Taming Tax Competition with a European Corporate Income Tax

This article proposes an original review of the literature on tax competition, and provides new evidence concerning different types of footloose capital: the intensity of strategic interactions is three time stronger for financial assets than for less mobile capital (e.g. industrial buildings). We also present tax optimization techniques used by Multi-National Firms (MNFs) and document some case studies regarding the foregone tax revenue due to evasion. Amounts saved by firms are comparable to the annual contributions to the EU budget by countries like the UK, Ireland, the Netherlands or Luxembourg. We estimate that the total revenue losses for the EU governments due to corporate tax avoidance amount to almost 100 billion (sic). After this description of the failure of the current system of taxation, this article analyzes alternative schemes such as the Common Consolidated Corporate Tax Base (CCCTB) and concludes with the outlook of a European corporate income as a genuine own resource for the EU budget.