political revue


Year LVIII, 2016, Single Issue, Page 60






With its two recent proposals for Council directives,[1] the European Commission has, once again, brought the issue of the harmonisation of corporate tax bases into the spotlight, its aim being, initially, to introduce a single criterion for determining the common tax base, and at a later stage to move on to the issue of a consolidated tax base. The proposed regimes — these would be mandatory for EU groups with a total consolidated group revenue exceeding €750 million and for non-EU groups that generate such a revenue in the territory of the Union, and optional for corporations with a lower revenue — would not involve the imposition of a single rate across the EU territory, only the establishment of criteria for determining taxable profits. It is a scheme that would not allow derogations through individual agreements and that should lead to lower administrative costs for businesses operating in several member states; furthermore, certain profits, such as investments in research and development, would not be taxable.

The idea of introducing a common corporate tax base actually dates back to 2011, when the Commission first issued a proposal for a Council directive on a set of common rules for computing the tax base of European companies.[2] However, that proposal, which envisaged an optional regime, was opposed by some member states and never resulted in an act of the European Union.

The European Commission’s latest attempt to propose common rules in this field may be seen as a response to recent tax scandals, especially the one involving the Apple companies in Ireland. The Commission has declared that Ireland’s fiscal treatment of these companies is illegal under EU state aid rules,[3] and that, as a result, the Irish government must recover the unpaid taxes, which amount to around €13 billion, plus interest. This particular affair has attracted more media attention than others not just because of the huge amount of money involved, but also because the Irish government has indicated that it (like Apple) intends to appeal against the Commission’s decision; indeed, it is unwilling to recover the sum in question for fear of losing its status as a tax haven for multinational corporations. This situation arose because Ireland had previously issued Apple Sales International and Apple Operations Europe, two Irish incorporated companies, a tax ruling that allowed them to allocate the majority of their profits to a “head office” that, not being based in any country and having no employees or premises of its own, did not actually exist; consequently, these profits were not taxed anywhere. According to figures released during US Senate public hearings, Apple Sales International recorded profits of around €16 billion in 2011, but as an effect of the tax ruling only a small proportion of this total (€50 million) was considered taxable in Ireland: as a result, the corporate tax effectively paid by Apple Sales International corresponded to a rate of 0.05% on its overall annual profits.

This affair, like the other tax scandals that have come to light in recent years, raises the issue of the fiscal sovereignty of the EU member states and the impact that EU law has on it. Even though the power to levy taxes remains exclusively in the hands of the member states and the European Union has no fiscal capacity of its own, there can be no doubt that European Union law does, to some extent, interfere with this sphere of state action.

As a case in point, the Apple/Ireland affair seems to have arisen from two conditions: first, the fiscal sovereignty of the member states, which allows each one to decide, independently, its tax treatment of companies operating on its territory, and second, the freedom of movement provided for under the Treaties, which allows enterprises to move around freely within the Union. As a result of the coexistence of these conditions, together with the absence of a harmonised fiscal system, multinationals seek to transfer their profits to the member states where the tax burden is lowest; at the same time, the member states become engaged in an out-and-out fiscal race, competing with each other to lower their tax rates so as to encourage investments in their territory and protect their tax base.

The measures provided by EU law for countering such behaviours are actually rather weak. Specifically, with regard to the possibility, for companies, of taking advantage of the freedom of movement provisions in order to transfer profits to countries with more favourable rates of taxation, the European Court of Justice (Halifax[4] and Cadbury Schweppes[5]judgments) has underlined that this conduct, perfectly legal if it corresponds to effective business transactions, is prohibited only in cases in which a company creates fictitious scenarios (i.e. not corresponding to its true business activities) solely for the purpose of wrongfully obtaining advantages provided by Community law. Furthermore, the EU does not prohibit member states from applying favourable tax rates to companies operating on their territory; what it does prohibit is the selective granting of preferential treatment to certain companies, as this conduct would harm competition and violate the state aid rules.

However, the coexistence of 28 different tax systems undoubtedly makes it hard for smaller enterprises to conduct business within the territories of a number of member states, as it is more difficult for them than for large multinationals to form a clear picture of the applicable tax regulations. A harmonised corporate tax base would serve, precisely, to simplify this picture. Although it would not in fact entail the imposition of a single rate of taxation, it would make it possible to establish what profits are taxable and in which member state they are payable, and would also significantly reduce administrative costs, especially for medium and small enterprises. The Commission has estimated that, under the proposed Common Consolidated Corporate Tax Base regime, the costs, to these enterprises, of opening a subsidiary abroad could in fact fall by as much as 67%, while they could see an up to 30% reduction in their tax burden.

In view of Apple’s tax affairs in Ireland, the issue of fiscal sovereignty also clearly needs to be addressed from another, more strictly macroeconomic, perspective. In fact, the Irish government’s intention to contest the Commission’s decision concerning the recovery of the aid and thus, ultimately, to forgo €13 billion, provides a clear illustration of just how important it has become for some eurozone countries to implement a fiscal policy aimed at attracting investments within their territory, given that they are no longer able to use monetary policy instruments to achieve their macroeconomic objectives. As Apple pointed out in a letter to the Apple Community in Europe following the Commission’s decision, this decision, should it be upheld, “would strike a devastating blow to the sovereignty of EU member states over their own tax matters”.

It should nevertheless be stressed that it is an illusion to believe that member states are entirely sovereign in fiscal matters. Although back in the 1970s, the Werner Plan, envisaging the possibility of a single currency, insisted that monetary policy could not be separated from economic and fiscal policy, the choices made in Maastricht, namely to transfer monetary policy to European level and leave economic policy and fiscal policy in the hands of the member states while coordinating them at European level, went entirely against this. The economic and financial crisis of recent years, creating a need for increasingly stringent measures to coordinate the economic and budgetary policies of the eurozone countries, and effectively leading the European institutions to interfere more and more in the areas that are still the responsibility of the member states, has certainly shown this model to be unsustainable. Although fiscal policy continues to be considered one of the cornerstones of state sovereignty, this is clearly true more in theory than in practice: indeed, many decisions concerning the choice and use of fiscal resources are now dictated by Europe.

As a result of a reluctance to take the important step of transferring economic and fiscal policy competences to supranational level, we are now left with a situation in which there is no longer any level of government equipped with effective economic policy tools — a situation that has serious implications from a democratic legitimacy perspective. Indeed, what we are seeing in the euro area today is an erosion of the power of the states to exercise their fiscal powers autonomously and, as a result, an erosion of the power of the citizens to control, through the national parliaments, the management of these powers; at the same time, increasingly stringent supervisory powers are being transferred to a level (the European one) where there is no democratically legitimated government. As a result, the power to determine the orientation of the eurozone member states’ fiscal policies is in the hands of organs over which the citizens have no control. This is a contradictory situation that can be remedied only by linking monetary with fiscal policy, in short by creating a eurozone fiscal capacity under the supervision of the European Parliament.

Giulia Rossolillo

[1] Proposal for a Council directive on a Common Corporate Tax Base, COM(2016) 685 final, 25.10.2016 and Proposal for a Council directive on a Common Consolidated Corporate Tax Base (CCCTB) COM(2016) 683 final, 25.10.2016.

[2] Proposal for a Council directive on a Common Consolidated Corporate Tax Base (CCCTB), COM(2011) 121 final, 16.3.2011.

[3] Cf. European Commission – Press release, 30 August 2016 (

[4] ECJ, judgment of 21 February 2006, case C-255/02, Halifax and others.

[5] ECJ, judgment of 12 September 2006, case C-196/04, Cadbury Schweppes.



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