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Corporate Tax in the European Union: Tax Harmonisation vs Tax Competition


Code :ITF0013

Year :

Industry : General Business

Region : :Europe

Teaching Note:Not Available

Structured Assignment : Not Available

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CORPORATE TAXATION IN THE EU COUNTRIES The countries within the EU retain the authority to levy corporate tax. This implies that each EU country has a different corporate taxation policy. As the EU countries strive to create a single market providing similar investment conditions to investors across their individual national borders, each country’s taxation policy has gained increasing importance as a tool to gain competitive advantage over other countries within the EU in attracting investors. Traditionally, countries that fall under the EU levy high taxes to support their individual Welfare State...

NEW EUMEMBERS AND “FISCAL DUMPING” OnMay 1st 2004, 10 newcountries joined the EU, becoming a part of the single EUmarket. These countries included Poland, the Czech Republic, Hungary, Slovakia, Lithuania, Latvia, Slovenia, Estonia, Cyprus and Malta. The new EU countries had significantly lower GDP and employment figures (Exhibit III) as compared to the old EUcountries. These countries aimed to use their membership to the EU to raise themselves to the level of their wealthier western neighbours...

TAXHARMONISATION VS TAX COMPETITION Germany, France and Sweden called for corporate tax harmonisation within the EU. They argued that lower taxes in the new EU member states would harm their economies as companies shifted from countries with higher taxes to the new member states (Exhibit IV). Peter Sorensen fromthe University of Copenhagenmaintained that significant differences in the corporate tax rate would result in flow of capital to countries with the lowest effective tax rates, instead of the countries where it could be employed most productively...

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