This policy note highlights the main conclusions of the Working Paper entitled “Declining Tax Rates of Multinationals: The Hidden Role of Tax Base Reforms” (2025) by EU Tax Observatory researchers Sarah Godar and Jules Ducept.
The effective tax rate of multinational companies declined by 2.7 percentage points in the European Union between 2014 and 2022, shows a new EU Tax Observatory analysis of a decade of corporate tax reforms. The decline was exacerbated by tax competition between Member States. During that period, corporate tax reforms generated a tax revenue loss equivalent to 3.5% of tax collected from sample firms.
The analysis reveals that Member States are shifting away from the traditional “cut rate – broaden base” corporate tax policy towards base-narrowing tax policies. The contribution of statutory rate reforms to the decrease in effective tax rates is estimated to be 0.9 percentage points. Despite multiple anti-avoidance reforms adopted to protect the tax base against erosion, the net contribution of base reforms represents an additional reduction by 0.6 percentage points.
The implementation of the Global Minimum Tax is likely to accelerate the shift towards base-narrowing tax policies. Public announcements by governments show countries inside and outside Europe are increasingly reforming their incentive regime to be compliant with the Global Minimum Tax. This will require an inclusive conversation on the nature and the extent of tax incentive policies in the context of fair tax competition.