What Corporate Tax for Europe?

The European Commission is considering a common model of corporate taxation for the European Union that cannot possibly work. Instead, it should consider a simpler, and more viable, alternative that already exists.

Corporate income in the EU is currently taxed under widely divergent national rules, based on separate accounting (SA) of income earned in each country. Cross-border intra-company transactions are accounted for according to market prices for similar transactions – the so-called “arm’s-length principle” (ALP).

The system is complex, expensive to administer, and can result in double taxation because members usually do not allow full write-offs for losses and tax liabilities incurred abroad. It is also prone to tax evasion, owing to different definitions of corporate income in the member states and the vast opportunities for cheating offered by ALP (since reference market prices often do not exist), not to mention profit-shifting to low-tax jurisdictions.

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