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Tackling Spillovers by Taxing Corporate Income in the European Union at Source

Sijbren Cnossen

No 324, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: This paper surveys and evaluates the corporation tax (CT) systems of the Member States of the European Union on the basis of a comprehensive taxonomy of actual and potential regimes, which have as their base either profits, profits and interest, or economic rents. The current regimes give rise to various instate and interstate spillovers, which violate the basic tenets – neutrality and subsidiarity – of the single market. The trade-offs between the implications of these tenets – harmonization and diversity, respectively – can be reconciled by a bottom-up, reversible strategy of strengthening source-based taxation and approximating tax rates. The strategy starts with dual income taxation, proceeds with final source withholding taxes and rate approximation, and is made complete by comprehensive business income taxation. Common base taxation, if desired, should probably be left to the Member States themselves.

JEL-codes: F23 H25 H26 H87 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-eur, nep-pbe and nep-pub
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