European Parliament Split Over the Harmonisation of Corporate Taxation

Some EU member states try to attract investors with reduced corporate tax rates, which might lead to a harmful tax competition in the European Union (EU). For this reason, the introduction of a Europe-wide minimum taxation for businesses is up for discussion. However, the Members of the European Parliament (MEPs) fail to agree on whether this measure would be reasonable. This is the result of a survey conducted by the Centre for European Economic Research (ZEW) among Members of the European Parliament. The survey also shows that the opinions on a minimum tax rate highly depend on political party affiliation, nationality and the educational background of the MEPs.

The survey, which was held among 158 EU representatives (20 per cent of the MEPs), shows that the European Parliament is clearly divided about the issue of a harmonised corporate tax rate. A majority of around 35 per cent of the EU parliamentarians considers this measure to be reasonable. On the other hand, 31 per cent regard the harmonisation of corporate taxes in the EU as either negative or very negative.

The econometric analysis of the individual voting behaviour reveals that the party affiliation is a crucial factor to influence the attitude of the MEPs concerning this issue. EU politicians who belong to Eurosceptic political groups particularly reject minimum tax rates. In contrast, the vast majority of left-wing politicians strongly support the tax measure. Among the conservatives, the politicians who reject the harmonisation of taxes only slightly outweigh those who support such a measure. However, overall there is no clear majority within the political groups for or against the harmonisation of taxes under discussion. In addition to party affiliation, further explanatory variables such as the national context of the MEPs are crucial. The survey shows that above all EU politicians from member states with high corporate taxes support a Europe-wide harmonisation of taxes. Apparently, they consider this measure as a possibility of avoiding a negative "tax race to the bottom". In addition, politicians representing countries in which the citizens are traditionally supportive of social justice, also decisively recommend to harmonise taxation.

Another factor, which influences the attitude of the MEPs, is their educational background. MEPs who graduated in business administration or economics tend to reject the harmonisation of corporate taxation. Apparently, this reflects their positive basic attitude towards free competition. In contrast, however, a long membership in the European Parliament boosts a supportive attitude towards a minimum business tax rate on a European level. This might suggest that the loyalty towards the EU increases over the years, which leads to the minimisation of other attitudes.

Contact

Dr. Steffen Osterloh, E-Mail: osterloh@zew.de