This update of the Country Index for Family Businesses evaluates Germany’s attractiveness as a location for family businesses for the eighth time since 2006. Our index compares industrialized countries in terms of their attractiveness as locations for business investment. While we focus on conditions prior to the Coronavirus pandemic, our analysis sheds important light on the extent to which various European and non-European countries will be in a position to ward off the long-term effects of the pandemic. For the first time the 2020 index includes a comparative analysis of healthcare systems. The full German version of the Country Index for Family Businesses has been published by the Foundation for Family Businesses. The English text presented here summarizes the main findings of the original version.
The punitive tariffs and countervailing customs duties imposed by the USA lead to substantial competitive disadvantages for family businesses in Europe. A study commissioned by the Foundation for Family Businesses draws the conclusion that the trade disputes between the USA and the European Union are meanwhile spilling over to industries that have nothing to do with the original trade conflict. Family companies are affected the most by countervailing customs duties imposed by the USA.
In a long-term historical study, the Foundation for Family Businesses examines why such fundamentally different business landscapes arose in Germany and in the United States. Family companies in Germany have evolved into a strong pillar of the German economy over centuries. But their role in the United States is smaller. The study was prepared by the economic historian Prof. Dr. Hartmut Berghoff and private lecturer Dr. Ingo Köhler, both of the University of Göttingen. As part of their research, they explored nearly 250 years of economic history in the United States and Germany.
Family businesses are the job engines of the German economy: in recent years they have created more jobs than those DAX companies with dispersed ownership. This is one of the conclusions drawn in the fifth edition of the study series “The economic significance of family businesses”. Between 2007 and 2016, Germany’s 500 largest family businesses expanded their employment in Germany by 23 percent to 2.54 million people. In contrast, the 27 DAX companies that are not family businesses were only able to increase employment by 4 percent – to 1.55 million. Measured in revenue as well, the top 500 family businesses outpaced the 27 DAX companies, increasing their group-wide sales by 36 percent between 2007 and 2016. The 27 DAX companies increased their sales by only 29 percent.
The shareholders of family businesses are particularly affected in a variety of ways by transparency requirements. The Advisory Board of the Foundation for Family Businesses has been examining the different aspects of company transparency: in four articles, members of the Advisory Board explain the effects of the requirements on company shareholders, the family and the business.
This update of the Country Index for Family Businesses evaluates Germany’s attractiveness as a location for family businesses for the seventh time since 2006. Conceived as a location comparison that specifically encompasses the perspective of large family businesses, the index analyses and compares criteria that are important to such businesses in Germany with those in competitor countries. The full German version of the Country Index for Family Businesses has been published by the Foundation for Family Businesses. The English text presented here summarizes the main findings of the original version.
A substantial majority of German companies assesses international tax competition as strong or very strong. When surveyed about the effects on their operations, large family businesses in particular cite negative consequences around twice as often as large companies that are not family-owned, suggesting that tax competition does not affect the German economy uniformly. For the companies surveyed, it is not an option for the federal government simply to do nothing. These companies expect a reduction in bureaucratic hurdles, better international coordination to contain tax evasion and lower corporate tax rates. The ifo Institute surveyed 1,250 family-owned and non family-owned businesses for this study on behalf of the Foundation for Family Businesses, making it the largest survey on the subject of tax competition.
In recent years, international competition to attract companies with low taxes has been hotly debated by both politicians and the media. Exposure of the diverse tax-avoidance strategies pursued by a number of large multinationals has underscored the extent to which these strategies are aided and abetted by individual countries. The media debate has triggered widespread political activity to prevent what are considered to be unfair practices in tax competition, and the recent tax reform in the United States has raised interest in this topic even further: The prevailing opinion is that the big corporate tax cuts implemented in the world’s biggest economy could trigger a new round of competitive tax-cutting.
The European Commission wants internationally active enterprises with a turnover of more than 750 million Euros to publish sensitive company data on the internet. The so-called Country-by-Country Reporting (CbCR) is supposed to apply to every country in which the company is established. Competitors not covered by the provision could use the information without being compelled to publish comparable data themselves. The present study by ZEW Mannheim analyses possible consequences of this provision for big family companies as well as for the BEPS process („Base Erosion and Profit Shifting“).
The Country Index study has been conducted every two years since 2006 by the Centre for European Economic Research (ZEW), Mannheim, on behalf of the Foundation for Family Businesses. It is based on international and national statistics. They are analysed to determine the attractiveness of a particular location for large family-owned enterprises in the manufacturing sector in the EU and US. The index assumes a model family business with an annual turnover of €210 million.
The following six criteria are analysed: taxation; labour costs, productivity and human capital; regulation; financing; infrastructure and institutions; and energy. Sub-indices are formulated for the individual criteria and included in the main index.
The countries compared in the index are: Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Poland, Slovakia, Spain, Sweden, Switzerland, the United Kingdom and the United States.
Among major emerging markets, Turkey and Russia offer family firms the most attractive business conditions. However, in light of constitutional developments in these countries, China is fast catching up. This was the finding of the “Country Index for Family Businesses – Emerging Markets” study prepared by the Centre for European Economic Research (ZEW Mannheim) for the Foundation for Family Businesses.
The study "Germany’s next generation of business owners" forms part of a long-running research project for which the Friedrichshafen Institute for Family Entrepreneurship | FIF at Zeppelin University carries out regular data surveys across Germany on behalf of the Foundation for Family Businesses.Download the study (German)
Cutting red tape would significantly boost the willingness of family-owned businesses to step up investment in Germany, according to one finding of the Annual Monitor of the Foundation for Family Businesses, a survey based on the most comprehensive data gathered on family-owned firms in the German-speaking world. The Munich-based ifo Institute produced the report on behalf of the Foundation. Over 1,500 family and non-family businesses of all sizes and from a wide variety of industries took part in the survey. In future, the survey will consist of a panel of the same 600 companies at a minimum. Further surveys and analyses will be carried out at least once a year.
The report was picked up by various news outlets, including Die Welt: "Investieren schwer gemacht" (Investment made difficult)
If an owner of a family firm moves to a non-EU country, payment of exit taxes will be immediately demanded on their share of the business – at the same level as their personal income tax rate. Although there are options for deferral, these are not standardised, but depend on the particular country concerned and the agreements it has with the German financial authorities. Exit taxation jeopardises the very substance of family-owned firms and consequently discourages owners from internationalising the business. The Foundation for Family Businesses proposes some reforms which Professor Stephan Kudert from the European University Viadrina in Frankfurt (Oder) examines in the present study.
What would be the impact of a wealth tax on German family firms? This is the question addressed by the Centre for European Economic Research (ZEW) in this new study conducted on behalf of the Foundation for Family Businesses. Summing up its findings, the report’s author Professor Christoph Spengel says: “The interplay of income, wealth and inheritance taxes could result in a confiscatory burden and effective tax rates of over 100 percent. Any return on assets would therefore be completely eaten up by taxes, and business assets would be eroded to cover the remainder of the tax payment.”
For more than a decade now, the Foundation for Family Businesses has regularly commissioned the Centre for European Economic Research (ZEW) and the Institute for SME research and entrepreneurship in Mannheim (ifm) to conduct studies on the economic importance of German family businesses.
Our short film summarises the key statistics (2014), such as the share of the workforce and revenues accounted for by family businesses, their significance on the stock exchange and their equity base.
In a report commissioned by the Foundation for Family Businesses, the ifo Institute found that income inequality is perceived to be much greater than is actually the case. One of the report’s most significant findings is that income disparities among the working population have declined over the past decade. If the entire labour force is included – i.e. both the employed and the unemployed – it is clear that inequality in gross real wages has greatly decreased as a result of the Hartz reforms. The study also shows that Germany’s fiscal and social security system is making a significant contribution to evening out income disparities.
Fiscal frameworks – and in particular how transfer prices are calculated – directly impact the competitiveness of internationally active family enterprises.
The bureaucratic overhead involved in transfer pricing is onerous not only for large family-owned businesses, but for tax authorities too. There are also further obstacles: companies find it very difficult to obtain binding statements from the tax authorities and divergences in their practice often only come to light during tax audits. In view of the numerous practical problems involved, the Foundation for Family Businesses – supported by the Baden-Württemberg Chamber of Commerce and Industry – initiated this scientific study.
Along with empirical data on transfer pricing disputes and resolution techniques, Professor Andreas Oestreicher (Faculty of Economics at Göttingen University) and Professor Ekkehart Reimer (Institute for Financial and Tax Law, Law Faculty, University of Heidelberg) also present an international comparison of normative frameworks and administrative practice. They furthermore go on to develop proposals on how the burden of transfer pricing could be alleviated for companies and tax authorities.