Playing Different Games? Regulatory Competition in Tax and Company Law Compared
Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law
April 1, 2005
Common Market Law Review, Vol. 42, No. 2, pp. 331-335, 2005
Modern economic writing regards the influence of market forces on legislation to be a major improvement to the quality of rule-making. This holds specifically true in the area of company law and tax law, which shape the framework for business activities like few other fields of law and have lead to increasing institutional competition among legislators. This article aims to analyse the rules and mechanics of the “competition game”, which work different in both legal fields.
Through a comparison of U.S. and EC law it shows that in the area of company law both the product and its price are specified, while in the case of taxation the product is composed of a whole “bundle” of public goods. A comparison of both settings shows that the specificity of company law bears advantages as to the efficient allocation of resources and should not be given up by binding the availability of legal forms to taxation rights, as is the case in Delaware and its “franchise tax”. However, the specificity of company law also has its drawbacks, namely the necessary “cooperation” with other fields of regulation (such as creditor protection and labour relations). In this regard, the article discusses the fundamental problem that the possibility of corporate reorganisation in the European Internal Market through cross-border reincorporation or transfer of seat allows European companies a “pick-and-choose” approach, which threatens to undermine the functional “complementarity” between different parts of a legal system.
The comparison of the different mechanics of company and tax law competition also reveals frictions that weaken its positive effects on the allocation of resources within an economy, namely arising from principal agent issues. In addition, both company and tax law have to deal with externalities and “spill over-effects” which may lead to underprovision of public goods and discriminatory effects. Finally, the article identifies positive effects on regulatory development that result from “vertical competition” between senior legislators at the federal or Community level and domestic rule makers.
Number of Pages in PDF File: 40
Keywords: International Tax Law, Tax Regulation, Company Law regulation, Tax Competition, Corporate Tax law, Comparative Corporate GovernanceAccepted Paper Series
Date posted: April 16, 2010
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