EU Company Taxation in Case of a Common Tax Base

38 Pages Posted: 9 Aug 2005 Last revised: 11 Sep 2018

See all articles by Otto H. Jacobs

Otto H. Jacobs

University of Mannheim - School of Business Administration (BWL)

Christoph Spengel

Centre for European Economic Research (ZEW)

Thorsten Stetter

Center for European Economic Research (ZEW)

Carsten Wendt

Center for European Economic Research (ZEW)

Date Written: 2005

Abstract

Within the EU the relation between financial and tax accounting will be significantly influenced by the regulation adopted in June 2002 that obliges all listed companies to prepare their consolidated accounts according to International Accounting Standards/International Financial Reporting Standards (IAS/IFRS). Since dependency of financial and tax accounting according to different degrees prevails in all EU member states a linkage between IAS/IFRS and tax accounting seems to be possible. Compared to national GAAP the advantage of IAS/IFRS as a starting point for tax accounting derives from the advantages of the creation of a common tax base in the EU. However, the adoption of IAS/IFRS has to be restricted to those standards that are convenient for tax purposes. In particular, this means that tax accounting still has to follow the realisation principle as a general principle; the IAS/IFRS "fair value-accounting" therefore cannot be adopted for tax purposes.

In this paper we present estimates for the consequences of IAS/IFRS-based tax accounting on the comparative effective tax burdens of companies in 13 countries (Austria, Belgium, the Czech Republic, France, Germany, Hungary, Ireland, Latvia, the Netherlands, Poland, Slovakia, the United Kingdom, and the USA). Therefore, certain provisions of IAS/IFRS were considered as a starting point for the tax base. The effective tax burdens are calculated on the basis of the European Tax Analyzer model which was enhanced for the purposes of this study. A further question arises as to what extent an exclusive harmonisation of the tax base will effectively reduce the current EU-wide differences of effective company tax burdens. It turns out that a common tax base cannot alleviate the current EU-wide differences of effective company tax burdens. A major finding of our study reveals that the effective tax burdens in all countries considered here (except Ireland) tend to increase slightly since the tax bases tend to become broader. This offers the possibility to member states to reduce the nominal tax rate leaving the overall effective tax burden unchanged. A tax policy of tax cut cum base broadening would not only tend to increase the attractiveness of the member states as a location for companies. At the same time, this would reduce dispersions of effective tax burdens across industries. Therefore, such a tax policy is in line of the long term Community goals to become more competitive in international terms.

Keywords: International Company Taxation, Effective Tax Burden, Tax Accounting

JEL Classification: H21, H25

Suggested Citation

Jacobs, Otto H. and Spengel, Christoph and Stetter, Thorsten and Wendt, Carsten, EU Company Taxation in Case of a Common Tax Base (2005). ZEW - Centre for European Economic Research Discussion Paper No. 05-037, Available at SSRN: https://ssrn.com/abstract=771951 or http://dx.doi.org/10.2139/ssrn.771951

Otto H. Jacobs (Contact Author)

University of Mannheim - School of Business Administration (BWL) ( email )

40, Boulevard du Pont-d'Arve
Case Postale 3
1211 Geneva
Germany
++49 / (0)621 / 181 - 1703 (Phone)
++49 / (0)621 / 181 - 1707 (Fax)

Christoph Spengel

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany

Thorsten Stetter

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Carsten Wendt

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

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