ANNEX D. Country Details

This discussion outlines specific skills tax expenditures (STEs) that have been added to the personal income tax (PIT) and Social Security Contribution (SSC) systems of each country’s Taxing Wages model for 2011. Details of these models can be found in OECD Taxing Wages (OECD, 2014). These STEs largely offset the costs of skills investments through the PIT system. A more detailed discussion of the STEs affecting skills investments are contained in Torres (2012).

Australia

For Australia, three features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. Scholarships, bursaries or other educational allowances derived by a student receiving full-time education are generally exempt from taxation. However this exemption does not apply to payments received by a student on condition that the student will become or continue to be an employee of the payer.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where the expenses are connected with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but not otherwise.

  • The third feature is Australia’s system of income-contingent loans. As discussed in Section 3.2 and 4.3, a variety of interest rates and loan amounts have been modelled in the analysis. In the Australian case, the key feature modelled is income-contingency of the repayment of student debt. If a taxpayer does not earn more than AUS 51 309, no interest or loan principal need be repaid.

Austria

For Austria, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Austria, scholarship income is tax exempt where it is not related to employment. Where income is related to employment, the tax exemption for scholarship income is not available. It is assumed in this study that this deduction is not available for ‘job-related education’, as discussed in Section 4.5, but is available otherwise.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where the expenses are connected with a taxpayers’ current professional activity. This provision is modelled in the opposite way to the scholarship income provision; it is assumed that it is available for ‘job-related education’, but not otherwise.

Belgium

For Belgium, four features of the tax system pertaining to skills have been modelled.

  • The first provision modelled is the deductibility of training costs. These are tax-deductible where these expenses are connected with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but not otherwise.

  • The second provision is the tax treatment for students who work less than 23 days per year. In these cases normal SSC rates do not apply; rather a reduced employees’ SSC rate of 2.71% applies, as does a reduced employers’ SSC rate of 5.42%. This is assumed to only be available to college students, as discussed in Sections 4.2 and 4.3.

  • The third provision is the tax exemption of scholarship income. This is assumed to be available to all kinds of scholarship income.

  • The fourth provision is the tax treatment of student debt. As discussed in Section 3.2 and 4.3, a variety of interest rates and loan amounts have been modelled in the analysis. In Belgium interest on student debt is assumed to be tax-deductible.

Canada

For Canada, three features of the tax system pertaining to skills have been modelled.

  • The first is the exemption of scholarship income from taxation. Scholarships in respect of non-research degrees that lead to a diploma or degree are exempted. Where the scholarship received is pertaining to education that is part-time, the scholarship exemption is limited to the value of tuition costs plus the costs of program-related materials. In this study, it is assumed that scholarship income is exempt from taxation where education is full-time. Otherwise, the amount of the deduction is limited to the value of the direct costs of education (which in the model, are assumed to be tuition fees).

  • The second provision modelled is the Tuition Tax Credit. At federal level, this credit provides a 15% non-refundable tax credit of the costs of tuition. There is also a 5.05% credit applied at the provincial level for the province of Ontario. These credits together comprised a 20.05% total credit for the costs of tuition. There is no limit on the amount of tuition that can be claimed, but claims must exceed CAD 100. In the model it is assumed that all direct educational costs paid by the student are tuition fees. The value of the credit can be carried forward until it is exhausted. It is assumed that this credit is available whether training is job-related or not.

  • The third provision is the tax treatment of student debt. As discussed in Section 3.2 and 4.3, a variety of interest rates and loan amounts have been modelled in the analysis. In Canada, interest paid on student loans approved under the Canada Student Loans Program and similar provincial or territorial programs is eligible for a 15-percent non-refundable tax credit. The value of the credits can be carried forward for up to five years after interest payment have been made. It is assumed that this applies to student loans in the model.

The Education and Textbook Tax Credits are not modelled, as all the costs of education in the model are assumed to be tuition fees. Finally, the deductibility of tuition assistance received for programs that do not qualify for the Tuition Tax Credit is not modelled; it is assumed that all education is eligible for the credit.

Chile

For Chile, only the tax exemption of scholarship income is modelled. It is assumed that this tax exemption is available whether the training is job-related or not.

Czech Republic

For the Czech Republic, two features of the tax system pertaining to skills have been modelled.

  • The first is the exemption of scholarship income from taxation. This exemption is available to scholarships awarded from the state budget. It is assumed that scholarship income received in this study is tax exempt. It is also assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the deductibility of training expenses. It is assumed that this deductibility is available whether the training is job-related or not. This tax deduction is only available for taxpayers who are less than 26 years of age, or have dependents aged less than 26. Deductibility for dependents is not modelled, so a taxpayer must be less than 26 years of age to avail of the deduction in the model.

Denmark

For Denmark, three features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Denmark, scholarship income is normally treated as general income, and is modelled here as taxable.

  • The second provision is the tax treatment of student debt. As discussed in Section 3.2 and 4.3, a variety of interest rates and loan amounts have been modelled in the analysis. In Denmark interest on student debt is assumed to be tax-deductible.

Estonia

For Estonia, three features of the tax system pertaining to skills have been modelled.

  • The first is taxation of scholarship income from taxation. Scholarship income is normally treated as general income if it is received in connection with employment. However scholarships paid by public authorities are exempt from taxation.

  • The second provision modelled is the deductibility of training costs when these costs relate to current professional activity. In Estonia these costs are deductible up to EUR 1 920 or 50% of the taxpayers’ income. It is assumed that this deductibility is available whether the training is job-related or not. Deductibility for dependents is not modelled.

  • The third provision modelled is the exemption of working students from the lump-sum social contribution of EUR 91.75 per month known as the Social Tax Minimum Obligation.

Finland

For Finland three features of the tax system pertaining to skills have been modelled.

  • The first is the tax deductibility of skills spending from taxation. In Finland, work-related skills expenditure is in certain cases deductible from taxable income. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise.

  • In addition, student grant income is generally subject to taxation, though with certain special provisions applied. An allowance is provided with respect to municipal taxation for the value of grant income. The allowance is capped at EUR 2 600, and is also reduced by 50% of earned income less the deduction for work-related expenses.

  • SSCs paid on wage income and other income from work are not paid on student grant income. On student grant income only the health insurance contribution is paid.

  • Finland also allows interest on student debt to be deducted from the income tax base. This feature is not modelled in the results presented in this study.

Greece

For Greece, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Greece, scholarship income awarded by the Greek State is exempt from taxation. It is assumed in the model that scholarship income received is state scholarship income; it is modelled as exempt from taxation. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the deductibility of training costs. This deductibility is available for 10% of training costs up to a maximum of EUR 1 000.

Tax deductions available for education expenses for children are not modelled.

Hungary

For Hungary, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax exemption of scholarship income. In Hungary, most scholarship income is not taxable. In this study, it is assumed that scholarship income received by a student is not taxable. It is assumed that this is the case whether the training is job-related or not.

  • The second is the reduced rates of employers’ SSCs when a worker is below 25 or above 55 years of age. In these instances income up to HUF 1 200 000 is charged at a rate of 12.5% (lower than the standard employers’ SSC rate of 27%). Income above HUF 1 200 000 is taxed at a rate of 27%.

Iceland

For Iceland, only the tax deductibility of educational expenses is modelled. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but not otherwise.

Ireland

For Ireland, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Ireland, scholarship income is exempt from taxation. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is tax relief available for tuition fees. This tax relief is assumed to be available for direct costs of education; however the deductible amount is net of any scholarship income received. This relief is only available for fees above EUR 2 000 for full-time students and EUR 1 000 for part-time students. The maximum amount of fees on which tax relief can be claimed is EUR 7 000 at the standard rate of 20%.1

Israel

For Israel2 , three features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Israel, scholarship income is exempt from taxation up to a ceiling of ILS 92 000. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where these expenses are connected with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise.

  • The third feature is the tax credit for education expenses. This is modelled as being available for student’s basic education (being related to a profession is not required). It is assumed that it is not available for job-related training (so that taxpayers cannot claim both the credit and the allowance). The value of the credit is ILS 2 508.

Italy

For Italy, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Italy, scholarship income is exempt from PIT, and is subject to a special schedule for SSCs. These contributions are levied on scholarship income at a rate of 17% where the employee is paying contributions on some other income, and 26.72% where the employee is paying no other SSCs. Two-thirds of the contribution is paid by the employer, one-third by the worker. It is assumed that this PIT exemption and special SSC schedule is available whether the training is job-related or not.

  • The second provision modelled is the tax credit for educational expenses. This credit provides a 19% non-refundable tax credit for the costs of education. There is no limit on the expenses that can be claimed.

The 19% tax credit related to rental expenses for students who travel to study is not modelled. This is due to data limitations on student rental income.

Luxembourg

For Luxembourg, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Luxembourg, scholarship income is exempt from PIT and SSCs. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the deductibility of training costs. It is assumed that this deductibility is available whether the training is job-related or not.

Tax deductions available for education expenses for children are not modelled; nor are exemptions for certain other forms of student income.

Mexico

For Mexico, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Mexico, scholarship income is partially exempt from taxation. This exemption is granted up to a limit. The sum of exempt scholarship income and other taxable work-related income (wages) should not be higher than 7 times the minimum wage (MXN 148 344). When this sum is higher, the exempt income is limited to 1 annual minimum wage. However, the sum of wage income and exempt scholarship income cannot be lower than 7 minimum wages as a result of this limit.

  • The second provision modelled is the deductibility of education costs. The maximum deductible varies by type of education; it is assumed that the amount for the highest qualification (professional technical education: MXN 17 100) is available for each taxpayer.

Tax deductions available for education expenses for children are not modelled.

Netherlands

For the Netherlands, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In the Netherlands, scholarships are given as conditional loans: conditional on a student completing a degree in a given time period. It is assumed that all scholarships for university education are not repaid and are therefore tax exempt. For the purposes of the models in this study, it is assumed that the scholarship income received by the student is exempt from taxation if the training is not job-related (such as university education). If the training is job-related, then the scholarship income is taxable.

  • The second is the deductibility of training costs. In the Netherlands this tax exemption is available whether the training is job-related or not. Deductible costs should exceed EUR 500 per year, but cannot exceed EUR 15 000 per year.

New Zealand

For New Zealand, only the tax exemption of scholarship income is modelled. Specifically, the Course Participation Allowance is exempt from taxation, as are scholarships made under the Education Act 1989. It is assumed that scholarship income received by students completing four-year degrees is exempt from taxation. It is assumed that scholarship income received by students undertaking job-related training is not tax-exempt.

Norway

For Norway, three features of the tax system pertaining to skills have been modelled.

  • The first is the exemption of scholarship income from taxation where this income is not related to employment. In Norway, where scholarship income is related to employment, the tax exemption is not available. Other forms of scholarship income are exempt from taxation.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where these expenses are connected with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise.

  • The third provision is the tax treatment of student debt. As discussed in Section 3.2 and 4.3, a variety of interest rates and loan amounts have been modelled in the analysis. In Norway interest on student debt is assumed to be tax-deductible.

Poland

For Poland, two features of the tax system pertaining to skills have been modelled.

  • In Poland, normal income earned by students is subject to taxation, but scholarship income is modelled as tax-exempt. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is reduced SSC rates for students on certain temporary contracts. Income from contracts of mandate in Poland is modelled as being exempt from most social contributions, where a student’s age is less than 26. It is assumed that this provision is only available where training is non-job-related.

Portugal

For Portugal, three features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Portugal, normal income earned by students is subject to taxation, but scholarship income is modelled as tax-exempt. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the tax credit of 30% for education and training expenses, up to a limit of 160% of the Social Benefit Index (also known as the SBI; it was valued at EUR 475 in 2011). It is assumed that this is available only when education is not job-related: job-related expenses are tax-deductible.

  • The third is the deductibility of professional training expenses. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise. In 2011, this deductibility is available up to a limit of 3% of 12 times the SBI. In 2010 the limit was EUR 171.

Slovak Republic

For the Slovak Republic, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In the Slovak Republic public grants and scholarships are tax exempt. It is assumed that scholarship income is state-funded scholarship income, and so is tax-exempt. It is also assumed that this tax exemption is available whether the training is job-related or not.

  • The second is reduced social security contributions for workers on temporary contracts. These students benefit from reduced SSC rates as outlined in the table below. These reduced rates are assumed to only be available to college students, as discussed in Sections 4.2 and 4.3.

Social security contribution rates (in %)

Regular employment income

All temporary contracts up to 2012

Employee

Employer

Employee

Employer

PAYG

Second pillar

PAYG

Second pillar

SSC

13.4

35.2/26.2*

0.0/9.0*

0

1.05/1.05*

0.0

Health Insurance

4.0

10

0

0

Social Insurance of which:

9.4

25.2/16.2*

0.0/9.0*

0

0

0

Sickness

1.4

1.4

0

0

Retirement

4.0

14.0/5.0*

0.0/9.0*

0

0

0

Disability

3.0

3

0

0

Unemployment

1.0

1

0

0

Guarantee fund

0

0.25

0

0.25/0.25*

Accident

0

0.8

0

0.8/0.8*

Reserve fund

0

4.75

0

0

Slovenia

For Slovenia, three features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. Scholarship income is tax-exempt up to the level of the minimum wage (EUR 8 977). It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is reduced SSC rates for student income is not subject to the to the social security contributions levied on wage income; instead a student’s employer pays a flat rate of EUR 53.52 annually.

  • The third provision is modelled is a fixed tax deduction for student income. This provision was worth EUR 3 143.57 in 2011.

Spain

For Spain, only the limited tax exemption of scholarship income is modelled. In Spain, most scholarship income is treated as normal income, except for public grants and scholarships which are exempt. This exemption is capped at EUR 3 000 per year, rising to EUR 15 000 for four-year university degrees. Scholarship income is modelled as being exempt up to a value of 3 000, except for four-year long educational investments, where the exemption exists up to EUR 15 000. It is assumed that this tax exemption is available whether the training is job-related or not.

Sweden

For Sweden, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Sweden, normal income earned by students is subject to taxation, but scholarship income, as long as it is not paid as remuneration, is modelled as tax-exempt. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where these expenses are connected with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise. As Swedish law requires a taxpayer to be receiving full or close to full payment from their employer during periods of education, it is assumed that this allowance is not available during periods of education lasting one year or more.

Switzerland

For Switzerland, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Switzerland, normal income earned by students is subject to taxation, but scholarship income is modelled as tax-exempt. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where these expenses are connected with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise.

Turkey

For Turkey, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. In Turkey, scholarship income is exempt from taxation, except where this income is earned by apprentices. It is assumed that the training undertaken in the model is not apprenticeship training, and that the scholarship income is exempt from taxation. It is assumed that this tax exemption is available whether the training is job-related or not (it is assumed that job-related training is not specifically apprenticeship training).

  • The second provision modelled is the deductibility of educational costs provided that they do not exceed 10% of the declared income. It is assumed that this is available whether the training is job-related or not.

Tax deductions available for education expenses for children are not modelled.

United Kingdom

For the United Kingdom, two features of the tax system pertaining to skills have been modelled.

  • The first is the tax treatment of scholarship income. To qualify for the exemption from tax and SSCs the scholarship income must be associated with training that is unrelated to any work or employment. It is assumed that this exemption is not available for ‘job-related education’, as discussed in Section 4.5, but is available otherwise. Where a scholarship is paid by an employer to an employee, and certain conditions are met, a cap of GBP 15 480 applies in the United Kingdom. In this study, it is assumed that scholarships are paid by the government, and this provision is not modelled.

  • The second provision modelled is the deductibility of training costs. These are tax-deductible where these expenses are integral/wholly necessary to the job with a taxpayers’ current professional activity. It is assumed that this deduction is available for ‘job-related education’, as discussed in Section 4.5, but is not available otherwise.

United States

For the United States, five features of the tax system pertaining to skills exist.3

  • The first is the tax treatment of scholarship income. In the United States, this income is treated as normal income. There are two exceptions. The first is where the income is used to study abroad. Here it is assumed that all education is undertaken in the country, so scholarship income remains taxable. The second is where the scholarship income is conditional on documented expenses including tuition and fees required for attendance, books, supplies, and required equipment. To account for this, it is assumed that scholarship income in excess the direct costs of education is taxable, but that scholarship income below this amount is not taxable. It is assumed that this tax exemption is available whether the training is job-related or not.

  • The second provision modelled is the American Opportunity Tax Credit. This partially refundable tax credit is available for only four years per student and only for expenses associated with the first four years of post-secondary education. The student must be enrolled at least half-time in a degree program and cannot have a drug conviction. This credit is calculated as 100% of first USD 2 000 of expenses less related scholarships4 and 25% of next USD 2 000 of expenses less related scholarships; 40% of credit (up to USD 1 000) may be refundable. For example, the maximum credit is USD 2 500 but only USD 1 000 is refundable. There is a limit on the value of the credit; USD 180 000 if married filing jointly, which linearly phases out starting at USD 160 000. The limit begins at USD 80,000 for single, head of household or qualifying widowers, linearly phasing out at USD 90 000. For a specific student, education expenses cannot be claimed simultaneously with the Lifetime Learning Tax Credit, or with the deduction for Qualified Higher Education expenses. In addition, eligible expenses include tuition, required enrolment fees and course-related books, supplies, and equipment after deducting scholarship income used to pay the eligible expenses.

  • The third provision modelled is Lifetime Learning Tax Credit. This credit is not refundable. This credit is available at a value of USD 2 000 per return, calculated as 20% of first USD 10 000 of expenses less related scholarships. There is a limit on the value of the credit; USD 122 000 if married filing jointly, which linearly phases out starting at USD 102 000. The limit begins at USD 61 000 for single, head of household or qualifying widowers, linearly phasing out at USD 51 000. The credit is available for undergraduate and graduate education as well as courses to acquire or improve job skills. Eligible education expenses include tuition, books and fees that must be paid to the educational institution after deducting scholarship income used to pay the eligible expenses. For a specific student, education expenses cannot be claimed simultaneously with the American Opportunity Tax Credit, or with the deduction for tuition and fees.

  • The fourth provision modelled is the deduction for tuition and fees, an alternative to the American Opportunity Tax Credit and the Lifetime Learning Tax Credit. The maximum deductible qualified expenses are the lesser of qualifying expenses less related scholarships and USD 4 000 for taxpayers with incomes of USD 65 000 or less (USD 130 000 for married filing jointly), and the lesser of qualifying expenses less related scholarships and USD 2 000 if income does not exceed USD 80 000 (USD 160 000 if married filing jointly).

  • The fifth provision is the deductibility of interest paid on student debt. This deductibility is capped at USD 2 500 per year. Where the students income does not exceed USD 75 000 (USD 150 000 if married filing jointly) for joint returns, linearly phased out starting at USD 60 000 (USD 150 000 if married filing jointly).

Notes

← 1. This threshold has been increased steadily: in 2016 it was available for EUR 3 000 (USD 4 173) for full-time students and EUR 1 500 for part-time students (USD 2 086.5).

← 2. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

← 3. There are additional tax benefits including: up to USD 5 250 of employer provided educational assistance may be excluded from income, a deduction for non-reimbursed work-related education expenses, and tax preferred education savings.

← 4. Scholarships can cover tuition, fees, books, supplies as well as living expenses. The portion covering living expenses would not be deducted from the expenses eligible for the credit.