Research Phase 4 The impact & design of business taxation in a globalised world
1 Worldwide corporate income taxes
Do Multinationals or Domestic Firms Face Higher Effective Tax Rates?
Kevin S. Markle and Douglas A. Shackelford
There is a raging political debate throughout the world about the taxation of multinationals. To provide some empirical underpinning for
these policy discussions, Markle-Shackelford study financial statements for 10,642 corporations from 85 countries from 1988 to 2007.
They find that effective tax rates are about the same for multinationals and domestic-only firms. They report that ETRs declined by
seven percentage points or 20% over the last two decades. German, Japanese, Australian and Canadian decreases were large.
British, French, and American declines were more modest. Japanese firms always faced the highest ETRs. The ETRs for tax havens
and countries from the Middle East and Asia (ignoring Japan) were always lower than those for the U.S. and European countries.
2 Corporate tax competition
Corporate Tax Competition between Firms
Simon Loretz and Padraig Moore
This paper provides evidence for tax competition between companies, through their tax planning. Obviously companies see benefits in
reducing their tax payments, but being too far out of line may result in reputational costs. These costs could include closer attention
from tax authorities, a negative reaction from analysts who believe that effective tax rates are unsustainable. To combat this,
companies use information on the tax performance of their rivals as a benchmark.
Evidence is provided using a large dataset of corporations. Evidence is strongest for a form of competition between companies in the
same country. For companies in non-European countries we also find evidence for benchmarking within industries. The reaction to
competitors’ tax planning is stronger for companies with higher effective tax burden and between the largest companies.
3 EU corporate tax consolidation
Corporate Tax Consolidation and Enhanced Cooperation in the European Union
Leon Bettendorf, Albert van der Horst, Ruud de Mooij and Hendrik Vrijburg
The European Commission is preparing a proposal to fundamentally change the way in which multinational profits in Europe are taxed
across countries. Under the proposal, profits of the entire multinational group would be consolidated on the basis of a set of common
European rules. Total profits would then be allocated to Member States by using a fixed formula, consisting of e.g. sales, employment,
payroll and asset in each country where the multinational is active. It is most likely that this proposal would be introduced only in a
subset of EU countries - so-called enhanced cooperation.
The paper considers a variety of coalitions of the common policy. It shows that:
4 Who bears the burden of greater non-wage labour costs?
Who Ultimately Bears the Burden of Greater Non-Wage Labour costs?
Céline Azémar and Rodolphe Desbordes
This paper asks how far social security contributions paid by employers - such as employers’ national insurance in the UK - are
passed on to workers in the form of lower gross wages. Using data from 14 OECD countries between 1980 and 2004, it shows that, in
the long-run, a 1% point rise in the social security rate is associated with a 0.55% fall in gross wages and only a 0.23% rise in labour
costs. Among other things, this suggests that location decisions of multinational companies are less likely to be affected by such
taxes. However, the distribution of this effect between employers and employees is influenced by the degree of coordination of the
bargaining process across countries.
5 Evaluating EU proposals for financial services VAT reform
Opting for Opting In? An Evaluation of the Commission’s Proposals for Reforming VAT for Financial Services
Rita de la Feria, Ben Lockwood
This paper analyses recent proposals of the European Commission to require member states to allow financial service firms to “opt
in” to paying VAT. The paper shows that such firms only have an incentive to opt in for business-to-business transactions. This can
actually save the firm tax, since it can reclaim the VAT that it has paid on inputs. There is no incentive for firms to opt in on business-to-
consumer transactions. The paper calculates that the upper bound on the amount of tax revenue that might be lost in the UK is small:
no more than 0.2% of total tax revenue.
1 Worldwide corporate income taxes
Do Multinationals or Domestic Firms Face Higher Effective Tax Rates?
Kevin S. Markle and Douglas A. Shackelford
There is a raging political debate throughout the world about the taxation of multinationals. To provide some empirical underpinning for
these policy discussions, Markle-Shackelford study financial statements for 10,642 corporations from 85 countries from 1988 to 2007.
They find that effective tax rates are about the same for multinationals and domestic-only firms. They report that ETRs declined by
seven percentage points or 20% over the last two decades. German, Japanese, Australian and Canadian decreases were large.
British, French, and American declines were more modest. Japanese firms always faced the highest ETRs. The ETRs for tax havens
and countries from the Middle East and Asia (ignoring Japan) were always lower than those for the U.S. and European countries.
2 Corporate tax competition
Corporate Tax Competition between Firms
Simon Loretz and Padraig Moore
This paper provides evidence for tax competition between companies, through their tax planning. Obviously companies see benefits in
reducing their tax payments, but being too far out of line may result in reputational costs. These costs could include closer attention
from tax authorities, a negative reaction from analysts who believe that effective tax rates are unsustainable. To combat this,
companies use information on the tax performance of their rivals as a benchmark.
Evidence is provided using a large dataset of corporations. Evidence is strongest for a form of competition between companies in the
same country. For companies in non-European countries we also find evidence for benchmarking within industries. The reaction to
competitors’ tax planning is stronger for companies with higher effective tax burden and between the largest companies.
3 EU corporate tax consolidation
Corporate Tax Consolidation and Enhanced Cooperation in the European Union
Leon Bettendorf, Albert van der Horst, Ruud de Mooij and Hendrik Vrijburg
The European Commission is preparing a proposal to fundamentally change the way in which multinational profits in Europe are taxed
across countries. Under the proposal, profits of the entire multinational group would be consolidated on the basis of a set of common
European rules. Total profits would then be allocated to Member States by using a fixed formula, consisting of e.g. sales, employment,
payroll and asset in each country where the multinational is active. It is most likely that this proposal would be introduced only in a
subset of EU countries - so-called enhanced cooperation.
The paper considers a variety of coalitions of the common policy. It shows that:
- When losing countries opt out of a coalition, enhanced cooperation among the winners may create new losers. Thus, in the
end, enhanced cooperation may not be feasible. But it is more likely amongst countries that are similar in size and openness.
- Some countries will find it more attractive to form an enhanced cooperation agreement than engage in full harmonisation in the
entire EU.
4 Who bears the burden of greater non-wage labour costs?
Who Ultimately Bears the Burden of Greater Non-Wage Labour costs?
Céline Azémar and Rodolphe Desbordes
This paper asks how far social security contributions paid by employers - such as employers’ national insurance in the UK - are
passed on to workers in the form of lower gross wages. Using data from 14 OECD countries between 1980 and 2004, it shows that, in
the long-run, a 1% point rise in the social security rate is associated with a 0.55% fall in gross wages and only a 0.23% rise in labour
costs. Among other things, this suggests that location decisions of multinational companies are less likely to be affected by such
taxes. However, the distribution of this effect between employers and employees is influenced by the degree of coordination of the
bargaining process across countries.
5 Evaluating EU proposals for financial services VAT reform
Opting for Opting In? An Evaluation of the Commission’s Proposals for Reforming VAT for Financial Services
Rita de la Feria, Ben Lockwood
This paper analyses recent proposals of the European Commission to require member states to allow financial service firms to “opt
in” to paying VAT. The paper shows that such firms only have an incentive to opt in for business-to-business transactions. This can
actually save the firm tax, since it can reclaim the VAT that it has paid on inputs. There is no incentive for firms to opt in on business-to-
consumer transactions. The paper calculates that the upper bound on the amount of tax revenue that might be lost in the UK is small:
no more than 0.2% of total tax revenue.
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