Capital Income Taxation Under Convergence and EMU – A Framework to Discuss Policy Challenges in a World of High Capital Mobility

The paper by Maria Gabriella Briotti examines capital income taxation trends in the EU. It aims at assessing whether European countries have engaged in some form of tax competition in corporate income taxation over the past decades. The analysis, which is based on forward-looking effective tax indicators and backward looking aggregate indicators, shows that no strong conclusions can be drawn regarding tax competition. Although statutory tax rates declined significantly over the last two decades, revenues from corporate income, as a share of GDP, have remained fairly stable. Effective tax rates have converged across countries, especially in the euro area. Briotti reviews the main arguments set forth by recent studies to reconcile these results with the indications of theoretical models of tax competition. The paper stresses the need for some form of tax coordination, in order to prevent harmful competition and to tackle the tax avoidance practice which multinational corporations can implement via a number of cross border transactions to reallocate profits in low tax jurisdictions. The resolution on a Code of Conduct for business taxation adopted by the EU Council moves in this direction but it is not expected to produce results over the short term