Will corporate tax consolidation improve efficiency in the EU?
Consolidation of the tax base in the European Union is expected to curve compliance costs and reduce profit shifting. A number of proposals for consolidation from the European Commission are simulated with the applied general equilibrium model CORTAX. We show that the benefits from consolidation are offset by two weaknesses in the proposals for a common consolidated tax base. Formula apportionment, which is needed to allocate the consolidated taxable profits across jurisdictions, creates new tax planning possibilities for MNEs and allows them to benefit from existing tax rate differentials in the European Union. In addition, it triggers tax competition as member states may attract foreign investment by reducing their tax rates. The second distortion is an unlevel playing field, which is introduced if only part of the firms participate in the consolidation. The gains from consolidation can be fully grasped if it is obliged for all firms and if it is accompanied by a harmonisation of the tax rate.
|Date of creation:||Mar 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Postbus 80510, 2508 GM Den Haag|
Phone: (070) 338 33 80
Fax: (070) 338 33 50
Web page: http://www.cpb.nl/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hans Jarle Kind & Helene Midelfart & Guttorm Schjelderup, 2004.
"Corporate Tax Systems, Multinational Enterprises, and Economic Integration,"
CESifo Working Paper Series
1241, CESifo Group Munich.
- Kind, Hans Jarle & Midelfart, Karen Helene & Schjelderup, Guttorm, 2005. "Corporate tax systems, multinational enterprises, and economic integration," Journal of International Economics, Elsevier, vol. 65(2), pages 507-521, March.
- Leon Bettendorf & Joeri Gorter & Albert van der Horst, 2006. "Who benefits from tax competition in the European Union?," CPB Document 125, CPB Netherlands Bureau for Economic Policy Analysis.
- Joann Weiner, 2002. "Formula Apportionment in the European Union: A Dream Come True or the EU’s Worst Nightmare?," CESifo Working Paper Series 667, CESifo Group Munich.
- Rüdiger Pethig & Andreas Wagener, 2003.
"Profit Tax Competition and Formula Apportionment,"
CESifo Working Paper Series
1011, CESifo Group Munich.
- Riedel, Nadine & Runkel, Marco, 2007. "Company tax reform with a water's edge," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1533-1554, August.
- Michael P Devereux & Simon Loretz, 2007.
"The Effects of EU Formula Apportionment on Corporate Tax Revenues,"
0706, Oxford University Centre for Business Taxation.
- Michael P. Devereux & Simon Loretz, 2008. "The Effects of EU Formula Apportionment on Corporate Tax Revenues," Fiscal Studies, Institute for Fiscal Studies, vol. 29(1), pages 1-33, 03.
- Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(1), pages 71-89, January.
- Walter Hellerstein & Charles E. McLure, Jr., 2004. "The European Commission's Report on Company Income Taxation: What the EU Can Learn from the Experience of the US States," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(2), pages 199-220, 03.
- Jack M. Mintz & Michael Smart, 2001.
"Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada,"
International Tax Program Papers
0402, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto, revised Apr 2003.
- Mintz, Jack & Smart, Michael, 2004. "Income shifting, investment, and tax competition: theory and evidence from provincial taxation in Canada," Journal of Public Economics, Elsevier, vol. 88(6), pages 1149-1168, June.
- Jack Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," CESifo Working Paper Series 554, CESifo Group Munich.
- Klassen, Kenneth J. & Shackelford, Douglas A., 1998. "State and provincial corporate tax planning: income shifting and sales apportionment factor management," Journal of Accounting and Economics, Elsevier, vol. 25(3), pages 385-406, June.
- Goolsbee, Austan & Maydew, Edward L., 2000.
"Coveting thy neighbor's manufacturing: the dilemma of state income apportionment,"
Journal of Public Economics,
Elsevier, vol. 75(1), pages 125-143, January.
- Austan Goolsbee & Edward L Maydew, 1998. "Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment," NBER Working Papers 6614, National Bureau of Economic Research, Inc.
- Gordon, Roger H & Wilson, John Douglas, 1986. "An Examination of Multijurisdictional Corporate Income Taxation under Formula Apportionment," Econometrica, Econometric Society, vol. 54(6), pages 1357-73, November.
- Nicodeme, Gaetan, 2006. "Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand?," MPRA Paper 107, University Library of Munich, Germany.
- Edmiston, Kelly D., 2002. "Strategic Apportionment of the State Corporate Income Tax: An Applied General Equilibrium Analysis," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 239-262, June.
When requesting a correction, please mention this item's handle: RePEc:cpb:docmnt:141. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.