Recent policy discussion has highlighted the variety of ways in which the world of work is changing. One development prevalent in some countries has been an increase certain forms of non-standard work. Is this beneficial, representing increased flexibility in the workforce, or detrimental, representing a deterioration in job quality driven by automation, globalisation and the market power of large employers? These changes also raise crucial issues for tax systems. Differences in tax treatment across employment forms may create tax arbitrage opportunities. This paper investigates the potential for such opportunities for eight countries. It models the labour income taxation, inclusive of social contributions, of standard employees and then of self-employed workers (with applicable tax rules detailed in the paper’s annex). The aim is to understand whether countries’ tax systems treat different employment forms differently, before approaching the broader question of whether differential treatment has merit when evaluated against tax design principles. 1. Introduction 1. Recent policy discussion has highlighted the myriad of ways in which the world of work is changing (OECD, 2019a). In a number of OECD countries, growing shares of workers earn income outside of traditional employee-employer relationships. While these trends are driven by many factors, including labour market regulation and demographic change, there is concern that rising shares of non-standard forms of employment in some countries may be unduly driven by incentives embedded in tax systems. In particular, differences in the tax treatment of standard employees relative to non-standard workers may create tax arbitrage opportunities, both for firms in their selection of labour contracts offered to workers (e.g., a full-time employment contract versus a contract for services) and for individuals in their choice of organisational form (e.g., employee versus unincorporated or incorporated self-employment). This paper investigates the potential for such opportunities by assessing the extent to which the taxation of self-employment differs from the taxation of standard employment. 2. For a set of eight countries – Argentina, Australia, Hungary, Italy, the Netherlands, Sweden, the United Kingdom and the United States – the analysis models the labour income taxation, inclusive of social contributions, of standard employees according to 2017 tax rules as well as the labour (and, where relevant, capital) income taxation of nonstandard employment forms and, in particular, of self-employed workers. The aim is to understand whether countries’ tax systems treat standard employees and self-employed workers differently, before approaching the broader question of whether differential treatment has merit when evaluated against accepted notions of good tax design. To the extent that they exist, opportunities for tax arbitrage across employment forms diminish the effectiveness of tax systems. This can mean that firms and individuals carrying out similar activities may be subject to different levels of taxation, with implications for equity, tax revenue generation and the future sustainability of social protection systems. 3. The paper is organised as follows. Section 2 discusses tax system design principles in light of variation in employment form. Section 3 presents three stylised cases of employment, outlining how the tax treatment of standard employment may differ from that of self-employment. Section 4 provides a typology of non-standard employment forms, working with established definitions, for the set of countries analysed. Section 5 presents the methodology, including new tax system information collected for the analysis and an overview of the measures employed to analyse labour taxation. Section 6 presents the results, first using the Netherlands as a case study to show the analysis in greater detail for a single country, and second showing the results across the eight countries. Finally, Section 7 discusses policy considerations and potential directions for future work.
Anna Milanez and Barbara Bratta
Milanez, A. and B. Bratta (2019), “Taxation and the future of work: How tax systems influence choice of employment form”, OECD Taxation Working Papers, No. 41, OECD Publishing, Paris,https://doi.org/10.1787/20f7164a-en.