European Commission Taxation and Customs Union What does

European Commission / Taxation and Customs Union What does “game theory” tell Finance Ministers on whether they should support a Common Consolidated Corporate Tax Base (CCCTB)? A short response to the paper by Jack Mintz and Joann M. Weiner Matthias Mors European Commission NYU Symposium on EC Tax Policy 14 March 2008 2/6/2022 1

European Commission / Taxation and Customs Union The impact of consolidation + apportionment on the tax base/tax revenues Compulsory participation Fuest/Hemmelgarn /Ramb (3 factors) Austria Belgium France Germany Hungary Ireland Italy Spain Poland The Netherlands United Kingdom 2/6/2022 Devereux/Loretz (turnover) Devereux/Loretz (assets) Oestreicher/Koch (3 factors) +112 -41 -31 -17 n. a. -50 -26 -16 n. a. -74 -6 +14 +5 -2 +10 -9 -0 +31 -1 +1 -0 -3 -4 -11 +14 -11 -2 +30 +9 -8 -14 -1 -2 -7 -14 +3 -4 -3 -12 -8 +3 +17 -5 2

European Commission / Taxation and Customs Union The impact of consolidation + apportionment on the tax base/tax revenues Optional participation Austria Belgium France Germany Hungary Ireland Italy Spain Poland The Netherlands United Kingdom 2/6/2022 Devereux/Loretz (3 factors) Oestreicher/Koch (3 factors) -5 -7 -2 -3 +19 +0 -6 -1 +3 -0 +8 -9 -9 -7 -9 -6 -5 -4 -4 -5 -5 -1 3

European Commission / Taxation and Customs Union Tentative conclusions on the tax base/tax revenues • It is not straightforward to determine who “wins” and who “loses” in the CCCTB game • Even studies using similar datasets (financial accounts) arrive at times at different conclusions in terms of tax base/revenues • None of the studies manages to simulate “sales by destination” The economist’s advice: • Tax base/revenues are in any event not the right yardstick. One has to look at “welfare” 2/6/2022 4

European Commission / Taxation and Customs Union The impact of a CCCTB on welfare, GDP and CIT revenues Welfare GDP CIT revenues 0. 02 0. 37 -0. 09 0. 54 0. 04 -0. 19 The Netherlands -0. 11 0. 12 0. 22 0. 06 -0. 33 0. 23 -0. 02 0. 21 -0. 18 0. 82 0. 17 -0. 55 -0. 70 0. 13 -0. 09 0. 36 0. 01 -0. 56 -0. 17 -0. 37 0. 25 -0. 70 0. 06 -0. 26 United Kingdom 0. 18 0. 16 -0. 14 Austria Belgium/Luxembourg France Germany Hungary Ireland Italy Poland Spain Source: Van der Horst/Bettendorf/Rojas-Romagosa 2/6/2022 5

European Commission / Taxation and Customs Union The economists’ advice: • A stable coalition can emerge if the “winners” compensate the “losers” Implication: • Those Member states losing CIT tax revenues through the introduction of a CCCTB should pay side-payments to those with rising tax revenues as the former see their welfare increase The normal Finance Minister’s likely response: “Would the economists please leave my office!” 2/6/2022 6

European Commission / Taxation and Customs Union “Game over”? Not quite. The Minister still does not know whether to support the CCCTB or not! Can the Minister’s civil servants provide any guidance? 2/6/2022 7

European Commission / Taxation and Customs Union Not really: • They do not have the (tax) data required to calculate even the static effects of a CCCTB • They don’t know how the CCCTB will affect tax competition as there are no studies assessing the mobility of the actual apportionment factors • Even if the numerical results would look acceptable, they don’t know whether they can trust all other Member States in administering the system 2/6/2022 8

European Commission / Taxation and Customs Union Conclusion? Mintz/Weiner, page 30: “… this paper has shown that it is possible for the EU to reach a negotiated agreement that is satisfactory to all players in the ‘EU tax cooperation’ game. ” Has it? 2/6/2022 9