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THE FIGHT AGAINST TAX EVASION AND AVOIDANCE: TOWARDS A HARMONISATION OF CORPORATE INCOME TAXES WITHIN THE EU
83
they maintain business operations. It has effec-
tively harmonised corporate taxes throughout
that country.
The harmonisation of corporate taxes within
the EU
Although the first attempt to harmonise corpo-
rate taxes in the EU was launched more than a
decade ago
11
, it was not until 2011 that the
European Commission presented a formal pro-
posal for a “Common Consolidated Corporate
Tax Base” (CCCTB). The recent Lux Leaks scan-
dal has revived debate regarding this initiative
by making it patently clear that tax avoidance is
far from being an isolated problem, and, in fact,
is rife in a number of sectors and has spawned
a cottage industry aided and abetted by the
governments of several European states. In the
light of recent events, the president of the
Commission has spoken in favour of reactivat-
ing debate on the proposed measure.
France and Germany expressed a renewed
interest in harmonising their corporate tax sys-
tems in 2011
12
, going so far as to prepare a
green paper on corporate tax convergence.
If finally approved, the CCCTB would pro-
vide a common set of rules for computing the
tax base of multinational companies operating
11
There have been two important landmarks in this pro-
cess. The first was the Council’s 1999 request that the Euro-
pean Commission conduct a study on corporate taxation in
the EU. The second was the European Commission’s 2004
decision to create a working group devoted to the analysis
of the economic impact of harmonisation.
12
In August 2011, Angela Merkel and Nicolas Sarkozy an-
nounced their joint support for harmonising France and
Germany’s corporate tax frameworks. They had previously
floated the idea of a basic harmonisation of corporate taxes
at the time they proposed a competitiveness pact at the
European Council meeting of 4 February 2011.
in the EU. Adoption of the CCCTB concept
would entail the implementation of a single set
of rules for calculating corporate tax base of
multinational corporations operating in the EU
that companies could play by instead of apply-
ing 28 different national codes. The present na-
tional codes in use are heterogeneous, con-
stantly evolving, and in some instances
specifically designed to siphon off part of other
countries’ tax bases. Harmonising the corporate
tax base across Europe would neutralise these
differences and put a brake on the intra-com-
munity “race to the bottom” in which some
Member States compete with others by means
of definitions of deductible expenses, deprecia-
tion rules and other tax incentives
13
.
However, the CCCTB concept goes beyond
the mere implementation of a common
European tax base; it also embraces the notion
of “consolidation”, which would entail aggre-
gating (compensating) all of the profits and
losses generated by a transnational company in
States within the EU. Such a system would, for
the purposes of corporate taxation, facilitate
the calculation of a single net profit or loss for
all of company’s operations within the EU. Were
a CCCTB solution to be adopted, it would re-
place the present complicated system of trans-
fer pricing
14
that offers companies a considera-
ble number of options for avoiding taxation.
Another advantage of implementing a CCCTB
system is that it would render the establishment
of tax withholding regimes in source countries
– currently essential to ensure that transnational
companies pay at least a minimal amount of
taxes in these jurisdictions – unnecessary.
13
The CCCTB would put an end to unfair competition
mechanisms such as the UK’s “patent box”.
14
Transfer pricing control is currently based on the so-
called arms length principle.