods, which have significant role in the case of closer statutory corporate tax rates and similar tax treaties. Use of accelerated depreciation in the Czech Republic brings about half percentage lower effective tax rate than the standard depreciation method.