Part 1 - AL-Tax

International Taxation HandbookIn the past, EU corporate tax systems have evolved through domestic policy,while now EU corporate tax systems have tended to evolve by means of a morerapid international circulation of models. At this stage, therefore, such a circulationis a major feature of the current evolution of EU corporate tax systems.Existing EU corporate tax mechanisms apparently vary greatly and are the resultof complex evolutionary processes. This would suggest a lack of coordination.However, we have shown that there is widespread inter-system legal transplantationwith partial convergence of corporate tax models. Moreover, the areas coveredby EU Directives are characterized by full tax convergence. In such a context, evolutionarypressures indicate that the procedure of reinforced cooperation could besuitable to foster partial convergence, leading to the introduction of the HSTmodel, which could represent a solution to the four basic problems outlined in section9.4 (tax treatment of corporate distributions, limitation of deductions on interest,tax treatment of corporate reorganizations, consolidated corporate taxation). Aspointed out, there would be no need to harmonize nominal rates or rules on the taxablebase, especially with the constant convergence of effective corporate tax rates.In the next future, one of the tasks of domestic policymakers is to assess evolutionarypressures, rather than to impose isolated domestic solutions that mightbe ineffective or even lead to tax discrimination. At the same time, the EU isfaced with the task of finding a practical approach to make European corporationtax applicable.AcknowledgmentsWe would like to thank Francesco Cohen and Elena Iscandri for helpful researchassistance.Notes1. Estonia must change its tax regime to comply with the EU standards imposed by theParent–Subsidiary Directive by December 2008.2. It is worth noting that this ‘race to the bottom’ has also involved many non-EU Eastern Europeancountries. Following the example of the Baltic countries, Serbia (with a 14% tax rate), Romania(16%), Georgia (12%), and Russia (13%) introduced flat tax rates. For further details, seeMitchell (2005).3. Other factors (such as the so-called ‘treasury transfer effect’ and the taxation of country-specificrents) are surveyed by Zodrow (2006).4. After the German elections, the new ruling coalition is still looking for a financial solution toimplement tax cuts.234