Corporate tax harmonization in the EU

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 computable general equilibrium (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 harmonization, in addition to base harmonization." Copyright (c) CEPR, CES, MSH, 2010.

Management Incentives Under Formula Apportionment Tax-Induced Distortions of Effort and Compensation in a Principal-Agent Setting

“…8 Although we restrict our model to managerial remuneration for ease of presentation, the results extend to all kinds of variable and performance-based compensation including 7 See Ernst & Young (2011). Bettendorf et al (2011) state: "Overall, we find that the common base would only slightly increase GDP (by 0,1%) and employment (by only 0.03%), and does not improve economic efficiency." For an analysis of the CCCTB based on a CGE model see Bettendorf et al (2010).…”

“…Bettendorf et al (2011) state: "Overall, we find that the common base would only slightly increase GDP (by 0,1%) and employment (by only 0.03%), and does not improve economic efficiency." For an analysis of the CCCTB based on a CGE model see Bettendorf et al (2010). 8 LEN is an acronym for linear agent's compensation function and linear production function, exponential agent's utility function and normally distributed noise terms, see e.g.…”

Money at the Docks of Tax Havens: A Guide

“…The pros and cons of this proposal haven been heavily debated. Bettendorf et al (2010) suggest that formula apportionment does not alleviate corporate tax competition. Becker and Fuest (2010) show that even if formula apportionment can solve the problem of corporate income shifting in the EU, income shifting to a non-member country will become more severe.…”

CCCTB: the employment factor game

“…Several benefits are expected from such a group tax system, including among other reduction of compliance costs, cross border loss offset, elimination of interim profits and the irrelevance of transfer pricing (EU Commission 2011). Sceptics doubt in particular the reduction of compliance costs and expect unpredictable company reactions, which might lead to factor shifting instead of profit shifting (Weiner 1994;Klassen and Shackelford 1998;Mintz and Smart 2004;Bettendorf et al 2010). …”