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Recent trends in corporate income tax

Author

Listed:
  • K. Van Cauter

    (National Bank of Belgium, Research Department)

  • L. Van Meensel

    (National Bank of Belgium, Research Department)

Abstract
The article describes the recent international developments regarding the corporate income tax and the way in which the Belgian government is trying to respond. For this purpose, it begins by discussing the various indicators which measure the tax burden on corporate profits. Next, it illustrates the trend towards declining statutory corporate tax rates throughout Europe in the last two decades. It is highly likely that the downward trend in nominal rates will persist in the near future. But these nominal rate cuts seem to have been accompanied by an at least equivalent expansion of the tax base, so that government revenues generated by the corporate income tax have actually increased overall. Belgium is following the international trend towards lower nominal rates and a wider tax base. The corporate income tax reform which took effect on 1 January 2003 aimed to eliminate the difference between the Belgian nominal rate and the EU-15 average. The most recent reform introduced the venture capital allowance from the 2007 tax year. This innovative measure reduces the discrimination between the tax treatment of equity capital and borrowings. The differential between the Belgian rate and the EU average has however since 2003 widened again to around 4 to 5 percentages points and will – in the absence of new measures – probably continue to increase in the near future. Finally, the article focuses on the European coordination of corporate income tax. The existence of twenty-seven different corporate income tax systems in the EU entails substantial cost for multinationals. At the same time, there is the fear that tax competition may erode the tax proceeds. Both the EC and a number of committees of experts have therefore published reports in the recent decades, proposing a high degree of corporate income tax harmonisation. So far, these initiatives have not succeeded. More specific initiatives, such as directives aiming to abolish tax distortions in the case of cross-border activities and measures to combat harmful competition have been more successful. The EC is now concentrating on achieving a common consolidated tax base for multinationals.

Suggested Citation

  • K. Van Cauter & L. Van Meensel, 2007. "Recent trends in corporate income tax," Economic Review, National Bank of Belgium, issue i, pages 61-75, June.
    • Handle: RePEc:nbb:ecrart:y:2007:m:june:i:i:p:61-75
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    File URL: https://www.nbb.be/en/articles/recent-trends-corporate-income-tax-0
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    References listed on IDEAS

    as
    1. Devereux, Michael P & Griffith, Rachel, 2003. "Evaluating Tax Policy for Location Decisions," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 10(2), pages 107-126, March.
    2. Wolfgang Eggert & Andreas Haufler, 2006. "Company-Tax Coordination cum Tax-Rate Competition in the European Union," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 62(4), pages 579-601, December.
    3. Christian Valenduc, 2004. "Corporate income tax and the taxation of income from capital:Some evidence from the past reforms and the present debate on corporate income taxation in Belgium," Taxation Papers 6, Directorate General Taxation and Customs Union, European Commission, revised Dec 2004.
    4. Huizinga, Harry & Laeven, Luc, 2008. "International profit shifting within multinationals: A multi-country perspective," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1164-1182, June.
    5. Nicodeme, Gaetan, 2006. "Corporate Tax Competition and Coordination in the European Union: What do we know? Where do we stand?," MPRA Paper 107, University Library of Munich, Germany.
    6. Ruud A. de Mooij & Sjef Ederveen, 2006. "What a difference does it make? Understanding the empirical literature on taxation and international capital flows," European Economy - Economic Papers 2008 - 2015 261, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    Cited by:

    1. B. Eugène & P. Bisciari & M. Nautet & P. Stinglhamber & L. Van Meensel, 2013. "Trends in tax systems in the EU," Economic Review, National Bank of Belgium, issue iii, pages 27-45, December.
    2. F. De Sloover & Y. Saks, 2018. "Is job polarisation accompanied by wage polarisation?," Economic Review, National Bank of Belgium, issue iii, pages 79-90, september.

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    More about this item

    Keywords

    corporate tax; tax competition; EU tax coordination;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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