CORPORATE INCOME TAX RATES IN THE EU MEMBER STATES: WHY LOWER MEANS BETTER

Abstract

Governments of EU Member States have been reducing statutory corporate income tax rates (“CIT”) for several years. What encourages them to take part in tax competition? The article discusses several issues which are in favor of lower CIT rates. They are selected based on their relevance. The study is performed with use of data available from applicable statistical bodies/literature and is based on literature review (especially in cases where required data is not available). It seems that the commonly raised issue of rivalry for capital in the globalizing world economy with highly mobile capital could be only one of a number of reasons for CIT rate depression. Tax competition is fueled by the various sizes of the economies of EU countries as well. The following important rationale may include the aspiration of governments to curb the local shadow economy. There are also some issues of a more theoretical nature that explain decreasing CIT rates. They include: (i) the necessity to accommodate CIT rate levels from the perspective of double taxation of dividends, (ii) the requirement to consider political responsibility of CI or (iii) the need to manage a deadweight loss. As a result of these challenges EU Member States often broaden the legal CIT base to maintain government revenues.