THE IMPACT OF THE CORPORATE INCOME TAX ON THE FDI FLOWS IN THE EU MEMBER COUNTRIES

The most part of available capital owns private entities (usually multinational companies), inclined to expand their business. The impact of that is not only the maximization of their profits, but also positive effects on employment, economic growth, development of domestic financial markets and general prosperity of one country. Those are some reasons why most countries of the world actively strive to form favorable business environment, that will have positive impact to attract foreign direct investments (FDI). The aim of this paper is to examine the impact of corporate income taxation on attracting FDI flows in the EU member countries. The statistical panel analysis is conducted in the period from 1998 to 2017 for 28 EU member countries, separately for old (EU 15) and new member countries (EU13). Besides different control variables, different corporate income tax rates – statutory corporate income tax rate and effective (average and marginal) corporate income tax rates are analyzed as the independent variables in order to investigate the real tax burden of corporations and its impact on the FDI flows. It is concluded that the tax policy influences significantly the FDI flows of the corporations in the new EU member countries (that are characterized by the lower tax burden), but not as the primary factor (unlike GDP). Among the tax rates, there is the strongest influence of the effective average tax rate.