Part 1 - AL-Tax

International Taxation Handbookgroup taxation. Firstly, seven countries do not provide any group relief. Secondly,participation thresholds range from 50% to 95%. 18 Thirdly, only three countries(Denmark, France, and Italy) provide trans-border tax consolidation. 199.6 Coordination from the top and from the bottom:A feasible meeting pointQuite interestingly, the current situation reveals, on the one hand, a fairly partialconvergence of models, and on the other a full convergence of common core taxproblems. For this reason, we think there is room for further coordination, at leastin terms of tax consolidation. However, there are several elements of the consolidationmodel that need to be addressed in order to improve convergence:(a) Domestic tax consolidation; (b) Trans-national elements of domestic tax consolidation(including relief of double taxation on income of the resident-controllingcompany and nonresident-controlled companies); (c) Effects of the exercise ofelection 20 and reporting requirements for entities participating in tax consolidation;(d) Interruption of domestic tax consolidation; (e) Tax liability of controllingand controlled companies.Convergence of these structural elements of domestic consolidation rules(either by legal transplants or by inter-system evolution of similar effective rules)is a prerequisite for multilateral reciprocity. If this happens, then there is roomfor reinforced cooperation, in line with the Treaty of Nice. In particular, multilateralreciprocity and reinforced cooperation could lead to the implementation ofthe Home State Taxation (HST) model, proposed by the Commission of theEuropean Communities in the Communication COM (2001) 582 final. 21 UnderHST, the member states (or even only a subgroup of these) would agree that corporationsoperating in the EU could calculate their income according to the lawsin which their parent company is located. This system would be voluntary andwould also allow the individual states to set their own tax rate (for further detailson the HST proposal, see, for instance, Lodin and Gammie, 2001).We are aware that the high flexibility of HST may be its Achilles’ heel in at leastfour respects (for further details on EU corporate taxation, see Martens-Weiner,2006). Firstly, the Commission itself noted that with the lack of a central authority,HST requires that countries agree about the control system to use for companiesoperating in more than one state. Secondly, applying HST could favor large corporationsthat operate in more than one state. 22 Thirdly, HST would risk reducing controlover the taxpayer with the probable negative effect of reducing EU revenue. 23232