European Financial and Accounting Journal 2017, 12(3):17-31 | DOI: 10.18267/j.efaj.185

The Impact of Corporate Income Tax on R&D of Multinational Entities: An Impact Analysis of Separate Taxation and CCCTB

Hulya Celebi1, Sabina Hodžić2
1 University of Innsbruck, School of Management, Department of Accounting, Auditing and Taxation, Kalsfeld 24, 6365 Kirchberg IT.
2 University of Rijeka, Faculty of Tourism and Hospitality Management, Department of Public Finance, Primorska 42, 51410 Opatija, Croatia.

The significant contribution of R&D to economic development and sustainability has been shown by various studies. Therefore, governments offer different fiscal instruments to attract R&D, especially regarding multinational entities (MNEs). One of the fiscal instruments are tax incentives for R&D. Furthermore, the EU has been working on the switch from Separate Taxation (ST) to Common Consolidated Corporate Tax Base (CCCTB) for longer than a decade, which will lead to harmonized R&D tax allowances, however without harmonizing the tax rates. Hence, this study aims at analyzing how ST and CCCTB impact the location of MNEs' R&D activities, tax burden and countries' tax revenue through a case study. The results show that, under ST, tax jurisdictions can stimulate MNEs' R&D activities by means of attractive tax allowances and lower tax rates. Especially for high-tax countries, the tax allowances represent an important tool for attracting R&D activities. However, under CCCTB, the location of R&D activities additionally depends on the Formula Apportionment (FA) factors of the tax base, where the countries cannot exert a direct influence. Hence, the reduction of tax rates remains the only tool left to Member States, which can lead to revenue loss on the whole. Furthermore, the FA of the tax base under CCCTB mitigates the impact of any dislocation of R&D to a low-tax country, which, under ST, leads to larger tax savings of MNEs and its impact on jurisdictions' tax revenue is greater.

Keywords: Corporate income tax, Tax incentives for R&D, CCCTB, Separate taxation
JEL classification: H20, H25, O23

Published: December 11, 2018  Show citation

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Celebi, H., & Hodžić, S. (2017). The Impact of Corporate Income Tax on R&D of Multinational Entities: An Impact Analysis of Separate Taxation and CCCTB. European Financial and Accounting Journal12(3), 17-31. doi: 10.18267/j.efaj.185
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