International tax competition

Analysis, current trends and conclusions for fiscal policy

In recent years, international competition to attract companies with low taxes has been hotly debated by both politicians and the media. Exposure of the diverse tax-avoidance strategies pursued by a number of large multinationals has underscored the extent to which these strategies are aided and abetted by individual countries. The media debate has triggered widespread political activity to prevent what are considered to be unfair practices in tax competition, and the recent tax reform in the United States has raised interest in this topic even further: The prevailing opinion is that the big corporate tax cuts implemented in the world’s biggest economy could trigger a new round of competitive tax-cutting.

The overarching goal of the present study is to examine how tax competition in all its forms is developing and to critically appraise the effectiveness of the fiscal countermeasures taken – and that requires a precise definition of the term “tax competition”. Another focus of the study is the impact on family businesses and how Germany fares when it comes to international tax competition. The main issues discussed in the analysis are to what extent Germany’s tax policy is still competitive in the new environment and whether the defensive legislation aimed at multinationals could have unintended negative effects on family businesses.