Year: 2026
Type: article
Abstract: The European Union’s implementation of global anti-tax avoidance rules and the global minimum tax is widely regarded as a success. By substantially reducing opportunities for profit shifting, these reforms have strengthened revenue protection. But this success also has an underappreciated implication for the EU. Profit shifting in part emerged as a response to differences in national corporate tax systems. It resulted in multinational firms reducing the effective tax burden associated with investing in higher-tax EU countries. It thus both eroded tax bases and offset the influence of tax differences on real investment decisions. By constraining this form of ‘self-help’ while leaving the underlying diversity of national corporate tax systems largely intact, anti-avoidance reforms potentially increase the sensitivity of investment to tax differentials across the EU. Evidence shows that investment has become significantly more responsive to effective corporate tax rates in the last decade since coordinated anti-avoidance rules started to be discussed. Reforms to tackle profit shifting have thus shifted the trade-off facing European policymakers to a trilemma involving tax sovereignty, revenue protection and investment neutrality. In this context – though not questioning the merits of combatting profit shifting – the success of anti-avoidance reforms strengthens the economic case for further coordination of corporate taxation within the single market, as anti-avoidance policy and tax harmonisation become increasingly complementary.
DOI: 10.64153/bdss6334
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: gold
OpenAlex ID: W7204239317