Corporate income tax coordination in the European Union

The globalisation of economic activity and the growing importance of multinational corporations have far-reaching consequences for national tax policies. Since 1995, the average corporate tax rate in the EU has fallen from 35% to 23%. In addition, differences and incompatibilities between the national systems of corporate income taxation distort investment, complicate the tax system and give rise to conflicts between taxpayers and tax authorities as well as between tax authorities of different countries. Given this, there is a widespread view that greater coordination of corporate taxation is required. Recently, the European Commission proposed introducing a Common Consolidated Corporate Tax Base (CCCTB) in Europe. This article discusses the economic advantages and the drawbacks of the CCCTB concept.

2011

The economic effects of EU reforms in corporate income tax systems

This report was commissioned by the European Commission as part of its Impact Assessment of the proposal for a Common Consolidated Corporate Tax Base (CCCTB) in the European Union. It uses an applied model developed for the purpose that analyses the economies of all 27 EU member states; it models corporate taxes in detail to assess the impact of reform on investment flows, employment, GDP and economic welfare. The research finds that there would be considerable variation in the economic effects of the new tax system on EU countries. The precise estimates depend on the definition of the proposed tax system, but in a typical case, UK GDP would fall slightly, by around 0.05 percent. For other countries the effects on GDP would vary from a rise of 2 percent in Belgium, to a fall of 3 percent in Ireland. Overall, GDP in the EU would also fall slightly, by around 0.15 percent. Capital expenditure would fall a little, by 0.74 percent, but there would be virtually no net effect on employment or wages in the EU.

Michael Devereux

2010

Corporate tax harmonisation in the EU
This project explores more widely the economic consequences of proposed EU reforms for a Common Consolidated Corporate Tax Base. To take the analysis further, we use a numerical computable general equilibrium (CGE) model for the EU. This model encompasses several decisions of companies such as the scale of investment, location decisions, and profit shifting. Simulations using the model suggest that consolidation does not yield substantial welfare gains for Europe: there is considerable variation in the effects across countries. The effects of consolidation with formula apportionment, as in the CCCTB, depend on the choice of the apportionment formula. The CCCTB does not weaken incentives for tax competition.

Michael Devereux and Simon Loretz

Evaluating neutrality properties of corporate tax reform

Two key issues in international tax policy are the extent to which differences in taxes between countries both affect the international allocation of production across countries, and introduce distortions into markets because competitors face different taxes. This research project sets out a new methodology to assess the extent to which the existing  corporation tax regimes in the EU create these problems. It does so by constructing measures of effective tax rates which vary by company and by country. The methodology identifies variations in these effective tax rates to assess these two sources of distortion. The project assesses alternative systems, including the Common Consolidated Corporate Tax Base (CCCTB) under consideration by the European Commission. The CCCTB has mixed effects which depend on its precise structure.
 
Michael Devereux and Simon Loretz

2008

What would be economic consequences of the CCCTB?
If implemented, the European Commission’s plans for a Common Consolidated Corporate Tax Base (CCCTB) would be the most radical reform of international corporate taxation in Europe for a century. The Centre has undertaken significant research on a number of aspects of this proposal, and has been commissioned to undertake an impact assessment by the Commission.

Using unconsolidated accounting data for several thousand companies, we have investigated the likely impact on tax revenues in EU member states. Taking pre-tax profit as given, we estimate that overall EU corporation tax revenues would fall by 2.5% if companies have the option to participate. By contrast, if companies were denied this option, overall revenues would rise by more than 2%. This would leave some countries – such as Spain, Sweden and the United Kingdom - better off, but others – such as Denmark, Finland, Ireland and Italy - worse off. We investigate how sensitive these results are to the apportionment factors used.

We also assess the impact of the CCCTB on incentives to locate investment in different member states, taking into account the advantages of consolidation across member states, as well as the effects of apportionment. The results suggest that the CCCTB would significantly improve the balance of competition between companies resident in different countries. However, it would have only a small effect in reducing the impact of taxes on location decisions.