Abstract:

In recent years, due to the globalization of the world economy, progressive international economic integration, rapid technological progress and increasing competition, an increase in interest in the problems of taxation of income generated in national economies can be observed. The free movement of goods, services, people and - which is particularly important from the point of view of this article - capital is the basis for the functioning of the European Union. Entrepreneurs have the opportunity to choose the place of business, as well as the method of tax settlement that will be optimal for them - will cause the lowest tax burden. Tax competition is a phenomenon directly related to globalization processes. The liberalization of capital flows and a decrease in transaction costs have caused investors to look for attractive deposits not only in the country but also abroad. In order to increase investments in their countries, governments are trying to make them as attractive as possible from the perspective of entrepreneurs, which they can do, among others, by reducing taxes. Theoretically, a reduction in tax rates does not have to cause a decrease in budget revenues, as the tax base will increase as a result of the inflow of investors. However, if all countries decide to reduce taxes, the relative attractiveness of countries to investors will remain unchanged, while their budget revenues will decrease. The decrease in tax revenues caused by the lowering of rates with an unchanged base means that the state may spend less funds on the implementation of its tasks in the field of providing public goods. This model only presents the general concept of tax competition. In practice, its mechanism is much more complex and ambiguous. Such a process of reducing tax rates resulting in an excessive reduction of budget revenues is often called race to the bottom.