The Regulation of Redistribution: Managing Conflict in Corporate Tax Competition

Abstract

Although the EU is not a tax state in itself, European regulations have a considerable impact on national tax policies. This article analyses the role of the EU by a comparison of two forms of corporate tax competition: general competition on rates, and targeted competition in the form of preferential tax regimes. The EU failed to coordinate tax rate competition but managed to curtail ‘harmful’ targeted competition by a combination of soft and hard law. The authors argue that the differing performance of the EU is due to differences in the underlying conflict structures between small and large countries. Whereas both small and large countries are equally affected by targeted competition, small countries are usually winners of general tax competition on rates. By restricting its problem definition to ‘harmful’ targeted competition, the EU was able to make some headway in that area, but this only reshaped rather than impeded overall corporate tax competition.