National Tax Policy in Europe: To Be or Not to Be?

266 Pages·2007·4.78 MB·English

by  Krister Andersson

NationalTaxPolicyin Europe
·
Krister Andersson Eva Eberhartinger
Lars Oxelheim (Eds.)
National Tax Policy
in Europe
To Be or Not to Be?
With15 Figuresand 13 Tables
ABC
KristerAndersson LarsOxelheim
ConfederationofSwedishEnterprises LundInstituteofEconomicResearch
Storgatan19 P.O.Box7080
11482Stockholm 22007Lund
Sweden Sweden
[email protected] [email protected]
and
The Research Institute of Industrial Economics
EvaEberhartinger, LL.M P.O. Box 55665
102 15 Stockholm
ViennaUniversityofEconomics
Sweden
andBusinessAdministration
[email protected]
DepartmentofFinanceandAccounting
TaxManagementGroup
Althanstraße39-45
1090Vienna
Austria
[email protected]
LibraryofCongressControlNumber:2007928496
ISBN978-3-540-70709-7 SpringerBerlinHeidelbergNewYork
Thisworkissubjecttocopyright. Allrightsarereserved,whetherthewholeorpartofthematerialis
concerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation,broadcasting,
reproductiononmicrofilmorinanyotherway,andstorageindatabanks.Duplicationofthispublication
orpartsthereofispermittedonlyundertheprovisionsoftheGermanCopyrightLawofSeptember9,
1965,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer.Violations
areliableforprosecutionundertheGermanCopyrightLaw.
SpringerisapartofSpringerScience+BusinessMedia
springer.com
(cid:2)c Springer-VerlagBerlinHeidelberg2007
Theuseofgeneraldescriptivenames,registerednames,trademarks,etc.inthispublicationdoesnotimply,
evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevantprotectivelaws
andregulationsandthereforefreeforgeneraluse.
Typesetting:IntegraSoftwareServicesPvt.Ltd.,Puducherry,India
Coverdesign:WMX Design, Heidelberg
Printedonacid-freepaper SPIN:11982685 543210
Preface
European taxes have long been debated for their potential role as barriers to
increased investment and welfare. The discussion has often circulated around the
size of the tax bases and the magnitude of the tax rate. In this book we argue that in
the taxation context the European Union (EU) is at a cross-road facing strong
forces pushing it into two polar positions. One of these is the scenario with all
welfare provided by the national regime and financed by taxes collected entirely
by national authorities. The other extreme is the situation where all welfare is of-
fered at an EU level financed entirely by taxes collected at that level. The two
forces pressing the tax situation into one of these two poles are spelt tax competi-
tion and welfare arbitrage. The research question addressed in this book covers
the existence of a potential steady state in between these to poles. Our basic hy-
pothesis is that their might be such a steady state due to the immobility of some
tax bases and where the taxation of these bases have no externalities affecting in-
vestment. We argue that the very complex tax structures of Europe and the tax un-
certainty facing investors in Europe need to be addressed in a comprehensive way.
A crucial part of such an analysis is the need for the issues to be discussed in an
interdisciplinary way – containing aspects – in terms of traditional academic prin-
ciples – from Economics to the Political and Legal sciences.
The interdisciplinary approach required for a proper analysis of the multidi-
mensional tax concept and its application makes most traditional scientific jour-
nals less well fitted as outlet for the result of such an analysis. This motivates why
the results are here presented in the form of a book. The process behind the book
was similar to that behind refereed journals. Following presentation of the main
ideas of the project along the lines now appearing in Chapter 1, a number of re-
searcher teams were invited to contribute and to address different parts of the re-
search question while maintaining a European perspective. First drafts were dis-
cussed at a workshop held at the Trolleholm Castle in the south of Sweden in
January 2006. Each contribution was refereed by two of the participating contribu-
tors to the book in addition to the editors and then discussed at a seminar during
the three day meeting where the appointed referees acted as discussant. A second
draft of each chapter was discussed at the annual European Integration conference
of the Swedish Network for European Studies in Economics and Business (SNEE)
in Mölle in May, 2006. Also on this case, each contribution had two appointed
discussants. The final manuscript was then delivered to us at the end of February
2007.
Our greatest gratitude now goes to all those who have contributed different
chapters and participated in the Trolleholm workshop and the Mölle conference.
We are grateful for their efforts and constructive attitudes in working with their
VI Preface
own chapters, but also in reading and commenting on the other contributions. We
would also like to thank colleagues at our home universities and at places where
we are affiliated for their contribution in one way or the other.
We are most thankful to the SNEE for providing necessary support, particularly
for the three-day workshop at Trolleholm. SNEE’s support made it possible to
bring together scholars from many countries and to develop this network of col-
leagues doing research on European taxation issues.

Stockholm, Vienna and Lund in March 2007
Krister Andersson Eva Eberhartinger Lars Oxelheim
Table of Contents

List of Contributors............................................................................................XI

1. The Role of National Tax Policies in the European Union...........................1
Krister Andersson, Eva Eberhartinger and Lars Oxelheim
1.1 Introduction.................................................................................................1
1.2 Taxation and the Changing Economic and Legal Environment..................2
1.3 Research on National Tax Policy................................................................6
1.4 Content and Structure of the Book..............................................................7
1.5 Preview of Conclusions..............................................................................9
Reference.........................................................................................................10

2. Corporate Income Tax Competition and the Scope
for National Tax Policy in the Enlarged Europe.........................................11
Christian Bellak and Markus Leibrecht
2.1 Introduction...............................................................................................11
2.2 Definitions and Preconditions of Tax Competition...................................12
2.3 Measures of the Tax Burden on Corporate Income...................................15
2.4 Changes in the CEECs’ Corporate Income Taxation
Between 1995 and 2005............................................................................18
2.5 Empirical Results on Tax-Rate Elasticities of FDI in the CEEC-8............24
2.6 Should and Will There Be a Scope for National Tax Policy
Within the EU in the Future?....................................................................31
References........................................................................................................37

3. Free Factor Mobility and Fiscal Competition: Can the National
Welfare State Survive in a “United Europe”?.............................................45
Åsa Hansson
3.1 Introduction...............................................................................................45
3.2 The Welfare State in Europe.....................................................................46
3.3 The Threat to the National Welfare State in Europe
from Free Factor Mobility.........................................................................48
3.4 What Can and Should Be Done to Protect The National
Welfare State?...........................................................................................59
3.5 Concluding Remarks on the Survival of the Welfare State
in a “United Europe”.................................................................................64
References........................................................................................................65
VIII Table of Contents
4. Fiscal Competition and Activist Social Policy.............................................69
Ulrike Schneider and August Österle
4.1 Introduction...............................................................................................69
4.2 United We Stand – Diverse We Move......................................................70
4.3 When Social Policy Goes Limbo Dancing: Fiscal Competition
and the Welfare State................................................................................73
4.4 The Tail Wags the Dog: Passive Integration of Social Policy.................74
4.5 Can the Horse Get Back in Front of the Cart Again?
Options for Active Integration..................................................................76
4.6 Concluding Remarks on European Tax Competition
and Social Policy Integration....................................................................81
References.......................................................................................................82

5. An Optional Common Consolidated Corporate Tax Base
in the European Union..................................................................................85
Krister Andersson
5.1 Introduction...............................................................................................85
5.2 Business Taxation in Europe.....................................................................86
5.3 Tax Policy in the New Member Countries................................................91
5.4 Challenges in the Corporate Tax Area......................................................93
5.5 Reforming Corporate Taxation in the EU – CCCTB................................97
5.6 Economic, Legal and Cultural Barriers to a Common
Business Taxation...................................................................................115
5.7 Concluding Remarks on a Common Consolidated Corporate
Tax Base in Europe.................................................................................116
References.....................................................................................................118

6. The Influence of the European State Aid Rules
on National Tax Policy................................................................................121
Franz Philipp Sutter
6.1 Introduction.............................................................................................121
6.2 The State Aid Prohibition af Art 87 EC and its Development
into a Sort of European Equality Test for National
Business (Tax) Legislation.....................................................................124
6.3 The EC State Aid Control and its Direct Impact on National Law.........134
6.4 The Political Dimension of the European State Aid Rules
and Their Implications for National Tax Policy......................................146
6.5 Concluding Remarks on the Role of European State
Aid Rules on National Tax Policy..........................................................149
References.....................................................................................................163

7. The European Court of Justice and Direct Taxation:
A Recent Change of Direction?..................................................................165
Mattias Dahlberg
7.1 Introduction.............................................................................................165
7.2 Background.............................................................................................166
7.3 Objectively Comparable Situations........................................................167
Table of Contents I X
7.4 Grounds of Justification in the General Interest......................................176
7.5 Critique of the Structural Attempt by AG Geelhoed...............................179
7.6 On Pending and Forthcoming Cases
Before the European Court of Justice.....................................................183
7.7 Concluding Remarks on the Change of Direction
of the European Court of Justice.............................................................184
References......................................................................................................189

8. Tax Treaty Policy.........................................................................................191
Michael Lang
8.1 Introduction.............................................................................................191
8.2 Room for Tax Treaty Policy under EC Law...........................................191
8.3 Room for Domestic Tax Policy under Tax Treaty Law..........................206
8.4 Concluding Remarks on the Tax Treaty Policy......................................209
References......................................................................................................211

9. National Tax Policy, the Directives and Hybrid Finance.........................213
Eva Eberhartinger and Martin Six
9.1 Introduction.............................................................................................213
9.2 Hybrid Finance - The Problem................................................................214
9.3 The Implementation of the Directives into National Law.......................215
9.4 The Parent-Subsidiary Directive.............................................................218
9.5 The Interest and Royalties Directive.......................................................221
9.6 Hybrid Finance in the Directives............................................................225
9.7 Concluding Remarks on Hybrid Finance and National Tax Policy........229
References......................................................................................................235

10. The Room for National Tax Policy in the Future Europe........................237
Krister Andersson, Eva Eberhartinger and Lars Oxelheim
10.1 Introduction...........................................................................................237
10.2 Trends and Tendencies for National Tax Policy...................................242
10.3 Features of a Sustainable Room for National
Tax Policy – the Steady State...............................................................245
Reference.......................................................................................................246

Index...................................................................................................................247
List of Contributors
Krister Andersson is Head of the Tax Policy Department, Confederation of
Swedish Enterprise. Since 2005, he has been Chairman of the Fiscal Affairs Group
of BUSINESSEEUROPE (formerly the UNICE), Brussels. He served as an expert
to the European Commission on its Corporate Tax Study (published in 2001). He
is assistant professor (Docent) in Economics at Lund University and he has
worked for the International Monetary Fund and as Chief economist of the Swedish
Central Bank. He is a board member of the Swedish National Tax Authority, the
Swedish IFA branch, and the Association of Industry Treasurers. He is also a
member of the BIAC Taxation and Fiscal Policy Committee and the International
Chamber of Commerce Tax Commission, in Paris.
Christian Bellak is associate professor at the Vienna University of Economics
and Business Administration in Vienna. His research interests are centered around
foreign direct investment, industrial and tax policy, internationalization, interna-
tional business and multinational enterprises. Dr. Bellak’s research within these
areas has appeared in numerous books, and in journals such as Oxford Bulletin of
Economics and Statistics, Journal of International Money and Finance, Transna-
tional Corporations, and Applied Economics. He has also acted as advisor on in-
dustrial policy to UNCTAD, The World Economic Forum and to various commit-
tees and working groups within the Austrian federal administration.

Mattias Dahlberg is professor of finance law at Uppsala University in Uppsala,
Sweden. His main research area is European tax law, and recent publications in-
clude the book Direct Taxation in Relation to the Freedom of Establishment and
the Free Movement of Capital (Kluwer Law International, 2005). His previous ar-
ticles and notes have appeared in major tax law outlets, such as European Taxa-
tion, Cahier de Droit Fiscal International, Scandinavian Studies in Law, and In-
tertax. Professor Dahlberg is the editor of the Swedish tax law journal Skattenytt,
and has previously held positions at the Stockholm School of Economics.

Eva Eberhartinger is professor and Head of the Tax Management Department at
the Vienna University of Economics and Business Administration. Her research
focuses on international taxation, finance and taxation, tax management, and in-
ternational and European financial reporting. Her research within these areas is
published in numerous articles and shorter commentaries in Austrian and interna-
tional professional and academic journals, and as chapters in books, and she is the
author or (co)editor of over a dozen books. Professor Eberhartinger has spent time
as a visiting researcher at the University of Illinois at Urbana-Champaign (USA),
the University of Exeter (GB), the Ecole des Hautes Etudes Commerciales (HEC)
XII List of Contributors
in Paris, and at McGill University in Montreal. Before assuming her present posi-
tion in Vienna, she was professor at the University of Münster, Germany.

Åsa Hansson is assistant professor in economics at the Department of Economics
at Lund University, fellow researcher at the RATIO institute, and currently visit-
ing the Department of Economics at Copenhagen University. Åsa’s main research
interest is in economics of taxation. She has written and published on topics rang-
ing from the effects of taxes on the macro economy (e.g., growth and employ-
ment) to how taxation affect individuals’ and firms’ behavior, as well as several
papers studying the effect of globalization on taxes and public spending.

Michael Lang is professor and Head of the Department of Austrian and Interna-
tional Tax Law at the Vienna University of Economics and Business Administra-
tion. He is the author of more than 300 journal articles, book contributions, and
commentaries, and author or (co)editor of numerous research monographs. He is
also editor of a number of professional journals and book series on Austrian and
international tax law. Other professional activities include the presidency of the
Austrian branch of the International Fiscal Association, and membership of the
Academic Committee of the European Association of Tax Law Professors. Be-
tween 2000 and 2004, he was a partner with Deloitte Austria. Professor Lang has
won several awards for teaching excellence and for academic achievements, and
has held visiting positions at Université de Paris I (Sorbonne), and the New York
University School of Law.
Markus Leibrecht is assistant professor at the Vienna University of Economics
and Business Administration in Vienna, Austria. He specializes in the areas of
public finance and applied econometrics. Dr. Leibrecht’s research has appeared in
books as well as in journals such as Applied Economics, Open Economies Review,
Structural Change and Economic Dynamics, Applied Economics Letters and
Austrian Journal of Statistics.

August Österle is associate professor at the Vienna University of Economics and
Business Administration in Vienna. His research interests include the economics of
ageing, health economics, economic and social policy, and European integration,
and he is the author of a half-dozen books and numerous journal articles and book
chapters within these areas. Dr. Österle has previously held visiting positions at the
University of Bath and the London School of Economics and Political Science, UK,
and a Jean Monnet Fellowship at the European University Institute in Florence,
Italy. He is the recipient of several awards both for his teaching and for his research.

Lars Oxelheim holds a chair in International Business and Finance at Lund
University, Lund, and is an affiliate of the Research Institute of Industrial Eco-
nomics, Stockholm and of the Fudan University, Shanghai. His current research
focuses on the implications of macroeconomic disturbances for corporate per-
formance and issues related to economic and financial integration. He has pub-
lished some 25 books and numerous articles in the areas of international business
and finance, corporate finance and corporate governance. Among his recent