Company Tax Reform in the European Union

The European Commission recently proposed to move towards a consolidated tax base for European multinational companies, to be allocated across EU member states through a system of formula apportionment. This paper argues that while the Commission's blueprints for company tax reform may reduce existing problems of transfer pricing, they will also create new distortions as long as existing tax rate differentials are maintained. The paper also investigates the changes in international tax spillovers which will occur as a result of a switch from the current system of separate accounting to formula apportionment. The final part of the paper discusses whether more conventional corporate tax harmonization should still be a long term policy goal for the EU and presents quantitative estimates of the efficiency gains from harmonization.     

Tax Competition and Tax Coordination in the European Union

This paper examines the tax competition literature and attempts to draw out its implications for the debate on corporate tax coordination within the EU. It begins with the early basic tax competition model, which derives conditions under which underprovision of public services occurs and tax harmonization unambiguously improves welfare for all states in the union. The paper then turns to a wide variety of extensions of this model, some of which reinforce its results and others that yield rather different conclusions. The analysis concludes by considering the implications of the tax competition literature for the debate on EU corporate tax coordination, drawing on some recent efforts to synthesize this vast literature by estimating the efficiency costs of tax competition and simulating the efficiency gains from various tax coordination palns.     

美国州公司所得税制及其存废之争

本文首先介绍了美国州公司所得税制的概况,进而梳理了纳税人、立法机构、政府部门以及研究者对美国州公司所得税税制设计以及是否废除该税种的广泛争议,得出美国州公司所得税正在被逐渐边缘化的结论。     

Corporate Tax Consolidation and Enhanced Cooperation in the European Union*

We assess the economic impact of introducing consolidation with formula apportionment in the European Union and consider alternative enhanced cooperation agreements. We find that the consolidation is likely to yield a small aggregate welfare gain in Europe. However, not all countries benefit. A coalition of winning countries reduces the welfare gain and may induce a process of adverse selection which destroys the possibility of cooperation. We find that a coalition of similar countries (in terms of the size of their multinational sector) is more feasible in achieving agreement and is actually preferred by those countries over a Europe‐wide reform.     

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

This paper analyses the effects of introducing a common EU tax base with formula apportionment on the size of the EU-wide tax base and on the distribution of the tax base between the EU member countries. We use a combined dataset of Deutsche Bundesbank's Foreign Direct Investment data (MiDi) and corporate balance sheet data (Ustan and Hoppenstedt) for the tax base estimations. The data are used to construct (i) a separate accounting and (ii) a formula apportionment tax base for the firms in the sample. Our results suggest that due to border crossing loss offset, the EU-wide corporate tax base represented by our data sample shrinks significantly. Smaller countries which are usually considered to attract book profits under the current system, i.e. Ireland and the Netherlands, tend to lose a larger part of their tax base than larger countries like Germany, Italy, France or Great Britain. However, these results should be evaluated in light of the limitations of the data used in this study since our analysis is based on German FDI data only. Furthermore, the calculations do not take into account behavioral responses of companies caused by such a system change. JEL Code: F23 · H25 This paper represents the authors' personal opinions and does not necessarily reflect the views of the Deutsche Bundesbank or its staff. We thank Heinz Herrmann, Jana Kremer, Alfons Weichenrieder, and the participants of the Deutsche Bundesbank FDI Workshop held on September 13, 2005, in Frankfurt for their valuable comments. We are also indebted to George Zodrow and two anonymous referees. The usual disclaimer applies. An erratum to this article can be found at     

Debating Proposed Reforms of the Taxation of Corporate Income in the European Union

This paper reviews the European Commission's latest proposals (European Commission, 2002) for the co-ordination of corporation taxes within the EU. It provides a brief summary of the report, and then investigates the nature of the tax obstacles identified by the Commission, the conceptual basis of the location of taxation, and the relatively novel lack of attention to the integration of corporate and personal taxes.     

Taxing commercial motor fuel in the European Union: the case for an apportionment-based, destination-principle system

Motor fuel is taxed by European Union member states where purchased. This article describes (a) the case for destination-based taxation of motor fuels, (b) economic distortions, incentives for destructive tax competition, and questionable division of tax base inherent in purchase-based taxation of commercial motor fuel, (c) loss of fiscal sovereignty inherent in minimum tax rates, imposed to alleviate the first two problems, and in uniform rates, (d) the apportionment-based system employed in the US and Canada and its advantages, (e) technology to determine distance traveled in each member state, and (f) legal and political obstacles to adopting an apportionment-based system.      

How Much Tax Coordination in the European Union?

This paper examines the trade-offs between tax autonomy and fiscal neutrality that the Member States of the European Union face in coordinating their taxes on consumption, labor and capital. One of the main messages is that in many cases tax reform should precede tax harmonization, mainly because the costs of distortions within Member States may be greater than the gains from reducing intergovernmental tax competition.     

法律控制:遏制政府间恶性税收竞争的有效手段

有效的法律控制制度的缺乏是现阶段我国政府间恶性税收竞争屡禁不止的主要原因.为防止恶性税收竞争的扩散,我们应完善税制税法,尽快制定反垄断法并完善反不正当竞争法;积极推进依法治税,以有效遏制恶性税收竞争.     

The European Commission's Report on Company Income Taxation: What the EU Can Learn from the Experience of the US States

The European Union Commission has proposed using consolidated base taxation and formulary apportionment to tax the EU-source income of multinational companies. This paper examines US state experience with a similar approach. Despite some positive lessons, especially the need to consolidate income of affiliated companies, lessons are mostly negative, especially regarding the choice of apportionment formula, the use of economic criteria to define the group whose income is to be consolidated, and complexity caused by lack of uniformity. US experience says nothing about using value added to apportion income—an approach that is conceptually attractive, but subject to transfer pricing problems.     

The first steps towards harmonizing public sector accounting for European Union member states: strategies and perspectives

This paper analyses the process that led the European Commission to the decision to develop European Public Sector Accounting Standards (EPSAS) for harmonizing public sector accounting practices within the European Union. The paper finds that there was limited scope in terms of stakeholder participation in the public consultation that served as a basis for the decision. In addition, the decision to adopt EPSAS for EU member states raises questions on the relationship between regional and global governance in the area of public sector accounting.     

Restructuring Financial Regulation in the European Monetary Union

This article argues that present financial regulatory arrangements within the European Monetary Union are not adequate either to preserve stability or to foster financial integration. Reform of financial regulation should concentrate on establishing clear procedures for crisis lending and management, with the European Central Bank at the center; preparing the ground for more centralized supervisory arrangements in banking, insurance, and securities; and establishing and consolidating an active domestic and European Union-wide competition policy that limits local market power and national champions that are too big to fail.     

Evidence of the effect of domicile on corporate average effective tax rates in the European Union

We estimate (worldwide) corporate average effective tax rates (ETRs) from financial statements for companies domiciled in European Union (EU) member states during 7 years from 1990 to 1996. Our objective is to compare the tax rate effectively experienced by each company with the corporate statutory tax rate (STR) in the EU country in which each company is domiciled. The difference between the corporate statutory tax rate and the financial statement-based corporate average effective tax rate provides information on the magnitude of tax incentives provided by governments within the EU. These tax incentives come on top of the directly observable differences in statutory tax rates between EU member states. We find (1) that the use of tax incentives, over and above differences in STRs, differs substantially between EU member states (corporate domiciles) and (2) that the provision of tax incentives does not have the effect of equalizing corporate ETRs between EU member states (corporate domiciles).     

From objective to constituted risk: an alternative approach to safety in strategic technological innovation in the European Union

Safety is a legitimate means of limiting technological innovation in our societies. However, the potential socio-economic impact of curtailing techno-industrial progress on the grounds of safety means that risk governance policies tend to restrict the range of legitimate approaches to safety on the principle that it can only be discussed in the frame of an allegedly objective scientific representation of risk. In European risk governance, socio-economic factors such as the underlying innovation rationales and goals are not openly considered to be related to the constitution of safety, but tend largely to be treated as factors of subjective reaction towards risk and technology. This paper seeks to overcome that approach by proposing a ‘constitutive’ understanding of how risk and socio-economic factors and dynamics relate, focusing in particular on the ‘safe and responsible’ development of nanotechnology in the European Union (EU). I argue that risk is constituted according to socio-economic considerations, and that the controllability of the environmental and health risks of nanotechnology in the EU is assumed on principle in the very strong institutional commitment to the industrial exploitation of nanotechnology R&D. Using a constitutive approach, we may legitimately conceive a broader set of potential safety scenarios, while at the same time highlighting major obstacles to implementing more critical constitutions of techno-industrial risk in the framework of a highly competitive knowledge-based global economy.     

全球化和发展中国家财政改革的必要

全球化为发展中国家带来压力，促使他们增加公共支出以改善国家的基础设施，改进制度，弥补为了纠正错误政策而支付的最终成本，补偿某些在迅速的全球化中受到最大影响的群体，对其中的一些人进行再培训，用最基本的现代保障网络去取代传统的简单无效的社会保障体系。各国应首先努力提高公共税收的使用效率，然后改革其税制，通过征收个人所得税和增值税，尤其是后者，来提高税收。     

Optimal Income Taxation and the Ability Distribution: Implications for Migration Equilibria

As recently argued by Diamond (1998), one of the key factors explaining the progressivity of an optimal non-linear income tax is the distribution of productivity among workers. Migration is one source of changes in the productivity distribution. How changes in the populations ability distribution affect optimal income tax schedules has received little attention. Changing the distribution generally affects both the objective function and the government budget constraint. We first consider the comparative statics of the fraction of highly-skilled workers with maximin and maximax welfare functions (so that only the second effect is present) and a quasi-linear utility function. We also present some results for a utilitarian social welfare function.We then study the interaction between mobility and redistributive taxation. We consider mobility by either the skilled or unskilled population under majority voting where governments take the population as fixed. If individuals choose to relocate independently, having identical ability distributions is always a stable equilibrium when the unskilled are the mobile group. However, this is not always the case when the skilled are mobile. If groups of individuals can choose where to locate, having identical ability distributions across regions is only an equilibrium when the mobile type has an overall majority.     

Income Inequality,Growth, and the Enlargement of the European Union

This study investigates the relation between income inequality and economic growth, namely, the Kuznets curve, in the context of EU enlargement. The results have implications regarding how the latest enlargement of the European Union affects the relationship between income inequality and growth, for both EU member countries and the European Union as a region. Estimation results show that there is no evidence of a significant original or reverse Kuznets curve for any of the groups of countries in this study. Therefore, empirical results suggest that the latest enlargement, and a possible future accession of the candidates, may not change the fact that a Kuznets curve does not exist for the European Union.     

Anticipating Tax Changes: Evidence from the Finnish Corporate Income Tax Reform of 2005*

Using register‐based panel data covering all Finnish firms from 1999 to 2004, we examine how corporations anticipated the 2005 dividend tax increase via changes in their dividend and investment policies. The Finnish capital and corporate income tax reform of 2005 creates a useful opportunity to measure this behaviour, since it involves exogenous variation in the tax treatment of different types of firms. The estimation results reveal that those firms that anticipated a dividend tax hike increased their dividend payouts in a statistically significant way. This increase was not accompanied by a reduction in investment activities, but rather was associated with increased indebtedness in non‐listed firms. The results also suggest that the timing of dividend distributions probably offsets much of the potential for increased dividend tax revenue following the reform.     

Tax Reform and the Demand for Debt

This article examines the impact on household borrowing from a tax reform that implied a change from progressive to constant marginal tax rates on interest deductions. We use three alternative empirical methods to address the problem of endogenous explanatory variables, which arises when the marginal tax rate itself is a function of the amount of debt: The first approach uses instrumental variables to examine the significance of the marginal tax rate directly and produces mixed results. In the second approach we use tobit regressions based on repeated cross-sectional data to examine the correspondence between debt and income and find that the households' amount of debt were strongly and positively related to income before the tax reform and significantly more income-dependent under progressive tax rates than under the constant tax rate. Finally, using panel data covering the last year prior to the reform and the first year after, we find that the change in a household's marginal tax rate had a significant impact on the change in its amount of debt.     

Extreme dependence with asymmetric thresholds: Evidence for the European Monetary Union

Existing papers on extreme dependence use symmetrical thresholds to define simultaneous stock market booms or crashes such as the joint occurrence of the upper or lower one percent return quantile in both stock markets. We show that the probability of the joint occurrence of extreme stock returns may be higher for asymmetric thresholds than for symmetric thresholds. We propose a non-parametric measure of extreme dependence which allows capturing extreme events for different thresholds and can be used to compute different types of extreme dependence. We find that extreme dependence among the stock markets of ten initial EMU member countries, the United Kingdom, and the United States is largely asymmetrical in the pre-EMU period (1989–1998) and largely symmetrical in the EMU period (1999–2010). Our findings suggest that ignoring the possibility of asymmetric extreme dependence may lead to an underestimation of the probability of co-booms and co-crashes.