Reform and Coordination of Company Taxes in the European Union

Abstract

In 1992, the Ruding Committee (1992), appointed by the European Commission to examine the need for company tax (CT) harmonization in the European Union (EU), presented its findings and recommendations.1 Although the Committee concluded that differences in CTs distort the workings of the internal market — differences which most likely would not be eliminated by market forces or tax competition — it nonetheless proposed to leave the CTs in the EU essentially the same as it had found them, replete with their widely diverging domestic and cross-border treatment of different kinds of returns and different kinds of recipients of the various returns. As argued below, however, differential treatment will perpetuate the distortions inherent in the current CTs and erode the taxing authority of source states. A minimum statutory CT rate of 30 per cent, proposed by the Ruding Committee, and the adoption of the (draft) directives of the European Commission2 are insufficient to repair the infringements of the neutrality and subsidiarity requirements, as applied to taxation, agreed to by the member states. More fundamental reform seems called for. Moreover, CT reform in the member states is a condition for CT coordination between the member states.