The increasingly globalised business environment raises questions for the design of corporate tax, as does the move towards a knowledge-based economy. For example, in which jurisdiction should corporate tax be paid? To what extent do international accounting practices allow firms to avoid some taxation? Should countries be discouraged from competing over their corporate tax rates? How can corporate tax be designed to encourage innovation?
The Fiscal Policy Analysis team engages with these issues to provide support to European Commission policy-makers. We aim to combine sound economic theory with the best available data, using state-of-the-art modelling techniques. We maintain strong links with the research community, presenting our work in academic conferences and submitting papers to academic journals.
CORTAX model
CORTAX (short for CORporate TAXation) is a Computable General Equilibrium (CGE) model designed to evaluate the macro-economic effects of unilateral and multilateral corporate tax reforms. JRC has been using CORTAX in order to support important European Commission tax initiatives, including proposals for a common consolidated corporate tax base, taxation of the digital economy, the debt-equity bias, and the Communication on Business Taxation for the 21st Century.
Corporate tax microsimulation model
The JRC is currently developing a tailored corporate tax microsimulation model for the EU. The primary focus of this model is to provide valuable insights into the fiscal and distributional impact of corporate income tax (CIT) reforms.
Debt-equity bias
In its Communication on Business Taxation for the 21st Century, the European Commission announced a legislative proposal to address the debt-equity bias in corporate taxation through an allowance system. The JRC contributed to the economic impact assessment of this initiative by analysing the effects of different forms of tax allowances for equity on important macroeconomic aggregates using the general equilibrium model CORTAX.
Withholding taxes
The Action Plan for fair and simple taxation supporting the recovery proposes to introduce a common, standardised EU-wide system for withholding tax relief at source. The JRC actively contributed to the economic impact assessment of the FASTER initiative by analysing the effects of withholding taxes and relief procedures on cross-border investment and macro-economic aggregates using the general equilibrium model CORTAX.
