2 research outputs found
Efficient taxation of multi-national enterprises in the European Union. Bruges European Economic Policy (BEEP) Briefing 5/2003
Current arrangements for multi-national company taxation in EU are plagued by severe
conceptual and administrative problems, leading to high compliance costs, considerable
uncertainty and ample room for abuse. Integration is amplifying these difficulties.
There are two possible approaches in designing an efficient trans-border corporate tax
system for the European Union. The first is to consolidate the EU-wide operations of
MNEs, using an agreed common base as the reference variable, and then to apportion
this total tax base using some presumptive indicators of activity in each tax jurisdiction
– hence, implicitly, of the likely benefits stemming from each location. The
apportionment formula should respect requisites of neutrality between productive
factors and forms of corporate financing.
A radically different approach is also available that offers considerable advantages in
terms of efficiency, simplicity and decentralisation, including full administrative
autonomy of national tax authorities. It entails abandoning corporate income as the
relevant tax base and taxing at a moderate rate some agreed measure of business activity
such as company value added, sales or employment. These are the variables usually
considered in formula apportionment, but they would apply directly without having first
to go through the complications of EU-wide consolidation based on a common-base
definition. Reference to a broad base, with no exemptions or deductions, would allow to
set low statutory rates