Most often, harmonization in the fiscal field concerned indirect taxation, and was aimed at assuring that national tax system do not interfere with the freedom of movement of goods, services, persons and capitals. There is no need to harmonize most part of direct taxation rules, as they are strictly enforceable the EU member states and they are thus an attribute of these states sovereignty. In the field of direct taxation, the community acquis mainly concerns the profit (company) tax and the capital tax and less the natural persons income tax.direct taxation, taxation system, harmonization

Narcis Eduard MITU

English

Research Papers in Economics

1407 
 
DIRECT TAXATION – DIRECTIONS OF HARMONIZATION 
NARCIS EDUARD MITU 
 
Narcis Eduard MITU, Lecturer, PhD. 
University of Craiova 
 
Keywords: direct taxation, taxation system, harmonization. 
 
Abstract: Most often, harmonization in the fiscal field concerned indirect taxation, and was 
aimed at assuring that national tax system do not interfere with the freedom of movement of 
goods, services, persons and capitals. There is no need to harmonize most part of direct taxation 
rules, as they are strictly enforceable the EU member states and they are thus an attribute of 
these states sovereignty. In the field of direct taxation, the community acquis mainly concerns 
the profit (company) tax and the capital tax and less the natural persons income tax.  
 
Introduction 
The belonging to the unique European market also involves, without discussion, 
harmonizing practices in several fields of general interest, among which it is the fiscal 
one. Generally, taxation harmonizing is induced by the necessity that national tax 
systems wouldn't harm the fourth liberties subscribed in the Treaty regarding the 
constitution of European Community: free circulation of goods; free circulation of 
services, of people and of stocks.  
Among the specialists, when it comes to harmonizing in the tax field, it is more 
often talked about indirect taxes. But there are some things to be said also in the field of 
direct taxes. If indirect taxation contorts many times the free circulation of goods and 
free practice of services, requiring a high grade of harmonization, it doesn't happen the 
same with direct taxation. To the highest degree it is not necessary to harmonize direct 
taxing, this one being applicable strictly inside of each state member of the European 
Union. Consequently, the main majority of the regulations regarding direct taxing is to 
be considered appropriate entirely by each state, since they are an attribute of their 
sovereignity.  
Community acquis in the field of direct taxation aims in the main the tax on profit 
(for companies) and the tax on stock, but for the tax on the incomes of natural persons. 
  What was accomplished in the field of harmonizing direct taxation 
  At the level of European Union, in what concerns harmonizing of direct taxes, 
there have been aimed the followings: creating a common system of taxing applicable 
to the suppliers, scissions, cessions of actives and stocks shares among the companies 
which belong to different states members of EU; creating a common system of taxing 
of the profits between branches and mother-company; creating a common system of 
taxing applicable to the payment of interests and equities among the affiliated persons. 
  The first directive in the field of direct taxation was „Directive no. 90/434/CEE 
regarding a common system of taxing applicable to the merges, scissions, cession of 
actives and changes of shares among companies belonging to different states members 
of the EU”, known under the name of „Merges Directive” 
  In the introduction of the Directive it is justified the necessity of adopting from the 
which to ensure a fair assessment of the operations of merging, scission, cession of 
actives and share transfer, either these operations occur within a single member state, 
either within two member states.  1408 
  According to the mentioned provision, a merge or a scission won't determine the 
taxing on the share of stock calculated as the difference between the real value of the 
elements of active and passive and their tax value
. By tax value it is understand the 
value on which basis would be calculated the profit or the loss in order to establish the 
tax on profit, of the profits or stock shares of the cedent company, if these actives and 
passives would have been sold in the moment of merge or scission, but independently 
of this. 
  In Romania, the provisions regarding merges have been implemented by the Law 
no. 571/2003 with the subsequent ammendments and additions, art.27 
„Reorganizations, dissolutions and other transfers of actives and participating titles.” 
  The second directive in the field of direct taxation was „Directive 90/435/CEE 
regarding a common system of taxing applicable to the mother-companies and 
branches”. The status of „mother company” it is attributed to any company of a member 
state which has minimum 20% from the stock of a company from another member 
state. Known under the name of „Directive regarding branches”, it suffered only an 
amendment, in 2003. The directive is applied in each member state in the case of 
assignment of the profits received by the companies from that state, which came from 
their branches from other member states, as well as of the assignment of the profits by 
the companies from that state to companies from other member states, to which they 
belong as a branch.  
  This directive does not locks the application of the internal dispositions or of those 
which are based on necessary agreements in order to prevent fraud or abuse, the 
purpose being to eliminate completely the double assessment in the case of distributing 
the profits from a branch to the mother-company. So, when a branch distributes profits 
to the mother-company, other than on the occasion of its dissolution, the state where 
they found the company either does not assess these profits, either it assesses them 
authorizing at the same time the mother-company to deduce from the owed tax that 
share of the tax on company which is paid by the branch. Also, the profits assigned by 
the branches to the mother-company are free from taxes with deduction to the source (it 
is about other taxes than the tax on profit; respectively of taxes with retention to the 
source, as are the taxes on equities), and the state to which the mother company-belongs 
cannot levy taxes with deduction to the source for the profits received from the branch.  
 On  the  3
rd of June there was adopted a new directive in the field of direct taxation, 
respectively Directive 2003/49/CE regarding a common system of taxation applicable 
to payment of interests and equities among the affiliated companies belonging to 
different member states. The purpose is that to ensure that the interests and tributes paid 
among affiliated companies are taxed only once in a member state, the basic ideea 
being to eliminate the taxing on source the payments of interests and tributes made 
among the affiliated companies.  
  Consequently, the payments of interests and tributes must be exempted by the taxes 
imposed in the source state (the source state represents the state where is the company 
who makes the payments) on the condition that their benefficiary would be a company 
in another member state or a permanent headquarter of a company located in another 
member state. These provisions are applied only if the payments occur between two 
affiliated companies. The member states are also allowed not to apply the provisions of 
this directive if the condition regarding the status of the affiliated company is not 
maintained for an uninterrupted period of at least two years.  1409 
  In order to receive the exemption the source state can pretend to prove the 
accomplishment of the conditions regarding the status of the affiliated company through 
a certificate. In at most three months since the presentment of the certificate, the source 
state must decide regarding to giving the exemption which can refer to a period of at 
least one year, but not more than three years on the grounds of the same certificate.  In 
case the company who is paying the interest or the royalties has kept the tax of which it 
was exempted to the source, it can require its reimbursement within a period of 
maximum 2 years since the payment of the interest or of the reimbursement. The source 
state is obliged to reimburse this tax within a term of one year since the date when it 
was filed. If the state doesn't reimburse this tax within a term of one year, the company 
who paid has the right to calculate and ask for the interest for the amount they didn't 
received, the interest calculated at the level of the interest rate applicable in similar 
situations according to the national legislation.  
Romania is authorized not to apply to the disposition of article 1 from the Directive 
2003/49/CE until 31
st of December 2010. During this period of transition, the quota of 
the payments of interest or royalties to an associate company from another member 
state or to a permanent headquarter of an associate company from a member state must 
not exceed 10%. 
 
What is it wished to realise in the field of direct taxation 
A recent study realized by KPMG International shows that a big part of the 
companies from the European Union whish an unique for the calculation of the tax on 
profit. To this study took part financial managers, directors and managers from the tax 
field of over 400 companies, including some of the biggest companies from all 27 states 
members of EU and Switzerland. It is stressed the fact that an important number of 
specialists in the field of taxes and rates sustain the proposal of the European 
Commission for a sole calculation formula of the taxing basis of the profit applied to an 
European level.  
Table 1 
The support of the idea of harmonizing the taxes to a European level, according to 
industrial sector (percent) 
Economic field  Answer (%) 
YES  NO  I DON'T KNOW 
Services for business  73  25  2 
Services for consumers  81  15  4 
Financial services  79  12  9 
Industrial production  81  12  7 
IT 67  25  8 
Manufacturing industry  73  15  12 
Extractive/utilities   81  10  9 
Real estate/transport  76  21  3 
Other 77  23  - 
 78% 16% 6% 
Source: KPMG International 
 
The system proposed by the Commission, under the name of Common 
Consolidated Corporate Tax Base (CCCTB) is to be applied in parallel with calculation 1410 
methods existent in each member state, the companies being able to choose to adopt the 
pan-European system or to apply herein after the national rules. The Commission hopes 
that the new system to be ready until 2010, but the great majority of the participants to 
the opinion survey see that the date when it is going to be applied is the year 2015.  
The companies which are going to use the sole formula valid in Europe will 
calculate the total of the profits obtained all over the European Union territory and then 
they will reallocate to the countries where the companies have economic activity, in 
order to be taxed with the quota of tax on profit applicable in that countries. Such an 
amendment would facilitate the administration of the payment of the tax on profit owed 
by the companies which operate in EU, because the taxing basis would be calculated 
using an unique method and not separately as it is calculated in the present for each 
country.  
The idea is supported by the tax professionists in Romania, of which 90% 
supported the proposal of the European Commission, comparatively with 78% from the 
total of professionists in EU. The respondents from the Czech Republic, Denmark and 
Spain were the most enthusiasts, 100% of them supporting the initiative. In Italy 96% 
were in favour of the proposal, while in Greece, Luxembourg, Poland, Slovenia and 
Sweden there was recorded a support of 90%. The proposal was supported by 84% of 
the respondents in Germany and 80% in Austria, Finland, Hungary and Portugal. 
Among one of the most skeptical countries was Great Britain with a support of only 
62% for the Commission’s plans, while Ireland and Slovakia 50% of the respondents 
opposed.  
It is good to mention the fact that the proposal of the European Commission does 
not support the introduction of a sole quota of tax on profit at the level of European 
Union, but 69% of the respondents said that above a basis of a sole quota of tax on 
profit would like to have also a sole quota of tax on profit for the entire Europe.   
Only in England, Cyprus, Ireland, Poland and Switzerland the majority of the 
respondents were against of a sole quota of tax on profit. In Denmark the answers pro 
and against were distributed equally, but in all the other countries there was recorded a 
strong support of this idea.  
It can be drawn the conclusion that still the introduction of a sole quota of tax on 
profit to the level of European Union would be a controversial and probably would be 
denied by the wide public from many states members of the European Union. It would 
also be very difficult to be implemented from political point of view.  
A sole quota of tax on profit to the EU level would also have negative implications 
for many new member states of EU, among which Romania too, which have a more 
relaxed taxation at the level of trading companies (16%), this thing being precisely the 
attraction element for the foreign investments. Harmonizing with other states members 
of the EU would mean an important raise of the taxing quota and possibly coming back 
to a progressive system, which would generate a strong opposition from the government 
and of the investors. Consequently, introducing a sole quota of the tax on profit to the 
EU level, at least in the current conjuncture, cannot be viable.  
Still, the proposal of the EU Commission for a sole basis of taxable profit to the 
level of the whole EU, subsequently giving to the national governments the freedom to 
establish their own quota of tax on profit, it is pragmatic and reasonable. This thing 
would simplify the taxation of the profits of the companies which develop activities on 
EU territory, without affecting the competition or to restrict the freedom of national 
governments to establish by themselves tax quotas which they consider appropriate. 1411 
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A Minimum Corporate Tax Rate

A Pure Theory of Local Expenditures”,

Company tax coordination cum tax rate competition in the European Union”, FinanzArchiv: Public Finance Analysis,

Die Gebührengesellschaft.

Eastern European Integration and Tax Competition”, Wirtschafts Universităt Wien, Discussion Paper nr.26,

Efficient taxation of multinational enterprises in the European Union,

Empirical asymmetries in foreign direct investment”,

Europeanising Company Taxation - Regaining ational Tax Policy Autonomy” Friedrich Ebert Stiftung, International Policy Analysis,

Fiscalitate comparată şi armonizări fiscale”, Casa Cărţii de Ştiinţă Publishing house, Cluj-Napoca;

Harmful Tax Competition?”,

Public Spending in the 20th Century”,

Tax Competition and Tax Revenues”, Kiel Working Paper No.

Tax coordination and tax competition in the European Union: evaluating

Tax coordination in the European Union: What are the issues?”,

Taxation and Economic Performance,” Organisation for Economic Co-operation and Development, Economics Department, Working Paper

The Benefits of Tax Competition” The Institute of Economic Affairs, Hobart Paper 153;

The Correlation Between Fiscality Rate, GDP and Tax Incomes. Case Study Romania and Turkey”,

The Economics of Tax Competition: Harmonization vs.

Who’s afraid of tax competition? Harmless tax competition from the New European Member States”, CEPII, Working Paper no.2006-11,

Direct Taxation - Directions of Harmonization

Direct Taxation - Directions of Harmonization

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