The Tax Attractiveness of EU Locations for Corporate Investments: A Stocktaking of Past Developments and Recent Reforms

Abstract

In this paper, we illustrate the tax attractiveness of EU countries as investment locations over time in terms of effective average tax rates and evaluate potential tax reform options. Our quantitative assessment of recent tax policies suggests that corporate tax rate cuts, notional interest deductions and R&D incentives significantly reduce the effective average tax rate. When government budgets are constrained, however, tax incentives with a direct link to investment activities, such as accelerated depreciation and R&D incentives, are most suitable to stimulate private investment. Even after the introduction of the global minimum tax, these measures remain a viable tool to stimulate investments.