Part 1 - AL-Tax
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Part 1 - AL-Tax

Part 1 - AL-Tax Part 1 - AL-Tax

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Chapter 94. Group relief, according to which tax losses and other qualified tax attributesmay be surrendered by one member of a group to another member ofthe same group.9.4.3 The third level: From tax models to domestic tax mechanismsThe third level of comparative analysis deals with the evolution of domestic corporatetax mechanisms in various EU countries. There is evolution of a tax mechanismif, at any given time, one or more of its elements are modified in respect toa previous arrangement of the same tax mechanism.In order to deal with the third level, we introduce a methodological tool, whichwill be applied in section 9.5. 12 Let us thus start with the three basic processes forcorporate tax evolution:1. Intra-system evolution.2. EU inter-system transplantation.3. EU inter-system evolution.Intra-system evolution takes place when an element of a corporate tax mechanismis modified within a single EU country if such an element is innovative,namely if it serves a new function in respect of the previous arrangement.EU inter-system transplantation occurs between different EU countries when anelement of a corporate tax mechanism modified within country A has a commonorigin with respect to the same element found in a tax mechanism of country B. 13EU inter-system evolution occurs between different EU countries when an elementof a tax mechanism in country A has the same function as the element of the similartax mechanism in country B, without actually being transplanted. In such acase, the elements have a common function but not a common origin and there isinnovation of the tax mechanism of country B which does not amount to importationof this element. 14In the EU, corporate tax mechanisms do not change exclusively throughdomestic internal processes (intra-system evolution); They also do so throughimportation of tax mechanism elements (EU inter-system transplant) as well aslegal innovations inspired by foreign tax mechanisms (EU inter-system evolution).In the latter two cases, we therefore have the circulation of models. The outcomesof such circulation can be summarized as follows:●●●Full tax convergencePartial tax convergence (divergence)Full tax divergence.223

International Taxation HandbookFull tax convergence entails that the development of new corporate tax mechanismsis blocked in EU countries, while the generally adopted tax model prevailsand generates very similar tax mechanisms, which do not have majordifferences from the initial tax model. We will show that full convergence is limitedonly to specific areas covered by EU tax Directives.Partial tax convergence can occur at the level of either (i) corporate tax mechanismsor (ii) corporate tax models. At the level of corporate tax mechanisms,partial EU tax convergence entails that while the tax models are common, domestictax mechanisms compete over certain specific features of such a model – forexample, a certain domestic tax mechanism of participation exemption may bemore attractive than another in respect to exemption requirements. 15Finally, full tax divergence occurs mainly at the level of corporate tax modelsand entails the predominance of a given corporate tax model over all others: Atypical example is the widespread diffusion of tax havens, which have radicallydifferent corporate tax features from other countries. However, we can say thatfull tax divergence of corporate tax models does not occur, at least among theEU-15 countries, since their models belong to the same tax family.9.5 Tax coordination from the bottom: Convergenceand circulation of tax modelsIn this section we focus on the four basic tax problems listed above (tax treatment ofcorporate distributions, limitation of deductions on interest, tax treatment of corporatereorganizations, and consolidated corporate taxation), and show how circulationof models has modified tax systems and can enhance coordination from the bottom.For tax treatment of corporate distributions, we can say that over the last decadeinter-system legal transplants (and therefore circulation of models), within theEU-15 group, has led to the coexistence of the classical system, the imputationsystem, and the participation exemption. In particular, the imputation systemwas originally widespread in the EU-15 as a result of previous intra-system evolutionbased on domestic change of imputation tax mechanisms (showing relevantvariations). Currently, EU-15 countries (except Spain and the UK, whichstill adopt the imputation system) adopt (see Table 9.3):1. The classical system (in an unmodified or modified form) for individualand portfolio corporate shareholders, generally providing ‘rough andready’ relief of double taxation.2. Participation exemption for corporate shareholders.224

Chapter 94. Group relief, according to which tax losses and other qualified tax attributesmay be surrendered by one member of a group to another member ofthe same group.9.4.3 The third level: From tax models to domestic tax mechanismsThe third level of comparative analysis deals with the evolution of domestic corporatetax mechanisms in various EU countries. There is evolution of a tax mechanismif, at any given time, one or more of its elements are modified in respect toa previous arrangement of the same tax mechanism.In order to deal with the third level, we introduce a methodological tool, whichwill be applied in section 9.5. 12 Let us thus start with the three basic processes forcorporate tax evolution:1. Intra-system evolution.2. EU inter-system transplantation.3. EU inter-system evolution.Intra-system evolution takes place when an element of a corporate tax mechanismis modified within a single EU country if such an element is innovative,namely if it serves a new function in respect of the previous arrangement.EU inter-system transplantation occurs between different EU countries when anelement of a corporate tax mechanism modified within country A has a commonorigin with respect to the same element found in a tax mechanism of country B. 13EU inter-system evolution occurs between different EU countries when an elementof a tax mechanism in country A has the same function as the element of the similartax mechanism in country B, without actually being transplanted. In such acase, the elements have a common function but not a common origin and there isinnovation of the tax mechanism of country B which does not amount to importationof this element. 14In the EU, corporate tax mechanisms do not change exclusively throughdomestic internal processes (intra-system evolution); They also do so throughimportation of tax mechanism elements (EU inter-system transplant) as well aslegal innovations inspired by foreign tax mechanisms (EU inter-system evolution).In the latter two cases, we therefore have the circulation of models. The outcomesof such circulation can be summarized as follows:●●●Full tax convergence<strong>Part</strong>ial tax convergence (divergence)Full tax divergence.223

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