A progressive excess profit tax for the European Union

Ines Heck, Thomas Rabensteiner and Benjamin Tippet

No 45941, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: Executive Summary • This report proposes a new progressive excess profit tax (PEPT) for the European Union. Our proposal taxes excess profits at: • an additional 20% rate for ‘base’ excess profits – profits between a rate of return of 10% and 15% • and an additional 40% rate for ‘super’ excess profits – profits above a rate of return of 15% • This PEPT design would raise an additional €126 billion in 2022 on top of existing corporate tax revenues. This is equivalent to roughly 0.8% of the EU’s GDP or about 1.6% of total government expenditure by EU member states. This translates to €280 for every EU citizen. • EU member states could levy the PEPT as they have the necessary tools, information and legal authority to collect taxes, with coordination at the European level. • Our proposal limits tax avoidance: firms are taxed based on where they generate sales, not where they are legally registered, limiting their ability to shift profits to low-tax jurisdictions to avoid the tax. • Our proposal should not reduce investment as firms can still make 10% returns on their assets without facing any extra taxes. • Even if global coordination is not possible, we show that a PEPT can be unilaterally implemented by the EU.

Keywords: excess profits; corporate taxation; destination based taxation (search for similar items in EconPapers)
Date: 2024-02-19
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