Presented at IIPF 2024
EU-wide unitary taxation would raise US$24.1 to 26.8 billion in isolation, more when combined with a minimum corporate tax.
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Abstract
This paper examines the most direct method to curb European profit shifting: an EU-wide adoption of unitary taxation. Using country-by-country reporting data, we estimate country-level revenue changes when taxable profits are distributed based on different formulas measuring economic activity. We find that tax revenues would increase for most EU members. While some countries, in particular the Netherlands, Luxembourg, Ireland, and Malta, may incur losses, these can be offset by adopting an effective national top-up tax, consistent with the EU’s plan to introduce a minimum corporate tax of 15%. Our findings indicate that unitary taxation would not only restore fair competition and significantly boost EU-wide tax revenues (ranging from US$24.1 to US$26.8 billion in isolation or US$34.5 to US$35.4 billion when combined with the minimum tax), but is also politically feasible: when coupled with the minimum corporate tax, no member state would lose from its implementation.