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Joint Research Centre
the European Commission's in-house science service
*
Jonathan Pycroft
Salvador Barrios
JRC-B2
Co-authors:
04 July 2016
María Teresa Álvarez-Martínez, Salvador Barrios,
Maria Gesualdo, Dimitrios Pontikakis
Disclaimer: The views expressed are purely those of the authors
and may not in any circumstances be regarded as stating an official
position of any affiliated institution.
* Introduction to CORTAX: Corporate tax CGE
* Simulations
*Harmonising EU CIT rates
*Single country lowering CIT rates
Motivation
tax competition & tax avoidance
(EU Action Plan on Corporate Taxation)
large vs small economies
*
CORTAX: Originally by CPB Netherlands (Bettendorf and van der Horst 2006)
* Applied general equilibrium model: households, firms, government
* Multi-country: EU28 + JPN + USA (+ tax haven)
* Comparative static (steady state equilibria)
* Calibrated on 2012 data (Eurostat, OECD, ORBIS, UN)
* Overlapping generations (old, young); inter-temporal optimization
* Labour/leisure optimization; workers immobile across countries
* 2 types of firm: DOMESTIC, MULTINATIONALS (HQ + SUBSIDIARIES)
* Debt and equity financing; capital fully mobile across countries
* Production of a single tradable final good
* Multinationals perform transfer pricing between EU members and profit
shifting to the tax haven
* Governments tax corporate, labour, financial incomes. Revenues are
transferred to the old generation
*
FIRMS
• Domestic
• Multinational headquarters
Transfer
Profit shifting
Tax haven
pricing
• Multinational subsidiary
Debt, equity
Asset, bond
W, Rk, Rf
Household OLG
( young, old )
G
L, K, F
Tax revenue
Transfer
*
Tax revenue
Government
Budget balanced
COORDINATED
•
Harmonisation of CIT rates in the EU
+
UNCOORDINATED
•
•
Unilateral reduction: CIT rate in Ireland
Unilateral reduction: CIT rate in Germany
Free vs fixed capital across the EU28
*
*
France
Spain
Malta
Belgium
Italy
Germany
Portugal
Luxembourg
Sweden
Austria
Netherlands
Denmark
Finland
United Kingdom
Estonia
Hungary
Croatia
Greece
Slovakia
Poland
Czech Republic
Slovenia
Romania
Lithuania
Latvia
Ireland
Cyprus
Bulgaria
0%
5%
10%
15%
20%
25%
30%
27.7%
35%
40%
*
France
Spain
Malta
Belgium
Italy
Germany
Portugal
Luxembourg
Sweden
Austria
Netherlands
Denmark
Finland
United Kingdom
Estonia
Hungary
Croatia
Greece
Slovakia
Poland
Czech Republic
Slovenia
Romania
Lithuania
Latvia
Ireland
Cyprus
Bulgaria
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
27.7%
35.0%
40.0%
*
France
Spain
Malta
Belgium
Italy
Germany
Portugal
Luxembourg
Sweden
Austria
Netherlands
Denmark
Finland
United Kingdom
Estonia
Hungary
Croatia
Greece
Slovakia
Poland
Czech Republic
Slovenia
Romania
Lithuania
Latvia
Ireland
Cyprus
Bulgaria
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
27.7%
35.0%
40.0%
*
France
Spain
Malta
Belgium
Italy
Germany
Portugal
Luxembourg
Sweden
Austria
Netherlands
Denmark
Finland
United Kingdom
Estonia
Hungary
Croatia
Greece
Slovakia
Poland
Czech Republic
Slovenia
Romania
Lithuania
Latvia
Ireland
Cyprus
Bulgaria
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
27.7%
35.0%
40.0%
Profit shifting from headquarters to subsidiaries
Harmonised
baseline
IN
CIT reform
OUT
IN
OUT
Euro millions Euro millions Euro millions Percentage Euro millions Percentage
Ireland
0
0
1185
8.98%
0
-
Rest of EU
0
0
0
-
-1185
-0.17%
Germany
0
0
6055
4.65%
0
-
Rest of EU
0
0
0
-
-6055
-1.03%
*
Ireland
CIT rate
CoC
K
L
GDP
CIT
revenue
Welfare
pp
pp
%
%
%
% of GDP
% of GDP
-10.0
-0.24
3.30
-0.19
1.64
-1.15
0.5
0.00
0.00
0.00
-0.01
0.00
0.00
-0.24
3.05
-0.34
0.88
-1.15
0.2
0.00
-0.01
-0.01
-0.05
-0.01
-0.02
Rest of EU
Germany
Rest of EU
-10.0
*
CIT rate
CoC
K
L
GDP
CIT
revenue
Welfare
pp
pp
%
%
%
% of GDP
% of GDP
-10.0
-0.25
3.26
-0.19
1.63
0.17
0.5
Rest of EU
-
0.00
-0.04
0.00
-0.02
0.00
-0.01
Germany
-10.0
-0.19
2.42
-0.37
0.69
-1.15
0.08
Rest of EU
-
0.05
-0.62
-0.04
-0.25
0.01
-0.09
Ireland
*
*Tax competition impacts other countries
*Profit shifting
*Capital iff competition for capital within EU
*Country size matters
*Larger gains for small countries
*And smaller losses for others
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*