Part I

Overall tax revenue

points of GDP. A broadly similar trend is visible also in

other related indicators such as revenue from taxes on
capital and business income taxes. The ITR on
capital (20) shows a stronger decline for 2010, 1.1
points in the EU-25 average, and this level remains
broadly in line with the 2002 one (see Graph 1.16).

O
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Various factors could explain this development. First,

the ITR on capital has historically been sensitive to the
business cycle: the EU-25 ITR on capital reached a
peak between 1999 and 2000, then declined, and picked
up again, in line with the business cycle. Inevitably, the
effects of the recession affected the ITR already in
2009 and 2010.

t
a
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Graph 1.16: Implicit tax rate on capital

1995-2010, in % (arithmetic average - adjusted for missing data
31

r
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n
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30
29
28
27
26
25

Stabilisation in effective tax rates at the

current end
Effective tax rates complement statutory tax rates by
additional charges on investment and by elements of
the tax base in order to evaluate the effective tax
burden incurred. The methodology used for the
calculation of EATRs is explained in ZEW report by
Devereux et al. (2008) and follows the methodology set
out by Devereux and Griffith (1999, 2003).
For the EU-27, the average EATR in 2011 is 21.3 %,
but this overall average hides considerable dispersion
in the EATR levels across the individual Member
States (see Table 86 in Annex A). The EATR is the
lowest in Bulgaria (8.9 %), Cyprus (10.6 %) and Latvia
(12.6 %), and the highest in France (32.8 %), Malta
(32.2 %) and Spain (31.9 %). All NMS-12 Member
States, except Malta, have effective tax rates below
20 % (16.4 % on average); all EU-15 Member States,
except the Netherlands and Ireland, levy taxes at 23 %
and higher (25 % on average).

24
23
22
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
EU-25

EA-17

Source: Commission services

In addition, the strong cuts in the CIT statutory rate

translate in lower revenues. However, it seems likely
that the measures to broaden the corporate tax base,
which have frequently accompanied the statutory rate
cuts, have been playing an important role in sustaining
the ITRs; and a series of measures taken at EU level to
limit harmful tax competition may too have had an
impact. Normally, both factors fade out with time:
cyclical effects depend largely on the existence of
carry-over provisions for losses incurred in previous
years and on capital gains, and base broadening has its
limits, explaining the decline in the last years. One
imponderable, however, is the possibility, that,
stimulated by the steep fall in corporate tax rates, which
in some countries are now well below the top PIT rate,
growing incorporatisation has been boosting CIT
revenues at the expense of the personal income tax.

Over the last decade, a significant downward trend in

the effective corporate tax levels can be observed on
the EU level. Over the same time period, the
differential in effective tax levels between the EU-15
Member States and the NMS-12 Member States
increased due to intensified tax cuts in the later after
EU accession. The fall in EATRs over the last decade
largely followed the decrease of the CIT rate with a
drop in 2008 more pronounced for the former than for
the latter probably due to the numerous tax measures,
other than rate cuts supporting the business that many
governments introduced at the outbreak of the
crisis (21). However, the latest data show a stabilisation.
Graph 1.17: Corporate Income Tax rates and Average
Effective Taxation indicators,
EU-27, 1995-2012, in %
36%

34%

32%

30%

28%

Table 79 in Annex A presents the development of the

ITR on capital for all the Member States and years
available, showing a broad downward trend similar to
that of the rates.

26%

24%

22%

20%
1995

1996

1997

1998

1999

2000

2001

EU-27 average top statutory CIT rates

(20) The ITR on capital is the ratio between taxes on capital and aggregate capital
and savings income. Specifically it includes taxes levied on the income earned
from savings and investments by households and corporations and taxes,
related to stocks of capital stemming from savings and investment in previous
periods. The denominator of the capital ITR is an approximation of world-wide
capital and business income of residents for domestic tax purposes.

2002

2003

2004

2005

2006

2007

2008

2009

2010

EU-27 EATR - Taxation of the non-financial sector

Source: Commission services

(21) For detailed list of measures see European Commission (2010b)

38

Taxation trends in the European Union

2011

2012