The EU’s New Era of “fair company taxation”: The impact of DEBRA and Pillar Two on the EU Member States’ effective tax rates

Gschossmann, Emilia ; Heckemeyer, Jost H. ; Müller, Jessica ; Spengel, Christoph ; Spix, Julia ; Wickel, Sophia

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URN: urn:nbn:de:bsz:180-madoc-671703
Document Type: Working paper
Year of publication: 2024
The title of a journal, publication series: ZEW Discussion Papers
Volume: 24-014
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Betriebswirtschaftliche Steuerlehre II (Spengel 2006-)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
Business School > Sonstige - Area Accounting & Taxation
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: F23 , H25 , K34,
Keywords (English): business in Europe , framework for income taxation , BEFIT , effective tax rates , debt-equity bias reduction allowance , DEBRA , debt-equity bias , Devereux/Griffith Methodology , global minimum tax , Pillar Two
Abstract: The European Commission recently implemented the minimum tax directive (Pillar Two) to ensure that corporate profits are at least taxed at 15%. At the same time, it proposed a legislative initiative aimed at reducing the tax-induced distortions between debt and equity financing (debt-equity bias reduction allowance directive, DEBRA). In our simulation analysis, we evaluate how the two measures and their interplay influence the EU Member States' effective tax levels and thus their location attractiveness. We find that DEBRA, on average, leads to a substantial reduction of the effective tax levels for equity-financed companies. In countries with a combined profit tax rate below 15%, Pillar Two increases the effective average tax burden. The simulation of the interaction of both regulations shows that the effect of Pillar Two dominates that of DEBRA. In addition, the results hold under a common tax base in accordance with the recently proposed "Business in Europe: Framework for Income Taxation" directive (BEFIT).
Additional information: Verf. hier: Müller, Jessica M.

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