Corporate tax reform in the European Union: are the stars finally aligned?

Abstract

Abstract Are the stars finally aligned as far as corporate tax reform in the European Union (EU) is concerned? Tax reform in the EU has always been a contentious issue, as taxation was always considered one of the last bastions of national sovereignty. This article examines whether this is still the case or whether, in light of recent initiatives and proposals in this area, conditions are now ripe for comprehensive reform. The article begins by reviewing the historical trajectory of EU corporate tax law. It is shown that whilst early harmonization proposals were very ambitious, the overall constitutional set-up and the fiscal veto were not conducive to comprehensive reform. What followed these early initiatives was an era of pragmatism and slow progress, which, nevertheless, laid the foundations for important developments. Apart from the ad hoc legislative tax instruments that were agreed upon in the last 30 years to further the internal market and remove obstacles to cross-border movement, this article focused on the Commission’s ongoing work on a common tax base and consolidation, as well as other recent legislative initiatives such as the now enacted Directive on a Minimum Effective Tax Rate and the Unshell proposal. In light of these crucial developments, with all their strengths and weaknesses, it is argued that what was once considered as far too ambitious a proposal indicative of a federal Europe, now has high chances of materializing in the context of the BEFIT initiative (Business in Europe: Framework for Income Taxation). This is to be welcomed, as it is the next organic step to take in the process of EU integration. Whilst the stars may not yet be fully aligned, it is argued that what is needed at this point in time, is a change of mindset and a realization that Member States’ tax sovereignty has long been eroded.