Corporate tax reform in the EU: Weighing the pros and cons

This team of authors has a lot of credibility in the analysis of corporate tax reform. They give their views on EU proposals in this VOX article.

17 replies on “Corporate tax reform in the EU: Weighing the pros and cons”

This study was funded by the European Commission as part of its economic impact analysis into the CCCTB

The finding that Belgium would be the main beneficiary is interesting as its one of Ireland’s biggest export customers – – as it’s a big transhipment centre.

It looks as if the EU could end up helping Switzerland.

The EU claimed a few years ago that Switzerland was in contravention of a 35-year old agreement as it viewed cantons cutting corporation tax as a form of state aid but it got nowhere.

Zug just applies the federal tax of 8.5% in respect of foreign firms that have 80% of their activity abroad.


You’ve earned your crust on the managing editor role here – hope the reviewers are recovering well – this stuff should carry a serious health warning. Yes – these authors have cred, serious cred. & their conclusion: much ado about nothing & not really worth the effort of implementation.

In a nutshell CCCTB will be useful in a future – way future – federal Europe, if such ever emerges and a common tax rate applies aross all serf-doms in such an EU … pigs fly faster at the mo … at the real mo, with heterogenous rates, and even more heterogenous waivers, exclusions, time dependent particulars, credits galore galore etc MNC tax planners will run rings around it …. and no way can 27 agree on ‘formularly aportionment’ ….

it is not a threat if it remains ‘voluntary’ – message to The Neu Minister & New Dear Leader for this week.

On Corp Tax – simply refuse to discuss: period. Lisbon an all dat. Next message to The Neu Minister & New Dear Leader this week.

Final message to both – lets not get hung up on the wee interest rate reduction – albeit useful if one emerges … BANK DEBT RESTRUCTURING with ECB input is the ELEPHANT of this WEEK. Don’t acknowledge the florentine – bring the holy water …

Clever lot in Zug. They better keep their heads down if Nicky finds out – they are paying more than the French do (-;

@Ms Lagarde
The Neu Lad is from Limerick – U won’t fool him so easy, me dearie! Best to Nicky Mall_vin_ass and his attempt to bomb his way up the polls .. but I’d stay well away from his feet if I were you!

I find it very difficult to believe the fifth point:
‘Fifth, one of the potential benefits of the Consolidated Corporate Tax should be a reduction of compliance costs as multinationals would no longer have to determine transfer prices for complicated intra-company transactions within the EU. The European Commission (2001) estimated costs related to transfer pricing in multinational companies at 3% of revenues.’

Paying 3% on revenues as costs to reduce the tax bill? That would imply very high profit margins and it would also imply some very well paid accountants.


They wouldn’ last too long if employed by Maggie Dunnes!

Don’t forget the health warning on this stuff now ….

Linking CT to sales appears not to make sense when countries can charge VAT on sales in their territories.

The CCTB is clearly only a first step toward harmonising tax rates. The fact that it will not provide an ggregate benefit makes it clear that harmonisation of rates is critical.

It is possible that CCTB could lead to greater employment in Ireland if the applicable rate is linked to employment. However, this would not be tolerated for long if the EU retained competence to change the rules.

The most striking stat is that the estimate that it would reduce Irish GDP by more than 3%. This is not a worst case scenario. If this affected future investment the cost of this would accumulate over a period of years.

It appears that some European politicians are playing a zero sum game and that they are not concerned as to whether our capacity to repay our debts is damaged.

Lagarde’s and Sarkozy’s public comments betray the fact that they are anxious to apply leverage. Applying leverage, rather than framing an initiative in the context of a deal, is always a dangerous tactic which can back-fire. Perhaps we are lucky that French arrogance is so transparent. The Brits and the Germans must be appalled by the French honesty and lack of subtlety 🙂 .

@Joseph O’Toole – as Philip points out, the authors (particularly Mike Devereux) have a very impressive track record of high quality independent academic research in this area so your worries about the EU commissioning the study are unfounded.

@Michael Hennigan – “The finding that Belgium would be the main beneficiary is interesting” – this study commissioned by the Department of Finance has similar conclusions (but it also shows France and Spain benefitting – Figure 1):

@Jesper – “I find it very difficult to believe the fifth point:” – you should have continued the quote: “However, it is difficult to determine the proportion of such costs that could be reduced …… Moreover, the introduction of formula apportionment would introduce new administrative costs. It is even possible that compliance costs could rise……”

Linking CT to sales is unrelated to VAT.

VAT is charged on consumption. Corporation tax is charged on corporation profits.

Corporation profits arise as a result of sales. It is easier and cheaper to operate in a well governed county – > As the corporation benefits it is therefore, in my opinion, reasonable to expect the corporation to pay to keep the country well governed. The tax-regime currently in place allows corporations to dodge that responsibility.

Sales has to be part of the apportionment, I don’t see the point in having anything else in the apportionment. All other taxes and costs are part of the local cost of production and countries who want to be low cost/tax countries can have low payroll taxes and low property taxes/rates.

GDP might be affected by the CCCTB. In the short term it is not clear if it would negatively affect countries like Ireland. Due to the ‘double Irish’ the profits routed to Ireland are mostly shielded from corporation tax -> Ireland gets 12.5% of a small portion of total non-Irish European wide profits. Companies availing of the ‘double Irish’ might have to pay taxes they currently avoid – That is their problem, not Irelands.

I’m not sure if I understand why it is believed a CCCTB would lead to tax rate harmonisation, I do believe it might lead to standardisation/harmonisation of tax legislation but that is a completely different matter. The logic, if it holds, is based on: Personal income tax rates in Sweden varies depending on in where the taxed person is living. The person is taxed where his/her residence is as that is where he/she is using public services. Tax legislation is the same all over Sweden. Rates are not harmonised and if there had been economic drivers to do so then it would have happened. It hasn’t.


It appears CCTB is a necessary precursor to rates harmonisation. CCTB of itself does not offer any substantial economic benefit. Therefore, it can be seen a preparatory/enabling action for the purpose of harmonising rates/

I don’t know if it strictly true to say “It is easier and cheaper to operate in a well governed county”. I would have thoguht that only a minimal amount of regulation is necessary to allow efficient sales.

I agree that it is unfair if a country is providing wealth to a company through its citizen’s purchases but is not getting a cut. However, VAT deals with that adequately and gets rid of that moral argument.

There is a question to what extent countries should compete with each other, and there are arguments for a minimum effective rate to allow competition but to limit it. However, this is a very complicated debate when countries will want to retain the right to foster certain types of investment and start-ups and when countries such as France are touting themselves as having an effective CT rate of less than 9%.


“As the corporation benefits it is therefore, in my opinion, reasonable to expect the corporation to pay to keep the country well governed. The tax-regime currently in place allows corporations to dodge that responsibility.”

Corporations do not pay any tax, they merely pass that burden to someone else. Google “corporation tax incidence” and one of the first results is this form Greg Mankiw (

“But before deciding that the corporate income tax is a good way for the government to raise revenue, we should consider who bears the burden of the corporate tax. This is a difficult question on which economists disagree, but one thing is certain: People pay all taxes. When the government levies a tax on a corporation, the corporation is more like a tax collector than a taxpayer. The burden of the tax ultimately falls on people—the owners, customers, or workers of the corporation.”

The notion that tax is paid by the entities on which it is legally incidenty is ridiculed by economists, who pejoratively refer to it as the flypaper theory of tax incidence (e.g.

@ Zhou

“CCTB of itself does not offer any substantial economic benefit”

Does CCCB reduce the opportunites for transfer priceing?


the question is why would the CCCTB lead to harmonisation of corporation tax rates? What logic unpins it?

Ireland is doing the ‘knowledge economy’& ‘green economy’ now and they are to be supported by the Irish state? That can be said to be an attempt to try to foster certain type of investment, it will not be affected by CCCTB so countries looking to profile themselves and foster certain type of investments could still do so.

VAT is charged on the consumer and collected by the selling company on behalf of the tax authorities. It is not a tax on the selling company.

The selling company pays nothing for the privilege of operating in a rich well governed country except the corporation tax. Currently that tax is dodged. There is a difference in ease of doing business in Sweden or Nigeria. Agreements are easily enforced in Sweden, it is a different matter in Nigeria (depending of course on who you know).

The claim that CCCTB will not offer any substantial benefits is based on a computer model operating under a given set of assumptions, among them are:

1. Companies are currently not able to offset losses and profits in different countries against each other. That is false. It all comes back to the old joke about asking an accountant what 2 + 2 is, the reply was/is: “What do you want it to be?” Transfer pricing is about moving profits. Profits and losses are already transferred across country borders. CCCTB would change the mechanism for doing so, it would no longer be in the companies control.

2. The computer model is based on an apportionment formula & at the moment that formula is still being debated. Change the formula and the result might be different.


true, all production costs will sooner or later be borne by the consumer. Removing the corporation tax would allow companies to self-finance more and a lower cost of finance should lead to lower prices thus benefiting the consumer. That would be the long-term view, in which we’re all dead 😉

In the short-term the view is different. Corporation tax is a cost among others, as such the cost is weighed against the benefit. Is it a benefit to operate in a western developed country compared to operating in a developing country? As long as there is a benefit it is possible to charge for the use of that benefit.

The current situation is that goverments in the EU are relying on corporation tax for the funding of services to its citizens. A change to where no corporation tax is charged might be argued for in the long term. A situation where members in a union are fighting for the corporation tax receipts is bad for everybody involved in the fighting. The fighting will stop if:

1. There is nothing left to fight about – there is no longer a benefit of operating in a western nation compared to a developing nation, max corporation tax that can be charged is zero.
2. Corporation taxes are harmonised
3. Rules are implemented that dictates where profits are to be apportioned

To me, the least bad option is the introduction of a CCCTB.

Ireland managed to get a mention on this as well:

Title of the article: G.E.’s Strategies Let It Avoid Taxes Altogether

The easiest way to shift profits into low corporation tax countries does seem to be by using a fully owned finance/leasing company. No profit on the sale (as long as the deal is financed by the fully owned finance company), all the profit can be booked into the leasing company.

Here is an example that could help illuminate what a transfer pricing accountant does:

The key would be to note that the transfer pricing advisor works in the group TAX team. The group tax team has two primary functions: Complying with taxation rules and minimising group tax liabilities. I believe it is fair to assume that the transfer pricing advisor fits into the minimising of tax liabilities area.

Introduce a CCCTB and the transfer pricing accountant is replaced with a CCCTB accountant. Multinational companies will get less of a competitive advantage compared to companies only operating in one nation as the multinational would not be able to avoid tax as much as they currently do.

Comments are closed.