This presentation was made by François Ecalle, Haut Conseil des Finances Publiques, France, at the 8th meeting of Parliamentary Budget Officials and Independent Fiscal Institutions held in Paris on 11-12 April 2016.

1. FORECAST AND ANALYSIS OF
CORPORATE INCOME TAX
FRANÇOIS ECALLE
EUNIFI MEETING – 12TH APRIL 2016
SESSION VIII

2. OPENING REMARKS
 Both macroeconomic and public finances forecasts are produced by the
Ministry of Finance. The High Council of Public Finances assesses the
soundness of these forecasts.
 Since 2014, there is a refundable tax credit calculated on a portion of payroll
expenses. The cost of this refundable tax credit at the steady-state should
represent half of corporate income tax (IS).
 Necessary distinction of corporate income tax with or without this tax credit:
in this slideshow, I will only talk about corporate income tax before the
tax credit.
 In 2014, excluding tax credits, revenues from corporate income tax
reach 42 billion euros, that is 2,0% of GDP and 4,3% of all taxes.
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3. I) Evolutions (assuming no change in legislation)
A) The Ministry of Finance’s forecasting method
 Macroeconomic forecasts: gross operating surplus and interests paid, both
for non-financial corporations and financial institutions in the national
accounting system.
 A model from which you can get taxable income and corporate income
tax revenues based on the previous macroeconomic result.
 A model taking into account:
 differences between gross operating surplus and taxable income
 distribution between companies with losses and companies with surplus
 payment conditions of corporate income tax; losses carried forward from
previous years
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4. A) The Ministry of Finance’s forecasting method
 Payment conditions of corporate income tax on year N:
1. At the beginning of the year: the compulsory payment in advance
estimated from taxable income of the year N-2;
2. Then: the adjustment balance of corporate income tax estimated from
the taxable income of the year N-1;
3. Next: the compulsory payment in advance calculated from taxable
income of the year N-1;
4. At the end of December: for the biggest firms, the payment in advance is
estimated from the forecast of taxable income of year N.
 Overall, revenues of corporate income tax on year N depend on taxable
income of the years N-2 , N-1 and N.
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I) Evolutions (assuming no change in legislation)

5. B) Monitoring by the High Council of Public Finances
 Macroeconomic forecasts:
 sufficient information supplied by the Ministry of Finance;
 adequacy of disposable information for the High Council.
 From the gross operating surplus to the corporate income tax: no
documentation on the Ministry of Finance model.
 The High Council only controls the consistency of the corporate
income tax elasticity with respect to gross operating surplus.
 On the average, this elasticity is around 2,0 but it varies a lot.
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I) Evolutions (assuming no change in legislation)

6. 6
I) Evolutions (assuming no change in legislation)
Evolution of the corporate income tax (left axis)
Evolution of the gross operating surplus (right axis)

7. 7
C) Ex post analysis of the gap between forecasts and real estimates
 No ex post detailed analysis of this gap in the long run.
 However, the Court of Auditors (Cour des Comptes) compares every
year forecasts and figures at the end of the year.
 The gap is often highly significant.
 The gap can be large even between September forecasts and figures at
the end of the year: the last advance payment is hard to forecast.
I) Evolutions (assuming no change in legislation)

8. II) New legislative measures
A) The Ministry of Finance's Methods to estimate budgetary
impact of new measures
 Simulating the impact of new discretionary measures on corporate
income tax revenues using the companies’ accounts file attached to
their tax declarations.
 Reliable method, with one caveat: this quantification usually does not
take into account the effect of the new discretionary measure on
companies behaviour.
 This quantification of the impact of new measures by the Ministry of
Finance does not take into account shifts in behaviour.
 When it is possible to quantify this effect, it is taken into account in the
macroeconomic scenario.
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9. B) Monitoring by the High Council of Public Finances
 Until now, no data controls: no access to the data (tax declarations
files, the tax calculation program).
 A new law establishes open access to fiscal files for researchers, and it
provides a tax calculation program.
 Thus the High Council of Public Finance should now be able to check
the Ministry of Finance estimation of new measures' impact.
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II) New legislative measures

10. Conclusion
 Corporate income tax is very hard to forecast
 Ministry of Finance methods are quite hard to understand (excluding
macroeconomic forecasts) and monitoring is limited (confined to the
assessment of forecasts likelihoods).
 Many improvements are possible in the future, as seen in the example
of the new open access to fiscal files for researchers.
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11. Forecasts and real estimates
for corporate income tax
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Corporate income tax growth (in %)
Forecast Effective

12. THANK YOU FOR YOUR ATTENTION!
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