An EU Company without an EU tax?
Clear progress is needed to realise the benefits of the single market in the area of corporate taxation. If the EU wants to become the “most competitive economy in the world” by 2010, as stated by EU-leaders in Lisbon in 2000, corporate tax reform should rapidly become a top priority on the political agenda. The adoption of the European Company Statute makes co-ordinated European progress even more important. The European Company Statute will not change much for cross-border business in the EU if it is not coupled with measures in the area of corporate taxation.
The current tax jungle of is costly. It hinders competitiveness of European industry through high compliance costs, double taxation, and protectionist regulations. Although the evidence is limited, the cost of compliance with the diversity of tax rules amounts to about 2-4% of 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 euro 4.3bn (2%) to euro 8.6bn (4%).
In a recent communication, the European Commission has set the contours for a more co-ordinated tax policy in the EU with a long-term focus on creating a single corporate tax base. However, member states appear lukewarm. Decisive support from business is therefore needed.
The benefits of tax reform are substantial. A more harmonised tax system should improve fairness, efficiency, simplicity and transparency for operators. It should reduce the home bias and render investment decisions more efficient, which should contribute to stimulate economic effectiveness and welfare. To gain momentum towards EU corporate tax reform, we propose the following steps:
- The EU Council should set a timetable for EU corporate tax reform in a Corporate Tax Action Plan. This schedule should categorise and prioritise the different policy steps, with deadlines for adoption and implementation by the member states. By 2010, a more coordinated regime should be in place;
- Immediate action should be undertaken to adapt the current EU corporate tax directives to include the European Company Statute. The 1992 merger directive should in a second step be extended to further ease cross-border restructuring of corporations;
- A process should be set into motion for moving towards an optional corporate tax base either through Home State Taxation or Common Base Taxation. This requires agreement by the member states on the definition of groups of companies and on some formula to apportion profits. It also requires study on the administrative implications related thereto;
- The Convention on the Future of Europe should tackle the institutional problems underlying the lack of progress in taxation, notably by extending qualified majority voting in the tax domain. Enlargement will otherwise render any progress in the tax domain at EU level virtually impossible;
The coming into force of the European Company Statute provides a unique opportunity to develop a more co-ordinated European corporate tax system. Failure to do this now will most likely hold back future progress as the EU devotes more of its energy to enlargement.
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