Towards Corporate Tax Harmonization in the European Community

by Jimenez, Adolfo J. Martin

• ISBN13: 9789041196903
• ISBN10: 9041196900
• Format: Hardcover
• Copyright: 1999-06-01
• Publisher: Kluwer Law Intl

Summary

The corporate tax policy of the European Commission has proved one of the major failures in the history of the European Community. Despite efforts by the European Commission throughout the thirty years of its existence and pressure from the business community, little progress has been made in harmonizing corporate taxation in the European Union; the Commission's proposals have almost always been turned down at the Council level. Yet harmonization is a crucial step in establishing a common market in Europe. This book examines the efforts of the European Commission to achieve harmonization. it bases its analysis on the study of theoretical economic models of corporate tax systems which meet the requirements of a common market and avoid economic inefficiencies as well as on an examination of the US federal tax system. Through the examination of theoretical models as well as practical examples, The author studies why the repeated harmonization attempts have failed and concludes that they must take into account not only economic aspects, but also political and legal factors. Harmonization of corporate taxation is not only a legislative exercise. Other institutions, such as the EC Court, have an important role to play in the harmonization process, As the US federal experience suggests. The book concludes with a model for corporate tax harmonization which takes into account both economic theory And The realities of the political and legal process.

Table of Contents

Preface	xv	(4)
List of Abbreviations	xix
Chapter 1: Corporate Taxation and the EC Treaty	1	(18)
1. Introduction	1	(1)
2. The Concept of Common Market	1	(6)
2.1. The Economic Concept of Common Market	1	(2)
2.2. The Legal Concept of Common Market in the EC	3	(4)
3. Corporate Taxation and the Concept of the ommon Market	7	(7)
3.1 The Theoretical Connection Between Corporate Taxes and the Concept of the Common Market	7	(1)
3.1.1 Corporate Taxation and the Efficient Allocation of Resources within the EC	8	(1)
3.1.2 The 'Equity' Argument	9	(1)
3.2 Some Empirical Evidence on the Connection between Corporate Taxation and the Concept of the Common Market	10	(4)
4. Legal Means to Eliminate Company Tax Distortions to the Common Market	14	(5)
Chapter 2: A Theoretical Approach to Company Taxation in Common Markets	19	(36)
Part I: Theoretical Models on Company Taxation	19	(10)
1. Introduction	19	(1)
2. Origins of Capital Export Neutrality and Capital Import Neutrality: R. A. Musgrave's Model	20	(4)
2.1 R. A. Musgrave's Model of Tax Neutrality	20	(2)
2.2 Applications of R. A. Musgrave's Model: Snoy's and Devereux and Pearson's Models for the European Community	22	(1)
2.3 Comments on R. A Musgrave's Model and Its Applications	22	(2)
3. Development of the Basic Model: P. Musgrave's Model	24	(3)
4. A Uniform Corporate Tax in the EC: McLure's Model	27	(1)
5. Comments on P. Musgrave's and McLure's Models	28	(1)
Part II: Review of Traditional Theories	29	(26)
6. Introduction	29	(1)
7. How Important are Taxes for Companies?	30	(4)
8. Is Capital Export Neutrality so Important?	34	(5)
9. A New Approach to Company Taxation in the EC: Vogel's Model and the Concept of Capital Import Neutrality	39	(2)
10. Comments on Vogel's Model and Other Models Based on Company Taxation at Source	41	(3)
11. 'Federalism': Tradeoffs Between Economic Efficiency and States' Interests	44	(7)
11.1 Centralized Legislation and the Federal State in the Field of Taxation	44	(2)
11.2 Corporate Taxation at State Level	46	(2)
11.3 Tiebout's World and Company Taxation	48	(3)
12. Summary and Conclusions	51	(4)
Chapter 3: The US Federal System: Institutional Choice for the Case of Company Taxation	55	(50)
1. Introduction: a Brief Description of State Corporate Taxes in the US and the Constitutional Limits to the States' Powers to Tax	55	(6)
1.1 State Corporate Taxes in the US	55	(4)
1.2 Constitutional Limits to the States' Power to Tax	59	(2)
2. The Jurisprudence of the US Supreme Court on Commerce Clause Limits to State Powers of Taxation	61	(20)
2.1 From Marshall to the 1970's	61	(5)
2.2 The Supreme Court's Modern Approach: Complete Auto Transit and Japan Line	66	(2)
2.3 After Complete Auto Transit and Japan Line	68	(1)
2.3.1 The Apportionment Test and the Concept of Unitary Business	68	(5)
2.3.2 The Internal and External Consistency Tests	73	(2)
2.3.3 The Non-Discrimination Test	75	(3)
2.3.4 Commerce Clause Restraints on the Use of Tax Incentives	78	(3)
3. The Role of the Political Process in the Field of Business Taxation	81	(11)
3.1 The Federal Political Process: Congress	81	(5)
3.2 The Subfederal Political Process: The States	86	(2)
3.3 Federal Goals and Political Malfunctions: Identifying the Problems	88	(4)
4. Federal Goals and Institutions: the Importance of Comparative Institutional Analysis in the Framework of the Commerce Clause	92	(10)
4.1 Introduction	92	(2)
4.2 Deficiencies in Theories Based on Congressional Action	94	(3)
4.3 Deficiencies in Theories Based on Negotiations Between the States	97	(2)
4.4 Deficiencies in Theories Based on Judicial Activism	99	(3)
5. Conclusion	102	(3)
Chapter 4: The Legislative Processes in the EC Regarding Corporate Tax Harmonization: Malfunctions and Institutional Disabilities	105	(66)
1. Introduction	105	(1)
Part I: The EC Commission's Policy in the Field of Corporate Taxation	106	(41)
2. Introduction	106	(1)
3. Identification of the Relationship Between Corporate Taxation and the Concept of Common Market: from the Treaty of Rome to the Early 1970's	107	(8)
3.1 The Report of the Fiscal and Financial Committe ('Neumark Report')	107	(2)
3.2 The Program for the Harmonization of Direct Taxation	109	(2)
3.3 The Van den Tempel Report	111	(1)
3.4 First Period: an Assessment	112	(3)
4. New Characteristics of the Corporate Tax Harmonization Process: Corporate Tax as Necessary Adjunct to the Economic and Monetary Union and Financial Resource of the Community Budget	115	(10)
4.1 Introduction	115	(1)
4.2 The Council's Resolution on Economic and Monetary Union	116	(1)
4.3 Proposal for a Council Directive on Harmonizing Corporation Systems and Arrangements for Withholding Taxes on Dividends	116	(2)
4.4 Proposal for a Directive on the Elimination of Double Taxation in Connection with the Adjustment of Transfers of Profits Between Associated Companies	118	(1)
4.5 Mutual Assistance Directive	119	(1)
4.6 Perspectives for Financing the Community Budget	120	(1)
4.7 Report from the Commission to the Council of 20 March 1980 on the Scope for Convergence of Tax Systems in the Community ('Burke Report')	120	(2)
4.8 Second Period: The Commission's Centralist Approach to Company Taxation	122	(3)
5. The New Commission's Policy on Corporate Taxation: from the White Paper on the Single Market to the Ruding Report and its Aftermath	125	(22)
5.1 Introduction	125	(1)
5.2 The White Paper on the Single Market ('Cockfield Report')	125	(2)
5.3 The Communication from the Commission to the Council and the European Parliament on 'Guidelines on Company Taxation	127	(2)
5.4 The 'Mergers' and the 'Parent-Subsidiary' Directives	129	(2)
5.5 The Arbitration Convention	130	(1)
5.6 The Report of the Committee of Independent Experts on Experts on Company Taxation ('Ruding Report')	131	(3)
5.7 The Commission's Reaction: the Communication to the Council and the Parliament Subsequent to the Ruding Report	134	(2)
5.8 The Council's Reaction: the Conclusions of the ECOFIN of 23 November 1992	136	(1)
5.9 The European Parliament's Reaction: the 'Cox Report	136	(1)
5.10 Some Comments on the Commission's Approach to Corporate Taxation in the Early 1990's	137	(5)
5.11 Recent Trends on Company Taxation at EC Level: the Tow Monti Reports	142	(4)
5.12 Conclusion	146	(1)
Part II: The Limits of the EC Legislative Process	147	(24)
6. Introduction	147	(1)
7. The National Legislative Process: Political Malfunctions Causing Deviations from EC Goals	148	(5)
7.1 Discrimination in Member States' Company Tax Legislation	148	(3)
7.2 Company Tax Incentives Causing Negative Externalities to Other Member States	151	(2)
7.3 Who Should Deal With Legislative Malfunctions in the Member States' Legislative Process that Lead to Distortions to the Concept of Common Market?	153	(1)
8. The EC Legislative Process	153	(12)
8.1 The Perfect Legislative Process: Absence of Political Malfunctions	153	(2)
8.2 Political Malfunctions 1: the Commission Level	155	(6)
8.3 Political Malfunctions 2: the Council Level	161	(4)
9. Legal Constraints on Action by the EC Legislature: the Limited Relevance of the Subsidiarity Principle in the Field of Company Taxation	165	(3)
10. The Importance of Undertaking an Institutional Comparative Analysis in the Field of Company Taxation	168	(3)
Chapter 5: Other Forms of Legislative Process: 'Intergovernmental Co-Operation' in the EC	171	(34)
1. Introduction: Tax Treaties in the EC Context	171	(2)
2. Bilateral Tax Treaties (DTCs)	173	(23)
2.1 History and Reasons for the Existence of DTCs	174	(1)
2.2 Funcional Problems of DTCs	175	(1)
2.2.1 The Special Nature of DTCs	175	(1)
2.2.2 Interpretation and Qualification under DTCs	176	(4)
2.2.3 Resolution of Disputes in the Context of DTCs	180	(2)
2.3 Legal Problems of DTCs: Special Reference to the Non-Discrimination Principle	182	(1)
2.3.1 General Considerations	182	(4)
2.3.2 The Nationality Clause	186	(3)
2.3.3 The Permanent Establishment Clause	189	(4)
2.3.4 The Deductibility Clause	193	(1)
2.3.5 The Ownership Clause	194	(1)
2.4 Conclusion on DTCs	195	(1)
3. Multilateral Tax Treaties (MTCs)	196	(7)
3.1 The Arbitration Convention	197	(4)
3.2 Are MTCs Likely to Overcome the Difficulties that Are Present in the EC Legislative Process?	201	(2)
4. Conclusion on DTCs and MTCs	203	(2)
Chapter 6: Negative Integration and Direct Application of the EC Treaty: the Role of the European Court of Justice in the Field of Company Taxation	205	(94)
1. Introduction	205	(3)
2. The Principle of Non-discrimination in the EC Treaty	208	(1)
3. Free Movement of Goods	209	(7)
3.1 Concept of Free Movement of Goods	209	(1)
3.2 Quantitative Restrictions on Imports and Exports and Measures Having an Equivalent Effect: Concept and Exceptions	210	(4)
3.3 Free Movement of Goods and Direct Taxation	214	(1)
3.3.1 Commission v. France (advantages for the press) Case	214	(1)
3.3.2 Krantz Case	215	(1)
4. Free Movement of Persons	216	(29)
4.1 Free Movement of Workers	216	(1)
4.2 Freedom of Establishment	217	(1)
4.3 Common Principles Applicable to the Free Movement of Workers and Freedom of Establishment	218	(1)
4.3.1 Beyond Non-Discrimination	218	(1)
4.3.2 Prohibition of Restrictions by the State of Origin	219	(1)
4.3.3 Exceptions to Free Movement of Workers and Freedom of Establishment	220	(1)
4.4 Free Movement of Persons and Direct Taxation	221	(1)
4.4.1 Avoir Fiscal Case	221	(2)
4.4.2 Daily Mail Case	223	(2)
4.4.3 Biehl Case	225	(1)
4.4.5 Bachmann Case	226	(3)
4.4.6 Werner Case	229	(1)
4.4.7 Commerzbank Case	229	(2)
4.4.8 Halliburton Case: an Indirect Tax Case Relevant for the Interpretation of the Freedom of Establisment	231	(1)
4.4.9 Schumacker Case	232	(2)
4.4.10 Wielockx Case	234	(1)
4.4.11 Asscher Case	235	(3)
4.4.12 Futura Participations Case	238	(3)
4.4.13 Gilly Case	241	(4)
5. Free Provision of Services	245	(5)
5.1 Safir Case	247	(3)
6. Free Movement of Capital and Payments	250	(4)
6.1 Free Movement of Payments	251	(1)
6.2 Free Movement of Capital	252	(1)
6.3 Limits to Free Movement of Capital and Payments	252	(1)
6.4 Direct Taxation in the Light of the Jurisprudence on Free Movement of Capital: Van Eycke v. Aspa	253	(1)
7. State Aids	254	(4)
7.1 State Aid and Direct Taxation	256	(1)
7.1.1 France v. Commission Case	256	(1)
7.1.2 Banco de Credito Industrial SA, now Banco Exterior de Espana SA v. Ayuntamiento de Valencia Case	257	(1)
8. What the Court Has Done: an Overview	258	(3)
9. The Relative Ability of the Court	261	(38)
9.1 The Slow, Costly and Passive Judicial Process	262	(8)
9.2 Bias in the Judiciary, Problems of Competence and Risk of Judicial Mistakes	270	(8)
9.3 What Judges Are Good At: Reactions to Judicial Malfunctions and Comparison with the EC Judiciary-EC Legislative Process	278	(7)
9.4 Judges as Legislators: Problems of Legitimacy	285	(14)
Chapter 7: Further Consequences of Negative Integration: the Role of 'Soft-Law' in the Context of the Commission's Tax Policy	299	(24)
1. Introduction	299	(1)
2. The Role of Soft-Law in the New Commission's Company Tax Policy	299	(3)
3. The 'Paradox of Soft-Law': from Non-legislation to Legislation Through the Back Door	302	(7)
4. Negative Integration, Soft-Law and General Tax Incentives	309	(14)
4.1 State Aids, Soft-Law and General Tax Incentives	310	(5)
4.2 Soft-Law, Tax Degradation and Negative Externalities	315	(8)
Chapter 8: Summary and Conclusions	323	(8)
1. Final Conclusion	323	(1)
2. Proposition 1	323	(3)
2.1 Corollary 1	324	(1)
2.2 Corollary 2	324	(1)
2.3 Corollary 3	325	(1)
2.4 Corollary 4	325	(1)
2.5 Corollary 5	325	(1)
3. Proposition 2	326	(5)
3.1 Corollary 1	326	(1)
3.2 Corollary 2	327	(1)
3.3 Corollary 3	327	(1)
3.4 Corollary 4	328	(1)
3.5 Corollary 5	328	(1)
3.6 Conclusion	328	(3)
Bibliography	331	(22)
Alphabetical Table of Cases	353	(10)
Chronological Tables of Cases	363	(14)
Index	377