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How would EU corporate tax reform affect US investment in Europe?

Author

Listed:
  • Michael P. Devereux

    () (Oxford University Centre for Business Taxation)

  • Simon Loretz

    () (University of Bayreuth)

Abstract

This paper examines the likely impact of a proposed formula apportionment system for corporation tax in the EU on the inbound investment of US multinational companies. We pay attention to tax planning strategies that may be employed by US multinationals and investigate whether effective tax rates in Europe of US companies differ from those of European companies. The proposal is for an optional system: we estimate the extent to which both European and US companies would be likely to choose it taking into account their existing structures and future investment incentives. The relative position of US and European companies depends crucially on the taxation of foreign passive income.

Suggested Citation

  • Michael P. Devereux & Simon Loretz, 2011. "How would EU corporate tax reform affect US investment in Europe?," Working Papers 1118, Oxford University Centre for Business Taxation.
  • Handle: RePEc:btx:wpaper:1118
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    File URL: http://www.sbs.ox.ac.uk/sites/default/files/Business_Taxation/Docs/Publications/Working_Papers/Series_11/WP1118.pdf
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    References listed on IDEAS

    as
    1. Clemens Fuest, 2008. "The European Commission's proposal for a common consolidated corporate tax base," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 720-739, winter.
    2. Zimmerman, Jerold L., 1983. "Taxes and firm size," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 119-149, April.
    3. Peter Egger & Simon Loretz, 2010. "Homogeneous Profit Tax Effects for Heterogeneous Firms?," The World Economy, Wiley Blackwell, vol. 33(8), pages 1023-1041, August.
    4. Clemens Fuest & Thomas Hemmegarn & Fred Ramb, 2007. "How would the introduction of an EU-wide formula apportionment affect the distribution and size of the corporate tax base? An analysis based on German multinationals," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(5), pages 627-629, October.
    5. Leon Bettendorf & Michael P. Devereux & Albert van der Horst & Simon Loretz & Ruud A. de Mooij, 2010. "Corporate tax harmonization in the EU," Economic Policy, CEPR;CES;MSH, vol. 25, pages 537-590, July.
    6. Michael P. Devereux & Simon Loretz, 2010. "Evaluating Neutrality Properties of Corporate Tax Reforms," Working Papers 1007, Oxford University Centre for Business Taxation.
    7. Peter Egger & Simon Loretz & Michael Pfaffermayr & Hannes Winner, 2009. "Firm-specific forward-looking effective tax rates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 850-870, December.
    8. Ruud A. de Mooij & Sjef Ederveen, 2008. "Corporate tax elasticities: a reader's guide to empirical findings," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 680-697, winter.
    9. Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-1373, November.
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    Cited by:

    1. Devereux, Michael P., 2012. "Issues in the Design of Taxes on Corporate Profit," National Tax Journal, National Tax Association, pages 709-730.
    2. Thornton Matheson & Victoria Perry & Chandara Veung, 2014. "Territorial versus worldwide corporate taxation: Implications for developing countries," Chapters,in: Taxation and Development: The Weakest Link?, chapter 5, pages 147-169 Edward Elgar Publishing.
    3. Obeng, Camara Kwasi, 2014. "Effect of corporate tax on sector specific foreign direct investment in Ghana," MPRA Paper 58454, University Library of Munich, Germany.
    4. Jan Thomas Martini & Rainer Niemann & Dirk Simons, 2014. "Management Incentives under Formula Apportionment - Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting -," CESifo Working Paper Series 4908, CESifo Group Munich.

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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