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

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Hassett, K. and R.G. Hubbard, 2002, Tax policy and business investment, in M. Feldstein and A. Auerbach (eds.), Handbook of Public Economics Vol. 3, Elsevier North Holland, pp. 1293- 1343. Haufler, A. and G. Schjelderup, 2000, Corporate tax systems and cross country profit shifting, Oxford Economic Papers, vol. 52, no. 2, pp. 306-325. Horst, A. van der, Bettendorf, L., and Rojas-Romagosa, H. (2007). Will corporate tax consolidation improve efficiency in the EU? Document 141, CPB. Hubbard, R.G., 1997, Capital-market imperfections and investment, NBER Working Paper no. 5996. Joint Committee on Taxation, 1997, Tax modelling project and tax symposium papers, Washington: U.S. Government Printing Office. McKenzie, K.J., M. Mansour, and A. Brule, 1998. The calculation of marginal effective tax rates, Technical Committee of Business Taxation Working Paper 97-15. Mooij, R. de, 2005, Will corporate income taxation survive? De Economist, 153, 277-301. Mooij, R. de, and S. Ederveen, 2008, What do we know about intensive and extensive tax margins of business behaviour, mimeo Erasmus University Rotterdam. Sørensen, P. B., 2001, OECDTAX: a model of tax policy in the OECD economy. EPRU, University of Copenhagen. Sørensen, P. B., 2004a, Company tax reform in the European Union, International Tax and Public Finance, 11, 91-115. Sørensen, P. B., 2004b, International tax coordination: regionalism versus globalism, Journal of Public Economics 88, 1187-1214. Sørensen, P. B., 2007, Can capital incomes taxes survive? And should they?, CESifo Economic Studies 53, 172-228. 62
Appendix A Modelling firm behaviour in CORTAX This appendix discusses in more detail how firm behaviour is modelled. CORTAX starts from a standard dynamic optimization problem of the firm, which maximizes its value subject to accumulation constraints and a production function. In optimizing its value, firms choose their optimal levels of employment and investment, as well as the optimal financial structure between debt and equity. We also discuss the two extensions of the basic framework: the introduction of a tax haven and the modelling of location choices. Model of the firm Denote the value of the firm in year t by V t and its dividend payments by Div t . We ignore new equity issues and abstract from residence taxes on capital levied at the household level. An investor is indifferent between investing in the firm and investing elsewhere at a rate of return r as long as: rVt = +1 (A.1) Divt + Vt −Vt The right-hand side of (A.1) reflects the sum of dividends and capital gains on the investment in the firm. The left-hand side shows the return on the asset V t if it were invested elsewhere. The rate r denotes the discount rate used by the firm. Solving (A.1) for V t yields an expression for the value of the firm as the discounted stream of future dividends: ∞ s−t+ 1 ⎡ 1 ⎤ V t = ∑ Divs ⎢ 1 ⎥ (A.2) ⎣ + r ⎦ s= t Dividends follow from the cash-flow restriction of the firm: Div t = Yt − wLt − rb + cb ] dbt K t − Π t − I t + dbt+ 1Kt+ 1 [ τ − d K (A.3) bt t where Y t denotes output (price is normalised to 1) and wL t stands for labour costs. The third term on the right-hand side of (A.3) captures the cost of debt. It equals the debt ratio (d b ) times the capital stock (K t ) times the real interest on firm debt r b . In addition to this, the variable c b denotes a financial distress or agency cost associated with high debt finance. It depends on the leverage of the firm, i.e. c b = c b (d bt ). The fourth and fifth terms on the right-hand side of (A.3) reflect corporate tax payments (τΠ t ) and investment (I t ). Finally, cash-flow is affected by a change in debt of the firm, captured by the last two terms on the right-hand side of (A.3). The corporate tax base, Π t , is defined as: 63
Page 1 and 2:
The economic effects of EU-reforms
Page 3 and 4:
Contents 1 Introduction 5 2 The COR
Page 5 and 6:
1 Introduction This report analyses
Page 7 and 8:
Household optimization yields expre
Page 9 and 10:
In today’s corporate tax regimes
Page 11 and 12: Yet, not all forms of profit shifti
Page 13 and 14: companies which report total assets
Page 15 and 16: 2.2.2.1 Corporate tax rates Figure
Page 17 and 18: Table 2.3 Summary information about
Page 19 and 20: 2.2 shows the average debt share pe
Page 21 and 22: Figure 2.4 Corporate tax revenue in
Page 23 and 24: countries (each point representing
Page 25 and 26: Figure 2.7 Reduced-form elasticitie
Page 27 and 28: Figure 2.9 Reduced-form elasticity
Page 29 and 30: 2.3 Interpretation of results CORTA
Page 31 and 32: structured discussion about both th
Page 33 and 34: There is a variety of combinations
Page 35 and 36: Table 3.2 shows the economic effect
Page 37 and 38: of the fixed factor is smaller. Acc
Page 39 and 40: Table 3.4 Economic effects for the
Page 41 and 42: Table 3.5 Economic effects for the
Page 43 and 44: shows the impact of the CCTB-WG20 r
Page 45 and 46: 4.1.2 A scenario without profit shi
Page 47 and 48: shifting within the EU (see section
Page 49 and 50: eturns are taxed immediately and al
Page 51 and 52: other hand, loss consolidation caus
Page 53 and 54: Figure 4.2 Welfare effects of selec
Page 55 and 56: asic version of CORTAX. Note, howev
Page 57 and 58: 5 European corporate income tax Thi
Page 59 and 60: 6 Conclusions We have analysed the
Page 61: Devereux, M.P. and S. Loretz, 2008a
Page 65 and 66: c b ∂cb + dbt = r − rb + τRb (
Page 67 and 68: capital requires that the marginal
Page 69 and 70: − b Π t −1 = Yt −1 − wLt
Page 71 and 72: Substituting into the dividend equa
Page 73 and 74: Appendix A2 Country tables baseline
Page 75 and 76: Appendix B Country tables CCTB The
Page 77 and 78: Table B.2: CCTB-WG25 for all firms
Page 79 and 80: Table B.4: CCTB-WG20 for multinatio
Page 81 and 82: Table B.6: CCTB-EUav for multinatio
Page 83 and 84: Table B.8: CCTB-WG20 for multinatio
Page 85 and 86: Table B.10: CCTB-WG20 for multinati
Page 91 and 92: Table B.16: CCTB-EUav for multinati
Page 95 and 96: Table B.20: CCTB-WG20, multinationa
Page 103 and 104: Table B.28: CCTB-EUav for multinati
Page 105 and 106: Table C.1: CCCTB-WG20 for all firms
Page 107 and 108: Table C.3: CCCTB-EUav for all firms
Page 109 and 110: Table C.5: CCCTB-WG25 for multinati
Page 111 and 112: Table C.7: CCCTB-WG20 for all firms
Page 113 and 114:
Table C.9: CCCTB-WG20 for all firms
Page 115 and 116:
Table C.11: CCCTB-WG20 for all firm
Page 117 and 118:
Table C.13: CCCTB-EUav for all firm
Page 119 and 120:
Table C.15: CCCTB-WG25 for multinat
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Table C.21: Decomposition CCCTB-WG2
Page 127 and 128:
Table C.23: Decomposition CCCTB-WG2
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Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Table C.33: CCCTB-EUav for multinat
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Table D.1: EUCIT-WG20 for all firms
Page 145 and 146:
Table D.3: EUCIT-EUav for all firms
Page 147 and 148:
Table D.5: EUCIT-WG25 for all firms
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