CEPS study questions value of an EU company without an EU tax

A new study published by CEPS (the Centre for European Policy Studies) proposes a Corporate Tax Action Plan as a means of achieving corporate tax reform in the EU.

With its latest study ‘An EU Company without an EU tax’, CEPS (the Centre for European Policy Studies) is urging businesses to work to move the issue of corporate tax reform higher up the EU Council’s agenda. On the basis of the evidence available (here CEPs cites the Commission’s own study and the 1992 report of the Ruding Committee), the cost of complying with the diversity of tax rules in the EU is estimated at around 2% to 4% of the total corporate tax revenues raised. Assuming that these figures hold true for the EU as a whole, the cost of the current complexity would fall in the range of €4.3 bn to €8.6 bn per year; the low end figure roughly equating to the budget of the EU institutions, says CEPS.

The report warns that the lack of progress in the field of taxation risks undermining the EU’s achievement in adopting the European Company Statute (ECS) and lessing the value of the introduction of a single reporting standard (based on the International Accounting Standards). The stated objective of the ECS is to allow companies operating in more than one Member State the option of establishing themselves as a single European company. However, given that tax issues are left to Member States, these companies are likely to find themselves required to incorporate in each of the respective countries for tax reasons.

CEPS proposed solution is the adoption of a Corporate Tax Action Plan, analogous to the action plan adopted for financial services. The plan would set a timetable for corporate tax reform, categorising and prioritising the different policy steps. By 2010 – the target date set by EU leaders in Lisbon, for the Union, to become the “most competitive economy in the world” – a more coordinated regime should be in place.

Immediate and short term priorities include, e.g., the coordinated implementation of the European Company Statute and the adaptation of existing tax measures. The long term objective would be agreement on a common corporate tax base.

 

At the end of April 2002, the Commission has invited tax experts, national officials, and other stakeholders to a conference to debate corporate tax obstacles to the EU's internal market (see related"newstory). A Communication published by the Commission in October 2001, argued that the EU must agree a strategy to allow companies, in the longer term, to use a single consolidated base (but not harmonised rates) for computing tax on their EU-wide profits.

The Commission's studies into this issue have confirmed that the current tax rules (different in each Member State) create compliance costs and cause problems related to transfer pricing, double taxation and the absence of relief for losses on cross border transactions. In the short term, the Communication identified several steps that could be taken to remove specific tax obstacles to cross-border trade.

 

The Commission will take into account the views expressed at the conference, as well as all written submissions it receives, in a report that it has undertaken to complete by 2003. This report will not contain policy conclusions.

 

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