While the statutory corporate income tax rate in the EU fell by 9% between 2014 and 2022, the effective tax rate of affiliates of multinational enterprises dropped by 14%. We argue that corporate tax policy making has shifted away from the 'cut rate - broaden base' approach. Building a novel database of tax reforms in the EU, we document the growing trend of adopting tax base narrowing measures. We find indication that tax-base narrowing reforms had a negative impact on ETRs of affiliates of MNEs which was only to a small extend compensated by base-broadening reforms. Taken together, tax base reforms account for 36% of the reduction in ETRs, compared to 9% attributable to changes in statutory rates. Finally, we explore the political determinants of adopting tax reforms and find no significant differences between right-wing, center, and left-wing governments. This suggests that common trends shape corporate tax policies in the EU.

This paper analyzes the macroeconomic impact of corporate taxation. The analysis is conducted in a quantitative two-country model. In the first step, the paper describes the long-run effects of corporate taxation. A reduction in the corporate-income tax rate increases GDP, wages, consumption, investment, and business density. The trade balance is at the same time negatively affected. Firms headquartered in a country which lowers its corporate tax become internationally less active and instead focus more on their domestic market. In the second step, the paper presents adjustment dynamics that are induced by a corporate-tax reform. The dynamic response of the economy can substantially differ when comparing shorter and longer time horizons. The third step of the paper investigates the effects of international profit shifting in high-tax and low-tax jurisdictions.

The effective taxation of corporate profits is at the centre of an active public and academic debate. This debate often focuses on the extent of low-taxed profit of multinational enterprises (MNE) in jurisdictions with low statutory tax rates or average effective tax rates (ETRs). However, some affiliates in high tax jurisdictions may also be subject to low ETRs, due to tax incentives or other provisions. To date, a global accounting of the ETRs paid by MNEs that incorporates within-country heterogeneity has been missing. Using a new dataset on the global activities of large MNEs, this paper provides new estimates of the distribution of ETRs of large MNEs across and within jurisdictions. Our results show that low tax profit is common, and that more than half of low-taxed profit sit in high tax jurisdictions.

This paper explores the role played by preferential tax treatments as a channel explaining why MNEs have a lower effective tax rate than their domestic counterparts. Using a quasi-experimental design and panel data from 2011 to 2018, I estimate how a temporary decision by the EU General Court to annul the European Commission's decision of unlawful state aid of the Spanish scheme of amortisation of financial goodwill, affected effective tax rates of firms in Spain. This tax scheme allows companies taxable in Spain to deduct from their taxable income the financial goodwill deriving from the acquisition of a foreign company. I find a decline in the tax burden of MNEs when this specific Spanish scheme is allowed to be re-implemented. Domestic firms do not appear to benefit from this policy change suggesting that this measure is selective in nature and confer a preferential tax treatment to MNEs.