Tax Harmonisation in Europe - The Determination of Corporate Taxable Income in the EU Member States

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp07035.pdf Non-technical SummaryThe diversity of company taxation in the EU causes several distortions and obstacles with respect to cross-border business activities (e.g. problems of double taxation on income, increased compliance costs etc). In order to reduce or even eliminate these distortions, the European Commission has suggested introducing a Common ConsolidatedCorporate Tax Base (CCCTB) for the EU-wide activities of multinationals. A proposal for a directive should be released till the end of 2008. The minimum degree is a harmonised tax base which should be based on a single set of tax accounting principles using the International Financial Reporting Standards (IFRS) as a starting point.The aim of this paper is twofold. First, we want to examine whether and if so, to what extent, the concept of IFRS meets the requirements of a CCCTB so that elements of these standards may be imported into this common base. Second, we estimate the consequences on the effective levels of company tax burdens in selected EU member states if IFRS are considered as a tool for defining the tax base.Concerning the ability of IFRS to serve as a starting point for designing a CCCTB, our analysis reveals that IFRS could provide elements of a common and harmonised European tax base in certain areas. Following our study, these areas could cover the recognition of assets and liabilities, the determination of cost values, amortisation, impairment and treatment of onerous contracts. It also follows that a common tax base would require common standards of loss compensation and the elimination of tax incentives from the tax base (in particular in the field of depreciation). Incentives in the tax base could be substituted by tax credits or grants. However, fair-value accounting is not in line with tax accounting if taxable profits are recognised before realisation. The same would be true with a standard of revenue recognition taking into account that the existence of a signed contract is a valuable asset. Altogether, IFRS provide a widely known and accepted standard of accounting provisions which could be used as a common denominator in developing an independent set of European tax accounting rules. Such a common tax base can, however, not be established by a formal link to IFRS.With respect to the effective tax burdens of caompanies, a transition to tax accounting on the basis of IFRS as considered her...

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