Intertax
Volume 39, Issue 10 (2011) pp. 494 – 520

https://doi.org/10.54648/taxi2011052

Abstract

Without any doubt, one of the primary policy issues in public finance in the European Union (EU) is the issue of tax competition, which results in a race to the bottom in statutory tax rates, tax base broadening policies, and potential distortions in firm decisions. The literature focuses mainly on profit taxes; however, as the financial crisis is biting into the real economy, non-profit taxes have become a more important factor in the overall tax burden on companies. In this context, one important question is whether non-profit taxation and tax base broadening policies have accelerated the course of economic downturn. This article analyses the impact of non-profit taxes on the overall tax burdens of companies. It offers not only a broad geographical scope but also great detail in calculations of tax burdens on income-independent taxes. In particular, it reveals that tax regimes characterized by restrictive thin capitalization rules, tightened loss offset rules, or a high proportion of non-profit taxes in the overall tax mix are more severely hit by economic downturns. The various tax measures taken by many EU-27 Member States in response to the crisis are, therefore, looked upon favourably.

Extract

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