Corporate Average Tax Rates Under the CCCTB and Possible Methods for International Loss-Offset

This paper provides an assessment of the potential consequences for average corporate tax rates that would result from implementation of a Common Consolidated Corporate Tax Base (CCCTB) as proposed by the European Commission, and of possible methods for achieving an EU-wide loss-offset for multinational groups. To this end, we apply a comparative-static micro-simulation approach based on ten-year data for a sample of 119,645 European domestic and multinational groups taken from the AMADEUS database. We find that through making CCCTB mandatory in the EU, the extension of intra-group loss-offset possibilities and use of formula apportionment would enhance the attractiveness of the EU as an investment location. The mean of the average tax rates in the member states would be reduced by 0.77 per cent for domestic groups and by 2.15 per cent for multinational groups. Furthermore, the paper reveals that a mandatory CCCTB would reduce the variation in average tax rates across the member states as well as the existing differences among domestic and multinational groups. An optional CCCTB, however, would increase the inter-jurisdictional variations between average tax rates and favours multinational groups, thus creating incentives for cross-border investment. The methods for cross-border group relief considered here would constitute less efficient mechanisms for achieving loss-offset than a CCCTB. Our findings show that these alternative loss-offset mechanisms would not guarantee relief to the same extent and are less effective in terms of inter-jurisdictional and intersectoral neutrality. However, in contrast to optional CCCTB each of the three methods would ensure equitable treatment of domestic and multinational groups