Decline of CFC Rules and Rise of IP Boxes: How the ECJ Affects Tax Competition and Economic Distortions in Europe

37 Pages Posted: 19 Aug 2015

See all articles by Rainer Bräutigam

Rainer Bräutigam

ZEW – Leibniz Centre for European Economic Research

Christoph Spengel

Centre for European Economic Research (ZEW)

Frank Streif

ZEW – Leibniz Centre for European Economic Research

Date Written: August 2015

Abstract

The European Court of Justice (ECJ) has become an influential player in the field of direct taxation in the European Union in the past twenty years. However, it is unclear whether the ECJ’s decisions actually increase tax neutrality and therefore contribute to the achievement of an internal market as stipulated by the European treaties or not. In 2006, the ECJ limited the applicability of specific tax rules in Europe that are intended to prohibit the excessive use of low-tax countries. Our counterfactual scenarios show that this restriction of so-called controlled foreign company (CFC) rules and the related emergence of IP boxes cast doubt on the positive effects the ECJ is assumed to have.Additionally, we show that the abolishment of IP boxes would strengthen tax neutrality in Europe. Overall, further research is needed to relate and harmonise economic and legal concepts of tax neutrality.

Keywords: European Court of Justice, Tax Neutrality, Effective Tax Rates, Controlled Foreign Company Rules, Intellectual Property Boxes

JEL Classification: H21, K10

Suggested Citation

Bräutigam, Rainer and Spengel, Christoph and Streif, Frank, Decline of CFC Rules and Rise of IP Boxes: How the ECJ Affects Tax Competition and Economic Distortions in Europe (August 2015). ZEW - Centre for European Economic Research Discussion Paper No. 15-055, Available at SSRN: https://ssrn.com/abstract=2646477 or http://dx.doi.org/10.2139/ssrn.2646477

Rainer Bräutigam (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

Frank Streif

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
169
Abstract Views
857
rank
213,892
PlumX Metrics