Sector and size effects on effective corporate taxation

The current debate in corporate taxation is focussing on leveling the tax playing field within the European Union in order to allow companies incorporated in different countries to face the same competitive conditions. However, various elements of corporate tax rules may discriminate against companies registered in the same country but having different sizes or operating in different sectors. Using the micro backward-looking approach to compute effective tax rates for eleven European countries, the US, and Japan, this paper shows that there could be some concerns regarding domestic tax discrimination since some sectors and sizes enjoy significantly more favorable tax burdens.Taxation; corporate taxation; effective taxation

Corporate Income Tax and Economic Distortions

As any non-lump-sum tax, corporate income taxation creates distortions in economic choices, reducing its efficiency. This paper reviews some of these domestic and international distortions and their most recent estimates from the economic literature. Distortions originating from income shifting between capital and labour sources, profit shifting across jurisdictions, the effects of taxation on business location and foreign direct investment are the major sources of distortions.European Union; Corporate taxation; distortions; tax efficiency

The 2008 Financial Crisis and Taxation Policy

The 2008 financial crisis is the worst economic crisis since the Great Depression of 1929. It has been characterised by a housing bubble in a context of rapid credit expansion, high risk-taking and exacerbated financial leverage, ending into deleveraging and credit crunch when the bubble burst. This paper discusses the interactions between tax policy and the financial crisis. In particular, it reviews the existing evidence on the links between taxes and many characteristics of the crisis. Finally, it examines some possible future tax options to prevent such crises.Taxation, financial crisis, banking crisis, fiscal incentives

Foreign Ownership and Corporate Income Taxation: An Empirical Evaluation

Economic integration in Europe has not led to a ‘race to the bottom’ regarding corporate income taxes. This paper documents trends in the foreign ownership of companies in Europe and it examines whether foreign ownership has exerted a positive influence on corporate income tax levels. Using company-level data, we document that the foreign ownership share in Europe stood at around 21.5 percent in the year 2000. The estimation suggests that a one percentage point increase in foreign ownership increases the average corporate income tax rate between a half and one percent. Further international economic integration is likely to lead to higher foreign ownership shares with a concomitant positive influence on corporate taxation levels.corporate taxation, foreign ownership

The role of fiscal instruments in environmental policy

Environmental protection is one of Europe's key values. The EU has set clear policy objectives to achieve its environmental goals. The EU has favoured market-based instruments, among which fiscal instruments to tackle the climate change problem. This paper takes a policy-making perspective and provides an overview of key issues on the role of fiscal instruments in energy and environmental policies. It describes fiscal instruments as cost-effective means to promote environmental goals and highlights in which cases taxes and other types of fiscal instruments can usefully complement each other to achieve environmental target.Taxation, environmental policy, VAT, fiscal incentives

Deposit insurance and international bank deposits

This paper examines how international depositors respond to national deposit insurance policies. Countries with explicit deposit insurance are found to be relatively attractive to international non-bank depositors. Deposit schemes characterized by coinsurance, a private administration, and a low deposit insurance premium appear to be particularly favored by these depositors. The sensitivity of non-bank deposits to deposit insurance policies opens up the possibility of international regulatory competition in this area. The EU directive on deposit insurance imposes minimum standards on national deposit insurance policies. This directive, however, is silent on several important features of deposit insurance such as the level of the deposit insurance premium. Hence, it may not preclude regulatory competition in Europe.deposit insurance, international deposit

Tax Co-ordination in Europe: Assessing the First Years of the EU-Savings Taxation Directive

This paper reviews the economic effects of the EU Savings Taxation Directive. The Directive aims at enabling taxation of foreign interest payments received by individuals in accordance with the rules of their State of residence. The data suggest that the Directive, which is based on automatic information exchange, has not led to major shifts in international savings. However, this result has to be interpreted with caution since the available data is scarce and not always conclusive.Savings Taxation, Withholding Tax, Information Exchange, European Union

Corporate tax policy and incorporation in the EU.

In Europe, declining corporate tax rates have come along with rising tax-to-GDP ratios. This paper explores to what extent income shifting from the personal to the corporate tax base can explain these diverging developments. We exploit a panel of European data on legal form of business to analyze income shifting via incorporation. The results suggest that the effect is significant and large. It implies that the revenue effects of lower corporate tax rates possibly induced by tax competition - will partly show up in lower personal tax revenues rather than lower corporate tax revenues. Simulations suggest that between 12% and 21% of corporate tax revenue can be attributed to income shifting. Income shifting is found to have raised the corporate tax-to-GDP ratio by some 0.25%-points since the early 1990s.European Union; Corporate tax; Personal tax; Incorporation; Income shifting

Computing effective corporate tax rates: comparisons and results

This paper investigates different methodologies for computing effective corporate tax rates. All methodologies present strengths and shortcomings, as well as different rankings of countries. One reason lies in the fact that different methodologies measure different things. This paper also computes effective corporate taxation for eleven European countries, the US, and Japan using financial statements of companies. It indicates that there are large differences between statutory and effective taxation, as well as between countries for different sectors and companies' sizes. Finally, it suggests that effective corporate taxation is sensitive to the business cycle.Effective taxation; European Union

Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand?

This paper reviews the rationales and facts about corporate tax coordination in Europe. Although statutory tax rates have dramatically declined, revenues collected from corporate taxation are fairly stable and there is so far no evidence of a race-to-the-bottom. The ambiguous results from economic tax theory and the institutional setting have constrained strong EU policy action in the area of tax competition. Yet, there are welfare gains to be expected from tax coordination. Following its 2001 Communication, the European Commission is currently working with Member States on the definition of a common consolidated corporate tax base for European Companies.European Union; corporate taxation; tax competition; tax coordination