From Income to Consumption

As a result of digitization and globalization, worldwide business relationships are now possible without a direct physical presence as a company in individual markets. As early as 2015, the OECD identified the fact that digitally operating businesses can provide their services without the need for a physical presence in a market as the greatest challenge to the fair distribution of tax revenue worldwide. Because they are not tied to a particular location, companies can choose their tax domicile and tax their profits where the tax system is designed to be particularly advantageous from the company`s perspective. In view of the traditional link to the physical presence of the taxpayer, the link to income is not very suitable for digitalization. New connecting points are therefore needed to guarantee a fair distribution of tax revenue between the individual states. One potential connecting point would be consumption, because consumption is simply less mobile than capital. In addition, the triumph of the Western-style consumer society must not be disregarded. Every tax levy in every conceivable form means a piece of self-reflection on the part of society. Work as a cultural instance and as a medium for the construction of individuality is receding into the background in essential society compared to the 20th century. In our society, people increasingly define themselves on the basis of the goods they consume. Especially against the background of the culturally conditioned relativization of the factor work and the paradigm shift towards consumption, the question arises in tax law how it should react to the changes in our social behavior. A creeping consumer orientation of tax systems seems to be the result. Tax systems around the world are in fact becoming more and more oriented toward consumption and consumable income; this is also the case in Austria. The Austrian tax system is basically designed as a mixed system. Direct taxes are primarily income-oriented and indirect taxes are primarily consumption-oriented. The trend toward increased consumption orientation is now based on two developments: First, the shift of tax burdens from direct income taxes to indirect consumption taxes and, second, increased elements of consumption orientation in income or corporate taxes. Based on these developments, a paradigm shift from capital- to consumption-oriented taxation can be assumed. It is now the task of science to identify and analyze this paradigm shift and to put it into a legal framework. The objective research project will undertake a comprehensive analysis of these developments, which has been lacking so far. 1

This project shows that the Austrian tax system has moved noticeably towards a consumption taxation, although this development has not yet been understood as a coherent policy trend or systematically examined from a constitutional law perspective. The study demonstrates that Austria does not simply maintain a traditional income tax system. Instead, it contains many rules that treat saving, investment and certain forms of capital income differently from immediate consumption. As a result, the Austrian tax system increasingly stands somewhere between income taxation and consumption taxation. The project began with the question of whether, and in what ways, Austrian tax law has become more consumption-oriented. This does not only refer to the well-known role of VAT and other indirect taxes on consumption. The study also examines whether consumption-oriented elements can be found within income taxation. It shows that such elements exist in many areas: through preferential taxation of capital income, special rules for certain forms of private pension provision, or tax reliefs that encourage investment. One of the central findings is that this development did not result from a single, coherent plan. Rather, individual tax benefits and special rules were introduced for different reasons: to promote investment, to respond to international developments, or to simplify taxation. Taken together, however, these measures have changed the structure of the tax system. The project therefore shows that the consumption-oriented development of Austrian tax law is not only an economic or fiscal policy issue, but also raises important questions of constitutional law. The principle of equality is particularly important. Taxes do not have to affect all people in exactly the same way, but differences require objective justification. If certain types of income are taxed more favourably, the question arises whether these differences can still be justified. The main scientific contribution of the project is that it places many separate developments in Austrian tax law into a broader context for the first time. It combines perspectives from tax law, economics and constitutional law and shows that the question of consumption orientation is not merely a technical issue for specialists. It concerns fundamental social choices: Who bears the costs of public expenditure? Which forms of income are taxed more heavily or more lightly? And how transparent must a tax system be for its distributive effects to be openly discussed in a democratic society? In practical terms, the project can help to assess future tax reforms more clearly. It provides criteria for evaluating when consumption-oriented elements are coherently integrated into a tax system and when they create inconsistencies or unequal treatment. In this way, the study contributes to a more informed public debate on tax fairness, economic policy and the future direction of the Austrian tax system.