On the Future of Business Income Taxation in Europe

34 Pages Posted: 24 Jul 2019

Date Written: July 23, 2019


How should “Europe” respond to society’s calls for a sound and properly functioning corporate tax system for the internal market? With the aim of contributing to the deliberations on this subject, the proposal of the author is to remodel the CCTB/CCCTB draft directives into a unitary taxation model for taxing the worldwide economic profits of multinationals and using a destination-based apportionment formula (the “CCCTB 2.0”) to apportion the tax base to countries, both within and outside the EU. Under the proposal it would be up to EU member states themselves to determine the rate applying to the tax base apportioned to them. This would take tax out of the equation in the case of marginal financing and investment decisions, while also curtailing its influence on investment location decisions and, at the same time, making “gaming the system” more difficult. EU member states would, in turn, regain their autonomy and scope to set their corporate tax rates at the levels they regard as appropriate, while the proposed model would also end the “race to the bottom” within the EU. If the EU were to be the first mover, self-interest would prompt other countries and regions to follow its lead. The resultant production location neutrality would encourage international businesses to embrace the model and lobby for transition as rapidly as possible. Driven by self-interest and competitive responses, such a move could initiate a transition to worldwide adoption of destination-based tax of excess earnings: in other words, harmonization through competition. As the innovator, the EU would enjoy the greatest economic benefit during the transitional period, when countries’ profit tax systems would be evolving towards an equilibrium in which destination-based tax would become the new global standard. The final destination would be a new destination-based company tax paradigm operating both neutrally and non-discriminatorily on the supply side. And that would produce a result that would not only be fair, but also – and primarily – provide a systemic and economically efficient solution for the international problem of BEPS.

Keywords: BEPS, Formulary Apportionment, CCCTB, Digital Economy, GLOBE

JEL Classification: H26, K34

Suggested Citation

de Wilde, Maarten Floris, On the Future of Business Income Taxation in Europe (July 23, 2019). Available at SSRN: https://ssrn.com/abstract=3424681 or http://dx.doi.org/10.2139/ssrn.3424681

Maarten Floris De Wilde (Contact Author)

Erasmus University Rotterdam ( email )

3000 DR Rotterdam
+31(0)104081647 (Phone)
+31(0)104089179 (Fax)

HOME PAGE: http://www.eur.nl/en

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