tax competition in the european union
TRANSCRIPT
Tax Competition in the European Union
José Miguel Martín Rodríguez
Pablo de Olavide University (Spain)
Tax Competition in the European Union por Jose Miguel Martín Rodríguez
se distribuye bajo una Licencia Creative Commons Atribución-NoComercial 4.0 Internacional.
Main Topics
Tax Competition Vs. Tax Arbitrage
Cross-border Shopping
Harmful Tax Competition
State Aid
BEPS
Tax Competition (I)
• Kiekebeld (2006)
“Improving the relative competitive position ofone country vis -à-vis other countries byreducing the tax burden on business andindividuals in order to retain, gain o regainmobile economic activities and thecorresponding tax base, whether at the expenseof other countries or otherwise”.
Tax Competition (II)
• “of one country vis -à-vis other countries”
• It can appear at all levels of government / jurisdictions• There is also tax competition among regions and
municipalities if they have tax power.
• “reducing the tax burden”
• There are multiple forms of competition (legal framework, best services, infrastructureinvestment,)• i.e. Delaware
Tax Competition (III)
• “the tax burden on business and
individuals”
• i.e. Expatriates – Spanish football regime
• “in order to retain, gain o regain mobile economic activities and the corresponding tax base”
• Tax revenues may increase but there are otherpositive effects of attracting economic activities
Tax Competition (IV)
• How does it start?
• Multiple tax powers
• Potential mobility of Tax bases
• Lack of Harmonisation / Differences in taxation
• Absence of coordination / institutionalloyalty
Tax Arbitrage bycompanies and
individuals
Tax Competition Vs. Tax Arbitrage
• Tax Arbitrage is a private, logic economicbehaviour of individuals and companies.
• Tax Competition is a “game” among jurisdictionstarget at attracting tax arbitrage.
We may identify Tax Arbitrage situations in whichthere is not actual Tax Competition.
Tax Competition –Good orBad? • Race to the bottom/ Fiscal Degradation
• Change of Tax mix
• Efficient allocation of investments
• Limitation of tax power
“Everything depends on our vision of Governments, its role in the economy and the +/- effects of taxharmonization”
However, there is an objectively harmful tax competition
Code of Conduct on Business Taxation (I)
• Council of Economics and Finance Ministers (ECOFIN) of 1 December 1997.
• Not legally binding but it has some political force.
• MS have undertaken to:
• Roll back (existing measures)
• Standstill (avoid future measures)
• Designed to detect only such measures (legal, regulatory or administrative) which unduly affect the location of business activities in the EU.
Code of Conduct on Business Taxation (II)
• 1st criteria: an effective level of taxation which is significantly lower than the general level of taxation in the country.
• 2nd level criteria:
• tax benefits reserved for non-residents;
• tax incentives for activities which are isolated from the domestic economy;
• granting of tax advantages even in the absence of any real economic activity;
• deviation from OECD rules in transfer pricing;
• lack of transparency.
Code of Conduct on Business Taxation (III)
• Code of Conduct Group (Primarolo ): 66 tax measures with harmfulfeatures (40 in EU Member States, 3 in Gibraltar and 23 in dependentor associated territories) + 30 by NMS (EU-25) + 8 (EU-27)
• Relative success in the rollback of harmful measures – june 2003
• State Aid Regime - 10th December 1998 Commission Notice on theapplication of the State aid rules to measures relating to directbusiness taxation 98/C 384/03
• “Monti Pack” – Adoption of other two directives: Savings Directiveand Interest & Royalties
From 2006 -2014
• Mismatches & Hybrids, Relation with 3rd countries, anti-abuse clause
Code of Conduct on Business Taxation (IV)
State Aid Regime (I)
• 107.1 TFUE:
Save as otherwise provided in the Treaties, any aidgranted by a Member State or through Stateresources in any form whatsoever which distorts orthreatens to distort competition by favouringcertain undertakings or the production of certaingoods shall, in so far as it affects trade betweenMember States, be incompatible with the internalmarket.
State Aid Regime (II)
• Tax benefits or tax reductions are considered“aid through State resources”
• The key to identify incompatible state aid is the “selectivity” – certain undertakings
• Theoretically State Aid tend to protectcorporations already set in the State.
• Tax Competition, however tries to attractforeign corporations.
“Is State Aid the right instrument to fight againstHarmful Tax Competition?”
State Aid Regime (III)
• If there is not selectivity (derogation test) – Thereis not incompatible State Aid
• Very close to 1st criteria of the Code of Conduct:“an effective level of taxation which is significantlylower than the general level of taxation in thecountry”
i.e. Ireland had to abolish special 10% CIT formanufacturer Co. However the actual 12,5 % CIT forall companies cannot be identified neither as StateAid nor as a Harmful Measure according to theCode.
State Aid Regime (IV)
• The ECJ 15.11.2011, Cases C-106/09P and C-107/09P, Commission v Government of Gibraltar and United Kingdom, represents a major turning point in the analysis of selectivity in State Aid.
• Is not needed anymore a derogation from the general tax system that benefits only some undertakings.
• There can be Selectivity if the fiscal advantage is granted by the application of a formally general tax system that, nevertheless, discriminates de facto between undertakings in an objectively comparable situation to others in the light of the objective pursued by the tax system.
Cross-border Shopping (I)
• Due to the Advanced harmonisation in indirect taxes, isthere any space to Tax Competition in this field?
• Only through tax rates and under special circunstamces . However we can check many “tax arbitrage situations”
• i.e. VAT – In Electronic Commerce when a particular receives a service from another MS it is taxed at the VATRate of the State where the service provider is set:
Skype, Amazon, AOL – All of them provede their servicesfrom Luxembourg (15% VAT rate)
Is it Tax Competition? – Luxembourg refused to change the VAT allocation rules – They will change in 2016
Cross-border Shopping (II)
• We can identify other CBS situations in productos levied with excise duties:
• Tobacco
• Alcohol
• Gas and Diesel
• Luxembourg is the absolute winner in this game
Cross-border Shopping (III)
Cross-border Shopping (IV)
Cross-border Shopping (V)
Cross-border Shopping (VI)
How can we solve this problem?
• Greater tax rates harmonisation and toprates limits
• Reducing the amount of products aparticular can carry back to its State ofresidence without paying its taxes
• Sharing the revenues (IF-AT system at USAand Canada)
• Bono benzina
