1. Taxes on holding gains Final recommendations OECD F. Lequiller

2. Taxes on holding gains Contradiction in the SNA: Contradiction in the SNA: Taxes on holding gains are deducted from the SNA measure of income Taxes on holding gains are deducted from the SNA measure of income But...holding gains are not included in the SNA measure of income But...holding gains are not included in the SNA measure of income The tax is deducted while the tax base is not included ! The tax is deducted while the tax base is not included ! This contradiction misled some users, in particular in the second part of the 90s This contradiction misled some users, in particular in the second part of the 90s

3. Taxes on holding gains The OECD prepared a discussion paper and a questionnaire (March 2003) The OECD prepared a discussion paper and a questionnaire (March 2003) Twenty five countries reponded to the questionnaire Twenty five countries reponded to the questionnaire On this basis the OECD made a recommendation On this basis the OECD made a recommendation This recommendation is submitted to this meeting for comment This recommendation is submitted to this meeting for comment Taking account of comments, we will forward it to the ISWGNA Taking account of comments, we will forward it to the ISWGNA

4. Only one solution Two solutions were theoretically possible to resolve the contradiction Two solutions were theoretically possible to resolve the contradiction (1) re-classify holding gains and losses as income: this solution was discarded as too ambitious (1) re-classify holding gains and losses as income: this solution was discarded as too ambitious (2) re-classify taxes on holding gains as capital taxes: only this solution was proposed in the questionnaire (2) re-classify taxes on holding gains as capital taxes: only this solution was proposed in the questionnaire

5. Pros and Cons Re-classifying taxes on holding gains as capital would resolve the contradiction Re-classifying taxes on holding gains as capital would resolve the contradiction It is consistent with the view of most households It is consistent with the view of most households However, it is not consistent with the view of the government However, it is not consistent with the view of the government The main problem is that it is difficult to disembody the tax on holding gains from the global income tax The main problem is that it is difficult to disembody the tax on holding gains from the global income tax

6. Results of the consultation Question 1: as a principle, would you support the change of taxes on holding gains as a capital tax? Question 1: as a principle, would you support the change of taxes on holding gains as a capital tax? Result: Experts were split: thirteen supported the change in principle while fifteen did not support the change Result: Experts were split: thirteen supported the change in principle while fifteen did not support the change

7. Results of the consultation Question 2: in practice, can you separate taxes on holding gains from the income tax? Question 2: in practice, can you separate taxes on holding gains from the income tax? A large majority (18) responded that they would not be in a position to separate these taxes from the tax on income A large majority (18) responded that they would not be in a position to separate these taxes from the tax on income

8. OECD proposals In the view of the OECD, considering the results of the questionnaire, it would be premature to propose a change now. In the view of the OECD, considering the results of the questionnaire, it would be premature to propose a change now. Half of the experts disagree on the principle Half of the experts disagree on the principle Two third disagree on the practicality Two third disagree on the practicality The OECD proposes therefore that the SNA does not change regarding the classification of this tax The OECD proposes therefore that the SNA does not change regarding the classification of this tax However, where this is possible, countries should compile and transmit data on taxes on holding gains in order for economists to be able to add this to income to neutralise totally the impact of holding gains from income However, where this is possible, countries should compile and transmit data on taxes on holding gains in order for economists to be able to add this to income to neutralise totally the impact of holding gains from income

9. Final recommendation The SNA should not be changed regarding the classification of taxes on holding gains which should remain part of D51, current taxes on income. The SNA should not be changed regarding the classification of taxes on holding gains which should remain part of D51, current taxes on income. However, the SNA should recognise the breakdown of D51 between taxes on income from production and taxes on holding gains as a necessary information for users However, the SNA should recognise the breakdown of D51 between taxes on income from production and taxes on holding gains as a necessary information for users

10. Final recommendation (continued) The new SNA should discuss and present alternative measures of household income, excluding taxes on holding gains. The new SNA should discuss and present alternative measures of household income, excluding taxes on holding gains. The SNA/ESA questionnaire (Table 9) will include special sub-categories in which countries for which this is possible would report taxes on holding gains received from households (and, separately, corporations). The SNA/ESA questionnaire (Table 9) will include special sub-categories in which countries for which this is possible would report taxes on holding gains received from households (and, separately, corporations).

11. Taxes on holding gains The meeting of OECD experts on national accounts is requested to comment on this recommendation The meeting of OECD experts on national accounts is requested to comment on this recommendation Taking acount of comments, the recommendation will be forwarded to the ISWGNA Taking acount of comments, the recommendation will be forwarded to the ISWGNA