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Corporate tax harmonization in the EU

Author

Listed:
  • Leon Bettendorf

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Michael P. Devereux

    (Oxford University Centre for Business Taxation)

  • Albert van der Horst

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Simon Loretz

    (Oxford University Centre for Business Taxation)

  • Ruud A. de Mooij

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

This paper explores the economic consequences of proposed EU reforms for a common consolidated corporate tax base. The reforms replace separate accounting with formula apportionment as a way to allocate corporate tax bases across countries. To assess the economic implications, we use a numerical CGE model for Europe. It encompasses several decision margins of firms such as marginal investment, FDI decisions, and multinational profit shifting. The simulations suggest that consolidation does not yield substantial welfare gains for Europe. The variation of effects across countries is large and depends on the choice of the apportionment formula. Consolidation with formula apportionment does not weaken incentives for tax competition. Tax competition instead offers a rationale for rate harmonisation, in addition to base harmonisation.

Suggested Citation

  • Leon Bettendorf & Michael P. Devereux & Albert van der Horst & Simon Loretz & Ruud A. de Mooij, 2009. "Corporate tax harmonization in the EU," Working Papers 0932, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:0932
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    Keywords

    Corporate taxation; tax harmonization; European Union; CCCTB;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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