The Code of Conduct and the EU Corporate Tax Regime: Voluntary Coordination without Harmonization

Abstract

Despite a long quest for corporate tax harmonization, the EU countries were only able to introduce

a common corporate tax regime through the Code of Conduct in 1997. Aside from the significance of

this development, it raises a puzzle as to the institutional choice for the corporate tax cooperation. The

Code of Conduct is far from the idea of harmonization that requires the establishment of supranational

authority. It is strictly on a voluntary basis and leaves intact national discretion. I argue that this

institutional choice reflects the member countries ability to absorb the costs of tax competition and

domestic political consensus on the desirability of the neoliberal tax reforms. The rise of an EU

corporate tax regime in the 1990s is rooted in the growing concern the dampening effect of tax

competition in the EU. Yet, the effect of tax competition has not been so drastic due to the offsetting

factors. Further, the policy consensus on the desirability of neoliberal tax reforms made it easy to cope

with the pressure of tax competition through domestic solutions than the supranational one. These two

factors explain the EU countries reluctance to relinquishing national discretion for the sake of

supranational authority.