Common Consolidated Corporate Tax Base: large countries revenue would rise under the EU’s proposals

The effects of EU formula apportionment on corporate tax revenues

Michael P. Devereux and Simon Loretz

The European Commission is currently pursuing a proposal to introduce a “common consolidated corporate tax base” (CCCTB).  The proposal is that a company operating in more than one country within the EU could declare only its EU-wide profit.  That profit would be allocated to individual member states on the basis of a simple formula.  Each member state would tax its allocation at its own tax rate.   The details of the proposal are subject to ongoing discussions in Brussels.

This research paper analyses the likely impact of introducing these proposals on corporation tax revenues.  It takes existing measures of taxable income for individual companies, and calculates how losses could be offset across countries within multinational groups, and also how alternative allocation formulas would affect the overall distribution of corporation tax liabilities.

If companies can choose whether to participate, they will generally only do so if they pay lower taxes: which implies that overall tax revenues will fall.  Overall, EU tax revenues would fall by around 1%.  But there will be gainers and losers amongst the EU member states.  The UK would gain – irrespective of the allocation method used.

If companies are obliged to participate then EU-wide corporation tax revenues would rise by 8%.  But again, the UK would do better than average.  Depending on the allocation method used, UK corporation tax revenues could increase by over 20%.

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