Acta Univ. Agric. Silvic. Mendelianae Brun. 2012, 60(4), 343-350 | DOI: 10.11118/actaun201260040343

Revisiting the debate on harmful tax competition in the European Union

Veronika Sobotková

Ústav účetnictví a daní, Mendelova univerzita v Brně, Zemědělská 1, 613 00 Brno, Česká republika

Globalization leads to economic benefits for some countries but may have also many serious negative side effects for others. The increased mobility of economic activities may result in a sharp increase in tax competition between countries. On the one hand, tax competition can have desirable consequences, such as more efficiency, but on the other side it may also have undesirable or harmful consequences, such as race to the bottom. Also, the increasing using of tax havens has resulted in erosion of many countries' tax bases. From of the point of view, there is a need to revisiting the debate on tax competition and to answer whether the tax competition is beneficial or harmful. For this reason, this paper discusses the significance of tax competition in the European Union and deals with the position of tax competition in the European Single Market. This paper discusses an economic purpose of tax competition at currently European Single Market and discusses about harmful effects of tax competition. Based on the findings in this paper the following overall conclusion is drawn. The article makes clear that Member States have a need to protect their tax bases, especially in time of economic crisis, because the foreign direct investment flows might have negative consequences on the choice of tax revenues.

Keywords: tax competition, harmful tax competition, foreign direct investment, capital flows, race to the bottom

Received: February 29, 2012; Published: August 7, 2013  Show citation