Proposals for greater co-ordination of corporate income taxes are back on the international policy agenda, notably through the European Union's Code of Conduct on business taxation. A report sponsored by the International Fiscal Association and published today by the Institute for Fiscal Studies aims to provide a guide to this policy debate.

The report reviews recent trends in corporate taxation, problems associated with maintaining 15 distinct and imperfectly co-ordinated corporate income taxes within the EU, and the extent to which these problems may be addressed, both by the Code of Conduct initiative and by more ambitious proposals for harmonisation.

Some of the main conclusions include:

• corporate tax rates are falling, but corporate tax revenues are not; the impact of rate cuts has been offset by widening of corporate tax bases and improvements in underlying company profitability;
• even if corporate tax rates continue to fall and this produces a switch away from taxes on corporate profits and towards taxes on income from employment in the future, it is not clear that this development would be bad for employment; taxes on corporate profits may also affect levels of employment, by encouraging capital to migrate to more lightly taxed locations;
• lack of co-ordination between national corporate income taxes leads to a number of problems, including distortions to the location and organisation of economic activity by firms in Europe, and opportunities for tax avoidance that make corporate tax revenues increasingly difficult to collect;
• the scope of the Code of Conduct may be too narrow to address the sources of many of these opportunities for tax avoidance and distortions to economic activity;
• full harmonisation on a single EU corporate income tax would deal more effectively with distortions and difficulties arising within the EU, but even this could do little to deal with pressures that arise from interactions between the EU and the rest of the world.

Stephen Bond, Director of the Corporate Sector at IFS, said, "Taxing international companies raises complex and challenging questions for national policymakers. It is not clear that limited steps towards greater co-ordination within Europe will bring significant benefits. Many of the pressures on corporate tax rates, opportunities for tax avoidance and distortions to economic activity arise from interactions between the EU and the rest of the world."

Ends

Notes to editors

1. Corporate Tax Harmonisation in Europe: A Guide to the Debate by Stephen Bond, Lucy Chennells, Michael P. Devereux, Malcolm Gammie and Edward Troup is available from IFS for ò5.
2. The report will be launched at a conference on the afternoon of Thursday 11th May. For details, please contact the IFS press office on 020 7291 4800.