Part 1 - AL-Tax

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