Corporate Tax Reform: Adoption of Cash Flow Tax Design

The empirical evidence in the economic literature suggests that corporate tax, as currently structured, is a suboptimal method of taxation due to its inefficiency and distortionary effects.1 We propose shifting European corporate taxes to a cash-flow-based tax system where taxes are levied only when profits are distributed to shareholders. This change will encourage reinvestment of profits back into businesses, thereby fostering capital formation and economic growth. Estonia and Latvia offer leading examples of this approach, with the UK having also moved towards similar mechanisms.23