Summary Title: Taxes and Human Capital as Determinants of Foreign Direct Investment in EU: The role of Most Favoured Nation treatmentAuthor: Andreas HelmerssonSupervisors: Cecilé Brokelind and Rikard LarssonProblem discussion and problem Formulation: The recent year?s rapid increase in foreign direct investment (FDI) is a clear indication of increasing globalisation. In order to stay competitive companies must take advantage of talented people, new technology and new markets around the world. Not only companies but also countries and regions, such as EU, need to take advantage of globalisation and the advantages that come with the increase in FDI around the world. Studies have shown that FDI does not only make companies more competitive but it also stimulates the economic growth of the region where the FDI takes place.

Small and Medium sized Enterprises (SMEs) within the European Union are currently facing many challenges one being access to financing due to high risk and probability of default, another being cross-border taxation issues with double taxation and information asymmetry. Since the aim within the EU is to be the most competitive and dynamic knowledge-based economy in the world with sustainable economic growth and social cohesion it is essential that the EU operates as a single market. Despite this need, harmonization continues to be far from achieved in the area of direct taxation which also affects the integration and growth opportunities for SMEs. In the Agenda for Entrepreneurship, the Home State Taxation regime, which is based on formula apportionment, has been proposed by the Commission as one option in order to mutually recognize the different Member States? taxation systems to facilitate cross-border activities and reduce ?red-tape?.