Is harmonization of corporate tax systems necessaryin the European Union? If needed, how to pursue it? That is the question thatEuropean policy makers have been trying to answer over a fifty-year-old debate.

1960s-1980sThe corporate tax system that is in place todaywas conceived during the first half of the twentieth century, at a time when mostcompanies were industrial and used to sell tangible products, as opposed to thevirtual ones that we are now interacting with every day. Therefore, thecorporate taxation system based on this premise has been adequate until the timeschanged CTO1 andthe global transformation process radically transformed the traditionalbusiness models.In fact, the debate on European fiscal integrationstarted in the 1960s, when there already were problems in the completion of theSingle Market.iSome studies carried out in this decade, suchas the Neumark Report of 1962, already stressed the necessity to achieve, atleast, a limited degree of harmonization of the corporate tax system.iiThe Commission followed this advice by making itsfirst attempts to introduce the problem with three different directives between1975 and 1985.

However, these were all withdrawn since the Member States, atthat time, were deeply reluctant on the issue.iii1990sIn 1990, a Committee of independent experts wasrequested by the European Commission to conduct a study on the Internal Market,in order to understand whether or not the differences in corporation tax causeddistortions. The Committee’s final conclusion was that distortions wereeffectively present in the European market, despite the fact that a positiveconvergence had started to be observed among the different Member States. The Committee insisted that the Member Statescould not solve the problem through different national approaches, but anaction was needed at a higher level instead.3 The main guidelines given by the Committee were:removing obstacles to cross-border business investment and shareholding,setting a minimum level for statutory corporation tax, creating a common set ofrules for a minimum tax base and encouraging transparency. The two focuses ofthe European Union should have been the corporation tax, to prevent taxevasion, and the suppression of the double taxation of cross-border incomeflows. However, it was not recommended to aim at a “total harmonization”framework, since it was considered a long-term objective to be reachedprogressively through intermediate steps.Therefore, in 1990, the Commission started totake measures.

Since it was impossible to make the existing initiativesadvance, a Communication proposed that every initiative should pass through aconsultative process among the Member States.ivThis premise let to the adoption of two directives and one convention: The MergerDirective, the Parent-Subsidiary Directive and the Arbitration Convention.The Merger Directive aimed to create a commontaxation system for mergers, divisions and reorganisations, in order toeliminate the fiscal barriers that impeded these operations for companiesplaced in different Member States.vThe Parent subsidiary directive, that was thenimproved in 2003, aimed to remove the fiscal obstacles for profit distributionsamong companies’ groups, especially “preventing double taxation of parentcompanies on the profits of their subsidiaries.”viThe Arbitration Convention was also establishedwith the aim of resolve controversies on double taxation.viiA second huge step was made in 1997 with theTax package and the Code of Conduct for business taxation. This initiative wouldallow every Member State that adopts it to remove the fiscal measures thatcreated harmful tax competition, making the countries work in parallel on thesame issue.

viii2000-2010In 2001, a Commission’s Communication on the coordination of directtaxation systems in the internal market was released, containing new plans for company taxation. Thecommunication restated the need to remove all fiscal barriers and to fightagainst the harmful tax competition. It also underlined the fact that, to doso, it is not necessary to adopt a full-harmonisation, but just an alignment,since each Member State must maintain its freedom to choose the tax system itretains most appropriate.ix Two years later, another Communication took stock of the 2001 announcedstrategy. It ensured that the strategy was being followed and contained theinitiatives that were being made to realize it. In particular, it includedproposals of a “Home State Taxation pilot scheme” that could be used by smalland medium companies to calculate their EU taxable profits based on their homestate taxation system. The companies using it would benefit from a deepreduction of tax compliance costs and a simplification of the taxable profitcalculation process.x In February 2005, the Commissionrelaunched the Lisbon Strategy in order to create better jobs.

The principalaim was to adapt the economy to the changes occurring both in the environmentand in the population. The political measures proposed concerned three areas:the innovation for growth, the improvement of Europe’s investing and workingattractiveness, and the creation of higher-quality and higher-quantity jobs.TheCommission also stressed the Member States to find financing for the creationof a prosperouscompetitionCTO2 , even though it had not been possible to find anagreement on financial perspectives for the immediate following years.

xi2011: The turning point – The Common Consolidated Corporate Tax Base It was finally in 2011 that theaction to concretely start to eliminate the obstacles impeding the achievementof the Single Market started to take place with the introduction of the CommonConsolidated Corporate Tax Base (CCCTB).xiiThis ambitious and revolutionary projectwas the culmination of a work that lasted more than ten years to develop. Itwas achieved with the collaboration of experts from national administrations,the business world, and companies’ associations. The CCCTB is a single set of commonrules created to calculate the tax base for companies in the EU. It would allowall European enterprises to respect a single regulation, instead of taking intoaccount 28 different schemes. However, the Member States’ power to apply theirown corporate tax rates would not be affected by the measure, which priorityaim is, instead, to make the national taxation systems more coherent. The CCCTB designed at that timewould have been optional and available for all societies in the European Union,regardless of the size of the company. The CCCTB would take into accountfor taxation the whole profit that a group creates in the EU.

After which, theconsolidated tax return would be distributed between the Member States in whichthe company operates, following an apportionment formula based on threefactors: fixed assets, labour costs, and sales. Unfortunately, the project wasperceived as too ambitious, and was therefore declined due to a lack ofunanimity of the Members’ States. However, the advantages that the projectwould bring to the companies in the EU has largely been recognized, and that iswhy a follow up took place in 2015.2015: The Action PlanIn June 2015, the Commissionadopted an “Action Plan on fair and efficient tax system in the EuropeanUnion”, which contained a reform initiative on the issue, in order to fightagainst fiscal evasion, to ensure durable profits, and to reinforce theinternal market.xiii After having restated that the top priorityfor the EU was the complete realization of the Single Market, it became clearthat a framework for the concrete completion of a fairer and more efficientcorporate taxation of profits could not be avoided any longer. Over the years, a situation ofgeneral discontent had been growing among the policy makers, the inhabitants,and the companies of the European Union. On the one hand, the lack of fairnessand the recurring profits shifting cases contributed to create public dissatisfaction,while on the other hand, the double taxation issue kept irritating thecompanies. The lack of coordination was consideredthe major obstacle in pursuing the realization of the Single Market.

It wasonly due to the non-unanimity among the Member States, which wanted to act intheir best interest, going to the detriment of global needs; and onlycontributed to increase the harmful and aggressive use of corporate taxsystems. This status quo, in addition with the opposed issue of double taxation,created an unbearable situation that had been taking place for many decades. Moreover, another major issueconcerning the tax competition was affecting the Member States, which werestressed by the strong tax competition. In fact, some countries graduallylowered their national corporate tax rates in order to raise their businessattractiveness. This, together with fiscal avoidance, led to a lower income forthe governments from profits taxation that some countries compensated throughan increase of tax burden on settled companies and on labour. This measurecompromised the efficiency of taxation system, as well as negatively impactingnot only on their growth, but also on work. In fact, a higher fiscal pressureresults in a disincentive for employment and investments.

Naturally, thecompanies that were not able to aggressively compete in tax planning wereundergoing many disadvantages.Therefore, the 2015 Action Planidentified five key areas or pillars to focus on:1.     Implementingand relaunching the CCCTB project, through a step-by-step initiative, in orderto reduce discontentment. The Commission also announced an importantinnovation, by making it mandatory instead of optional, at least formultinational companies;2.     Ensuring anequitable fiscalism at the place where profits are generated, meaning thatprofits need to be taxed where the value is effectively created;3.

     Creating abetter environment for business through measures aiming for the suppression offiscal obstacles in the Single Market, in order to make it become moreattractive for a company to expand in another country;4.     Improvingfiscal transparency to better fight against abuse and evasion;5.     Improvingthe coordination among the EU and optimize the existing ways of cooperation, asa first essential step to successfully address the fiscal avoidance and fiscalevasion issue.2016:The Corporate Tax Reform PackageIn September 2016, a Corporate Tax ReformPackage was published.

It obviously included the CCCTB, but proposals were alsomade on two different subjects.xivThe first one addresses the need todefinitively solve the double taxation issue, while the other tackles the waysto avoid asymmetries existing with third countries.As far as the CCCTB is concerned, the last stepthat hasbeen made so far was its relaunchCTO3 .This is planned to happen with a two phases process: first, the common base needsto be implemented, ata second time it will be consolidatedCTO4 .

In its definitive version, the CCCTB is mandatory(at least for the largest companies). It will focus on the supporting ofResearch and Development (R), as well as representing an encouragement tostable financing.2017: Fair and Efficient TaxSystem in the EU for the Digital Single marketReferring to the Introduction, the Commission published, in September 2017, acommunication on “A Fair and Efficient Tax System in the European Union forthe Digital Single Market.” This should be the basis for debate between MemberStates in order to grant, on the long-term, a fair and equitable tax on digitaleconomy, which represents one of the top 10 priorities of the work-programme ofthe Commission.

xvThemain difficulties on digital taxation for the policy makers lie in the choiceof the taxation place for a dematerialised economy. Three objectives guide thisapproach to digital economy: ensuring competitiveness of European companies,reinforcing the integrity of the Single Market, and granting the durability ofthis fiscal system.Theprinciples contained in the Communication are expected to be followed bylegislative proposal next Spring. Some other “faster” ways to act are alsomentioned, such as the adoption of specific tax on advertisement messages.


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