The economic effects of EU-reforms in corporate income tax systems

4.2 CCCTB for multinationals
We illustrate the effect of consolidation and formula apportionment for CCCTB reforms where
the common base applies to multinationals. The common bases are the same as under the CCTB
and are now referred to as CCCTB-WG20, CCCTB-WG25 and CCCTB-EUav. We explore the
reform using the basic version of CORTAX, excluding tax havens and discrete location.
Alternative simulations (broader coverage and extended model) are discussed in section 4.3.
The average effects for the EU are summarised in Table 4.1. The outcomes for individual
countries are presented in appendix C.
Table 4.1
Economic effects for the EU of three CCTB reforms, selectively applied to multinationals
CCCTB-WG20 CCCTB-WG25 CCCTB-EUav
Corporate tax rate − 0.8 − 0.2 0.9
Corporate tax revenue in % GDP (ex-post) 0.0 − 0.0 − 0.2
Cost of capital 0.2 0.1 − 0.0
Investment − 0.9 − 0.7 0.3
Wage 0.0 0.0 0.4
Employment 0.0 0.0 0.2
GDP − 0.2 − 0.2 0.2
Welfare − 0.0 0.0 0.1
Table 4.1 suggests that the CCCTB-WG20 and CCCTB-WG25 reforms do not involve much
base broadening. Indeed, while the CCTB-WG20 allows for a 2.6%-point reduction in the
corporate tax rate, the CCCTB-WG20 only allows for a reduction by 0.8%-point. The reason is
that loss consolidation implies a narrowing of the corporate tax base for multinationals which
offsets the revenue implications from base broadening due to the new set of depreciation rules.
Under the CCCTB-WG25, revenues remain virtually unchanged so that rates cannot be reduced
on average.
Despite the small impact on the corporate tax base and the tax rate, we do find that the first
two CCCTB reforms exert an upward effect on the cost of capital and, therefore, reduce
investment. The reason is that base broadening via changes in depreciation rules and via
changes in loss offset have a different impact on the cost of capital. In particular, depreciation
rules apply to new investment and therefore fully affect its costs. In contrast, loss consolidation
does not necessarily reduce the cost of capital but rather narrows the base of the entire corporate
group. On balance, we find that the cost of capital increases under the first two CCCTB
reforms, despite an unchanged tax base.
Table 4.1 suggests that the labour market is unaffected by the first two CCCTB reforms.
Yet, GDP falls in light of the decline in investment. The overall effect on welfare is negligible.
Under the CCCTB-EUav, the corporate tax base in narrowed. On the one hand, the new
depreciation rules exert only a small impact on corporate tax revenue under this base. On the
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