Taxing Multinationals in Europe

30 Pages Posted: 6 Dec 2012

See all articles by Wolfgang Schoen

Wolfgang Schoen

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law

Date Written: December 5, 2012


Within the European Union, there exists a fundamental tension between the fiscal sovereignty of its Member States, in particular in the field of direct taxation, and the requirements of the Internal Market, which aim at the abolition of any regulatory or fiscal obstacles to cross border movement of goods, persons, services and capital. While the impact of secondary European legislation and state aid control is still rather limited, the judicature of the European Court of Justice on the fundamental freedoms has established substantial constraints for national legislators which force Member States to provide equal treatment for purely domestic and cross-border situations. This has a major effect with respect to the taxation of corporate groups as the legislator is obliged to extend benefits for domestic groups to multinational enterprises. The article explains how this affects important elements of the international tax order like relief for intercompany dividends (credit or exemption), deductibility of expenditure related to foreign dividends, intra-group loss compensation, CFC legislation, thin capitalization and interest barriers/debt caps, transfer pricing and exit taxation.

Keywords: multinational enterprises, European tax law, fundamental freedoms, international business taxation, corporate groups

JEL Classification: F15, F23, H25, K34

Suggested Citation

Schön, Wolfgang, Taxing Multinationals in Europe (December 5, 2012). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2012-11, Available at SSRN: or

Wolfgang Schön (Contact Author)

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law ( email )

Marstallplatz 1
Munich, 80539

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