Part 1 - AL-Tax

Chapter 8and tax authorities. In addition, the proposal leaves untouched tax rates and hencetax competition – or possibly even reinforces it by making the tax base moretransparent.Ideally, designing a common consolidated corporate tax base offers the possibilityto rethink the way we tax companies. Current systems in place in theEuropean Union often lack desirable features. It is important that the EuropeanUnion reflects on sound economic principles, such as neutrality across investorsand sources of financing, equity across firms, simplicity, enforceability, and stabilityof revenues (Gorter and de Mooij, 2001; European Commission, 2004b; CEPS,2005), and at the same time, reflect on how best to collect taxes (source-based versusresidence-based taxation) and how best to integrate corporate taxation with personalincome taxation. Obviously, there is as yet no obvious way to alleviate all distortions,since governments are faced with trade-offs in multiple dimensions. Thereare several alternative corporate tax systems with their merits and demerits (cashflowtaxation, Allowance for Corporate Equity, Comprehensive Business Income Tax,Dual Income Tax, etc.) which deserve to be debated (for a discussion, see Cnossen,2001; Devereux and Sørensen, 2005). The European Union may also want to reflecton profit-shifting issues, notably the size of the problem and possible remedies,such as thin capitalization rules (the CCCTB working group may start reviewingthe issue in early 2007).Finally, the European Union may also want to examine whether the absence ofbilateral tax treaties between some Member States creates double-taxation problemsand whether the current systems discriminate between domestic and nonresidentinvestors when dividends are paid. This could potentially lead to an EU modeltax convention or an EU multilateral treaty, which could also cover additionalissues that create tax barriers but are not reviewed in this article – for instance,the taxation of workers having activity in several countries. In any case, the EuropeanCommission has announced that it will issue a Communication in 2006 to explainits strategy in this field. And important as these issues may be, they should notovershadow the overriding goal: To bring the work on a common consolidated taxbase to fruition.AcknowledgmentsI thank Michel Aujean, Sophie Bland, Declan Costello, Marco Fantini, and Jean-Pierre De Laet for helpful comments. Remaining errors or omissions and the interpretationsare those of the author only.199